Updates Affecting Businesses
- For business taxed as corporations, the tax rate has been changed to a 21% flat tax rate beginning with 2018.
- The tax law includes an expansion of IRC §179 expensing:
- For purchases of qualified property up to $2.5 million, taxpayers can immediately expense $1 million. Under prior law, the expense was limited to $500,000.
- Qualified property has also been expanded to include certain repairs or replacements of building systems. Items being replaced on nonresidential real property that are eligible for §179 expensing now include roofs, heating and ventilation systems, fire protection and alarm systems, and security systems. Previously these items were not eligible for §179 expensing and were required to be depreciated over the life of the building.
- Bonus depreciation has also been expanded under the new law:
- Bonus depreciation rules were scheduled to begin phasing out over the next several years.
- For property purchased after September 27, 2017 through December 31, 2023, qualifying property is eligible for 100% bonus depreciation.
- Under the new law, qualifying property now includes property that is purchased used.
- The new law also outlines a phase-out for bonus depreciation beginning in 2024.
- Entertainment expenses associated with the activities of a trade or business are no longer deductible. Businesses may still deduct 50% of meals associated with business activities.
- Beginning in 2018, net interest expense in excess of 30% of the business’s adjusted taxable income will be disallowed.
- For taxpayers with average gross receipts of less than $25 million for the prior three years, there is an exception to the rule.
- For taxpayers engaged in a real property trade or business, they may be able to elect out of the interest expense limitation if they meet certain other requirements with respect to depreciation.
- For years after 2017, the domestic production activities deduction has been repealed. Under prior law, qualifying businesses (those in manufacturing, production, etc.) were able to claim a deduction of 9% of their qualifying production activities income.
***Disclaimer: I am a tax accountant and a CPA licensed in Massachusetts , but I am not your accountant or advocate (Unless you have signed up to my services). This communication is not intended as tax advice, and no tax accountant -client relationship results**