There are a multitude of resources out there that are covering all of the highlights of HR 1 – Tax Cuts and Jobs Act. They do a great job of covering the rates, brackets, popular deductions, depreciation, and other big ticket items, but until you read through the entire bill, there’s a TON of stuff that you’re missing … which is where we come in.
This is going to be an overview of the provisions in the bill that aren’t being talked about, but have great potential to impact your business. This is still a moving target – we’re still getting details on the Senate version and amendments to the House version as I type this, but we didn’t want to wait any longer. Here goes …
Does your business have less than $25 million in gross receipts? If not, you can go to the next section. If so, congratulations … you would be eligible for the following under HR 1 (if you weren’t before):
- Cash method of accounting
- Inventory – who needs it? You can just account for your inventory as non-incidental materials and supplies (i.e. deductible upon purchase).
- UNICAP (IRC Section 263A) – GONE
- Completed-contract method
- Interest expense – there’s a nasty limitation on net interest expense for businesses (see below) – congratulations – doesn’t apply to you.
Festivus for the rest of us … here goes:
- Interest expense – limited to 30% of your adjusted taxable income (taxable income plus interest expense, less interest income, plus depreciation, amortization, depletion, and NOL.
- Net operating losses – limited to 90% of your pre-NOL taxable income (AMT say what?), and carrybacks are generally gone.
- Like-kind exchanges – if they’re not for real property, forget it.
- Capital contributions – any contributions to capital in excess of the FMV of the ownership stake received would be taxable to the company.
- 199 Deduction – GONE
- Entertainment expenses – you can increase the amount that’s non-deductible by 50 percentage points (see what I did there?)
- Partnerships – technical terminations no longer exist (woohoo!)
- Historic rehabilitation credit – GONE
- Work opportunity credit – GONE
- Carryover of unused business credits – you can’t anymore
- Non-qualified deferred compensation – it’s no longer deferred – it’s taxable once it’s no longer dependent upon the performance of future services. UPDATE – this has been removed in the latest round of amendments
- Public Companies – the exceptions for commissions and performance-based compensation contained within IRC Section 162(m) – GONE – any compensation over $1m would be nondeductible.
There’s still a ton of work to be done here, and a ton of details need to be worked out, but we wanted everyone out there to be made aware of the not-so-popular topics of discussion surrounding tax reform.
As always, if you have any questions, please let us know!