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Mid-Year Tax Planning: What Closely-Held Business Owners Should Know for 2018

Posted by Concannon Miller on Tue, Jul 10, 2018

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mid year tax planning for businessesFederal tax reform through the Tax Cuts and Jobs Act makes sweeping changes. But some of the new provisions won't necessarily be relevant to your closely-held business. Here's a quick reference guide to the major changes under the new law to help you understand what's changing.

In general, these changes are effective for tax years beginning after December 31, 2017. For businesses, these changes are permanent, unless otherwise noted.

Buzzwords Effects on Business Taxes
Alternative minimum tax (AMT) Repeals AMT for corporations.
Bonus depreciation Significantly expands first-year deductions but only temporarily.
Cash-basis accounting 

Increases the annual gross-receipts threshold for eligibility to use this simplified reporting method.

Corporate tax rate

Installs a flat 21% tax rate that also applies to personal service corporations.

Cost segregation studies

Changes the depreciation rules and recovery periods; may warrant a study to reclassify certain costs, thereby accelerating deductions.

Domestic production activities deduction (DPAD)            

Eliminates this break, also known as the manufacturers' deduction under Section 199.

Entertainment deductions

Reduces or eliminates tax breaks for business entertainment.

Entity choice

Introduces new considerations when deciding on business structure; applies 1) temporary changes for 2018 through 2025 to owners of pass-through entities and 2) permanent changes to C corporations.

Family and medical leave programs

Provides a new credit for employers.

Foreign operations

Provides tax incentives to repatriate foreign income and conduct operations in the United States.

Fringe benefits

Eliminates deductions for the cost of providing certain transportation-related employee benefits.

Interest expense deductions

Repeals the earnings stripping rules; provides new limits on interest expense deductions, with several exceptions.

Like-kind exchanges

Eliminates Section 1031 like-kind exchanges for exchanges of personal property; retains Section 1031 for exchanges of real estate.

Loan balances for departing employees

Introduces new rules for employees with outstanding 401(k) loan balances.

Long-term construction contracts

Expands the exception from the requirement to use the percentage-of-completion (PCM) method to report income from long-term construction contracts.

Meal expenses    

Allows 50% deductions for on-premises cafeterias and meals provided for the convenience of employers for 2018 through 2025; eliminates these deductions after 2025.

Moving expenses  

Requires employers to include job-related moving expense reimbursements as taxable income on employees' W-2s (except for active-duty members of the military) for 2018 through 2025.

Net operating loss (NOL) deductions  

Imposes new limits; disallows NOL carrybacks but allows indefinite NOL carryforwards.

Owners' compensation

May affect pass-through income deduction for qualified business income (below).

Pass-through income deduction for qualified business income (QBI)

Creates a new deduction for sole proprietorships, limited liability companies (LLCs), partnerships and S corporations that's subject to numerous restrictions and available only from 2018 through 2025.

Recovery periods

Reduces the recovery periods for qualified improvement property; simplifies the rules.

Research costs

Requires specified research or experimental expenditures to be capitalized and amortized rather than currently deducted; goes into effect in 2022.

Section 179 expensing

Permanently liberalizes the Section 179 first-year depreciation rules.

Share-based payments

Allows qualified employees who exercise these instruments to defer related income for up to five years; may encourage private companies to issue these awards and employees to exercise them.

Uniform capitalization (UNICAP)

Expands the exception for small taxpayers from the requirement to follow the complicated UNICAP rules for inventory accounting.

Vehicle deductions

Makes temporary and permanent favorable changes to depreciation rules for vehicles used more than 50% for business.

Also, be aware that federal tax law changes could affect state income tax obligations. This trickle-down effect will create uncertainty as states decide whether to conform to or decouple from the changes to the federal rules.

READ MORE: Our Comprehensive Tax Reform Resources Guide

Contact Us

In the wake of the new tax law, midyear tax planning meetings are critical for business owners. We've provided only abbreviated explanations of each issue listed above. Contact us to discuss the details of the relevant provisions to determine how the changes will affect your tax situation for 2018 and beyond.

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© 2018

Topics: Business tax planning, 2017 Federal Tax Reform

Concannon Miller’s unique, holistic and intimate approach to financial health sets us apart from smaller CPA firms with more limited resources as well as mega firms where mid-sized clients struggle for attention. Contact us here to talk about improving your business.

This communication is designed to provide accurate and authoritative information in regard to the subject matter covered at the time it was published. However, the general information herein is not intended to be nor should it be treated as tax, legal, or accounting advice. Additional issues could exist that would affect the tax treatment of a specific transaction and, therefore, taxpayers should seek advice from an independent tax advisor based on their particular circumstances before acting on any information presented. This information is not intended to be nor can it be used by any taxpayer for the purposes of avoiding tax penalties.

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