TaxEsqBlog -by Ronald J. Cappuccio, J.D., LL.M.(Tax)

A review of significant TCJA provisions affecting small businesses Now that small businesses and their owners have filed their 2017 income tax returns (or filed for an extension), it’s a good time to review some of the provisions of the Tax Cuts and Jobs Act (TCJA) that may significantly impact their taxes for 2018 and beyond. Generally, the changes apply to tax years beginning after December 31, 2017, and are permanent, unless otherwise noted. Corporate taxation Replacement of graduated corporate rates ranging from 15% to 35% with a flat corporate rate of 21% Replacement of the flat personal service corporation (PSC) rate of 35% with a flat rate of 21% Repeal of the 20% corporate alternative minimum tax (AMT) Pass-through taxation Drops of individual income tax rates ranging from 0 to 4 percentage points (depending on the bracket) to 10%, 12%, 22%, 24%, 32%, 35% and 37% — through 2025 New 20% qualified business income deduction for owners — through 2025 Changes to m...

Sec. 179 expensing provides small businesses tax savings on 2017 returns — and more savings in the future If you purchased qualifying property by December 31, 2017, you may be able to take advantage of Section 179 expensing on your 2017 tax return. You’ll also want to keep this tax break in mind in your property purchase planning, because the Tax Cuts and Jobs Act (TCJA), signed into law this past December, significantly enhances it beginning in 2018. 2017 Sec. 179 benefits Sec. 179 expensing allows eligible taxpayers to deduct the entire cost of qualifying new or used depreciable property and most software in Year 1, subject to various limitations. For tax years that began in 2017, the maximum Sec. 179 deduction is $510,000. The maximum deduction is phased out dollar for dollar to the extent the cost of eligible property placed in service during the tax year exceeds the phaseout threshold of $2.03 million. Qualified real property improvement costs are also eligible for Sec. ...

Claiming bonus depreciation on your 2017 tax return may be particularly beneficial With bonus depreciation, a business can recover the costs of depreciable property more quickly by claiming additional first-year depreciation for qualified assets. The Tax Cuts and Jobs Act (TCJA), signed into law in December, enhances bonus depreciation. Typically, taking this break is beneficial. But in certain situations, your business might save more tax long-term by skipping it. That said, claiming bonus depreciation on your 2017 tax return may be particularly beneficial. Pre- and post-TCJA Before TCJA, bonus depreciation was 50% and qualified property included new tangible property with a recovery period of 20 years or less (such as office furniture and equipment), off-the-shelf computer software, water utility property and qualified improvement property. The TCJA significantly expands bonus depreciation: For qualified property placed in service between September 28, 2017, and Decemb...

Why 2016 may be an especially good year to take bonus depreciation Bonus depreciation allows businesses to recover the costs of depreciable property more quickly by claiming additional first-year depreciation for qualified assets. The PATH Act, signed into law a little over a year ago, extended 50% bonus depreciation through 2017. Claiming this break is generally beneficial, though in some cases a business might save more tax in the long run if they forgo it. However, 2016 may be an especially good year to take bonus depreciation. Keep this in mind when you’re filing your 2016 tax return. Eligible assets New tangible property with a recovery period of 20 years or less (such as office furniture and equipment) qualifies for bonus depreciation. So does off-the-shelf computer software, water utility property and qualified improvement property. And beginning in 2016, the qualified improvement property doesn’t have to be leased It isn’t enough, however, to have acquired the proper...

Expiring in 2013 The tax credit for Research and Development (R&D) is set to expire in 2013. Even if you are not a tech company, this credit could apply to your business. New processes and developments could count toward this credit. Check with a qualified tax attorney. This credit has been extended before, but why hope and wait to see if it will be extended again? Drastic Changes in the Section 179 Deduction Waiting until the new year to buy a new truck for your business? Don’t. Need new servers and computers? Waiting for the after Christmas sales? If you snooze, you lose. Your items must be purchased and used/installed before the end of 2013 to potentially qualify for the 2013 $500,000 deduction. This deduction will be reduced to $25,000 in 2014. Depreciation The First-year bonus depreciation for equipment is set to expire, so make sure you  have your attorney review your 2012 and 2013 purchases.

Code Sec. 179 Expensing Limits Internal Revenue Code Sect. 179 expensing limits were raised to $125,000 with a $500,000 investment limit for 2012. The 2010 Small Business Jobs Act, which was signed in September, raised the expensing limits to $500,000 with a $2 million investment limit for 2010 and 2011. It also permitted, for the first time, expensing of up to $250,000 of Qualified Real Property, such as qualified leasehold, restaurant or retail improvements. The expensing of Qualified Real Property was not extended in the new tax act.