How do the new laws impact your business?
The 2017 Tax Cuts and Jobs Act implemented by President Trump was easily the most sweeping tax legislation change since 1986, and because of that, many significant changes to business operations are required in order to maximize profits.
I’d like to share information that may be helpful to you as we approach this upcoming tax season. It’s imperative that companies seek thorough analysis from their CPAs and Tax advisors concerning their operations and how to effectively save the most dollars under the Tax Cuts and Jobs Act.
Here are just a few key regulations now in effect that require thorough analysis:
- Change of Entity Status:
The highest tax rate for C-Corporations is 21%. Because of this, you must take careful consideration in changing your entity status, from a partnership, Subchapter S-Corporation, or sole proprietorship. There can be dramatic changes in tax for your business, which may or may not be favorable.
- Qualified Business Income Deductions:
A majority of businesses can take advantage of the Qualified Business Income (QBI) under President Trump’s 2017 Tax Cuts and Jobs Act. The regulation replaces and eliminates the old Domestic Production Activities Deduction (DPAD) and replaces it with QBI. In its most simplistic form, if a company has a net operating income (NOI) of $1 million, it is not taxed on the full amount. It is allowed a “paper deduction” of 20% or in this case $200,000 resulting only $800,000 being taxed. However, qualifying a business and its respective types of income is highly detailed and complex. A sampling of the critical guidance contained follows:
- Partnership guaranteed payments are not considered in QBI.
- Any carryover before 2018 or any Net Operating Losses from previous years is not a part of QBI.
- The 20% deduction for QBI does not remove net earnings from self-employment or net investment income under the rules for the 3.8% (Obamacare) surtax on net investment income.
- The rule generally barring a health services business from being a qualified trade or business doesn’t include the provision of services not directly related to a medical field, even though the services may purportedly relate to the health of the service recipient. For example, the performance of services in the field of health does not include the operation of health clubs or health spas that provide physical exercise or conditioning to their customers, payment processing, or research, testing, and manufacture and/or sales of pharmaceuticals or medical devices.
- Depreciation: Bonus depreciation may be claimed for used property.
The TCJA boosted the first-year bonus depreciation allowance from 50% to 100% for qualified property acquired and placed in service after Sept. 27, 2017, and before Jan. 1, 2023.That means a business can write off the cost of most machinery and equipment in the year it’s placed in service. And, for the first time ever, for property acquired and placed in service after Sept. 27, 2017, bonus depreciation may be claimed for both used and new equipment.
- Change of Entity Status:
These regulations, among many others, are all significant changes that can drastically affect your bottom line and business growth. We’re continually providing in-depth analysis for our clients, ensuring that they’re not only filing on time but strategically maximizing every opportunity to save money. If you have any questions about these regulations or any other, we welcome the opportunity to meet with you about your business.
Feel free to call us any time at (207) 782-6231 to schedule an appointment with me and my team. Best of luck in your endeavors in the future.