There are over 130 new tax provisions in the Tax Reform Act (Tax Cut and Jobs Act TCJA), but here are the five major planning opportunities for businesses.
1. Entity Choice: C corporations are now taxed at a flat rate of 21 percent (as opposed to a top rate of 35 percent under prior law); many business owners may have an opportunity to structure or restructure their business operations as a C corporation.
2. Acquire Assets: Under the TCJA, the maximum amount that can be expensed this year is $1 million (up from $510,000 for 2017). Further, Section 179 deduction is now available for certain tangible personal property used predominantly to furnish lodgings and certain improvements to a nonresidential real property. Above and beyond the Section 179 deduction, a business can also claim first-year bonus depreciation.
3. Choice of Accounting Method: Under the TCJA, the ability to use the cash method is greatly expanded. Almost any entity with three-year average annual gross receipts of $25 million or less can use the cash method regardless of whether the purchase, production, or sale of merchandise is an income-producing factor.
4. Business interest expense limit: Under the TCJA, many businesses will now be subjected to a net interest expense disallowance. Net interest expense in excess of 30 percent of a business’ adjusted taxable income will be disallowed. However, a business won’t be subject to this rule if its average annual gross receipts for the prior three years are $25 million or less.
5. Qualified Equity Grants: The TCJA provides a new tax election for equity-based compensation (stock received in connection with the exercise of an option or in settlement of a restricted stock unit) from private employers.