Tax Reform Roundup: What Your Business Needs to Know
It may not feel like it, but tax season is right around the corner, and that means it’s critical to understand how changes resulting from the Tax Cuts and Jobs Act are going to impact your business. Whether you’re a multi-national corporation or a small business operating with one location, these tax reform changes present both challenges and opportunities for businesses in 2019.
We’ve compiled Insights highlighting and explaining tax reform changes for businesses from the past year. From employer deductions to credits and incentives to accounting method changes, these changes should be carefully reviewed in advance of your 2018 business tax filings. To review any of the below provisions in more detail with our Tax Team, please reach out.
- Accounting Method Changes
- ASC 740 Income Tax Accounting
- Business Interest Expenses
- Depreciation & Expensing
- Employer Deductions for Certain Fringe Benefits
- Executive Compensation
- Global Tangible Low-Taxes Income
- International Implications
- Limitations on Carried Interest
- Moving, Expense and Depreciation
- Net Operating Losses
- Opportunity Zones
- Paid Family & Medical Leave Employer Credit
- Pass-Through Deductions
- Travel Expenses for Nonprofit Organizations
Summary of Key Tax Reform Provisions on Accounting Methods
A number of influential tax reform provisions affect businesses in a favorable manner, including 100 percent full expensing for assets qualifying for bonus depreciation and the expansion of the use of the overall cash method of accounting. Read more.
Tax Reform and ASC 740: Five Things You Need to Know
Companies will need to revalue deferred tax assets and liabilities at the new corporate tax rate. Additionally, for fiscal year filers, recalculations might be more challenging due to the blended rate application in fiscal 2018 tax years. Assessing all ASC 740 implications as well as the overall impact of the reform can create a significant burden on businesses. Read more.
IRS Guidance on the Business Interest Expense Limit
Taxpayers’ annual deduction of business interest expenses will now be limited to the sum of, among other things, a percentage of adjustable tax income for the tax year and business interest income for the tax year. New limitations apply to all taxpayers, except for those averaging $25 million or less in gross annual receipts, and to all trades or businesses, except certain trades or businesses. Read more.
Proposed Bonus Depreciation Regulations Enacted by Tax Reform
The new regulations address such issues as the definition of qualified property, when used property is eligible for bonus depreciation, when property is acquired and placed in service, rules applicable to self-constructed property, how to compute the depreciation, and the time and manner for making elections. Read more.
Tax Reform Implications for Meals and Entertainment Deductions
As of January 1, 2018, the new tax reform law stipulates that employers can only deduct 50 percent of the costs associated with de minimis meals and beginning in 2026, these expenses will become non-deductible. Read more.
10 Things to Know About Tax Reform Changes to Deductibility of Executive Compensation
Among other changes, the group of covered employees was enlarged to include the PEO, PFO, and three highest paid officers without regard to whether their compensation is required to be reported in the proxy statement under SEC rules who satisfied the covered employee definition during any tax year beginning after December 31, 2016. Additionally, the performance-based and commissioned-based compensation exceptions to the $1 million deduction limit were eliminated. Read more.
Tax Reform and Global Intangible Low-Taxed Income
The Global Intangible Low-taxed Income (GILTI) is a new provision, and mechanically, it functions as a global minimum tax and introduces a number of issues for all U.S. shareholders of controlled foreign corporations (CFCs) – especially individuals and partnerships. Read more.
Understanding the International Implications of U.S. Tax Reform
Beyond GILTI, the Tax Cuts and Jobs Act has resulted in several international tax implications, particularly for foreign multinational entities with existing U.S. operations or for those exploring opportunities in the U.S. market. Read more.
Insight for Long-Term Capital Gain Treatment Under Section 1061
Partnership interests transferred in exchange for management services (so called “carried interests”) were the target of the recent tax reform laws. The apparent intent of the new law was to prevent carried interests from being taxed at long-term capital gains rates unless the interest was held for at least three years. A loophole was identified by some taxpayers to allow for long-term capital gain treatment only after one year if the carried interest was transferred to an S corporation rather than directly to an individual. Read more.
Tax Reform: Moving, Expense and Depreciation Changes
The Tax Cuts and Jobs Act suspends moving expense deductions, however, increased the depreciation limitations for passenger automobiles put into service after Dec. 31, 2017, for purposes of calculating the allowance under a fixed and variable rate plan. Read more.
Net Operating Losses (NOLs) in the Wake of Tax Reform
The Tax Cuts and Jobs Act eliminates the ability to carryback NOLs. The law does, however, allow for businesses to leverage carryforwards indefinitely. Additionally, businesses will only be allowed to offset 80 percent of taxable income (after NOL) in a carryforward year instead of the previous 100 percent. Essentially, this means businesses will no longer be able to use NOLs to reduce their tax liability down to zero. Read more.
Federal Tax Reform Opportunity Zones
Tax reform legislation presented a significant opportunity for investors to defer capital gains tax owed. The benefits are for those capital gains that arose in the last 180 days or prospectively in 2018 and future years. The Opportunity Zones offer an opportunity for investors to defer tax on capital gains by investing in Qualified Opportunity Funds, which in turn make investments in property (stock, partnership interest or tangible personal property) in the designated Opportunity Zones. Read more.
Tax Reform Creates Employer Credit for Paid Family and Medical Leave
Certain employers that pay family and medical leave to their employees may be eligible to claim a Family and Medical Leave Credit equal to 12.5 percent (or more) of the amount of wages paid to those employees during any period in which such employees are on family and medical leave. Read more.
Pass-Through Deduction Details Clarified By IRS/Treasury
One new provision of the tax reform legislation allows pass-through businesses to benefit from a 20 percent deduction of their qualified business income. Qualified business income (QBI) is considered domestic income from a trade or business. Excluded from that definition are employee wages, capital gain, interest and dividend income. Read more.
Pre-Tax Travel Expense Changes and the Impact to Nonprofits
All tax-exempt organizations will have to include as Unrelated Business Taxable Income (UBTI) any amounts paid or incurred for any Qualified Transportation Fringe Benefit, including transit passes, qualified parking and rides in commuter highway vehicles. These fringe benefits are still excluded from an employee’s income. Read more.
If you’re curious how your industry may be specifically impacted by tax reform changes, be sure to read more Insights from The MFA Companies:
Please reach out if you’d like to speak with a member of MFA’s Business Tax Team to discuss the impact of these tax reform changes on your business.
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