In December 2017, with the passing of the new Tax bill (known as the Tax Cuts and Jobs Act), it has been unclear to many small businesses as to the benefits and/or drawbacks of this new realm of taxation. This new tax implementation has been the most dramatic change our country has seen in approximately three decades! This huge change will mean a lot of modifications that most are unfamiliar with. We know it’s a lot of information to digest in such a short time so here’s a brief breakdown of what this is and what this could mean for you and your business.
We at PPMT Strategic have compiled a list of changes which you should know about for 2018:
What is the Tax Cuts and Jobs Act?
The House of Representatives passed the Tax Cuts and Jobs Act on November 16th and then by the Senate on December 2nd. It was then signed into law by President Trump on December 22nd. This tax law will theoretically be able to generate more than $600 billion in additional revenue over the next ten years for our country. This tax reform provides about $1.4 billion in tax cuts due to the changes to corporate tax rates, as well as, individual income tax rates. While most of the corporate tax rates will remain permanent, the individual tax rates are only temporary and will expire at the end of 2025.
What should businesses know:
The Tax Cuts and Jobs Act provides businesses with many tax cuts to help boost our economy by allowing businesses to save money. Here is a list of what you should know:
- As of January 1, 2018, the C corporate income tax rate was permanently lowered to 21%, effective
- The corporate Alternative Minimum Tax (AMT) was repealed for tax years starting after December 31, 2017.
- The Section 179 tax deduction limit for 2018 was doubled from last year from $500,000 to $1 million, and the phase-out amount jumped to $2.5 million.
- Bonus depreciation increased from 50% to 100% on qualifying business equipment through 2022. This will decrease to 80% in 2023, 60% in 2024, 40% in 2025, and 20% in 2026.
- Qualifying used business equipment is now eligible for bonus depreciation.
- The depreciation limits on passenger cars used for business increased to $10,000 in year one, $16,000 in year two, $9,600 in year three, and $5,760 in years four and beyond.
- Some pass-through businesses can claim a 20% deduction on qualified business income.
- Net operating loss (NOLS) carrybacks were eliminated, and net operating loss carryforwards are limited to 80% of taxed income.
- Business interest deduction is now capped at 30% of earnings before EBITDA from 2018 to 2022.
- Businesses with $25 million or less in annual revenue can use the cash method of accounting instead of the accrual method. Last year, the annual revenue threshold was $5 million, so this is a $20 million increase.
2018 is the year to invest back into your business! Small business owners have a great opportunity to invest in their companies because of the lower corporate tax rate and increased expensing limits and tax credits. So if you are in the market to finally expand your business, we at PPMT Strategic Group can help! Call us at 646 258 5358 or send us an email at firstname.lastname@example.org!