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Tax Cuts and Jobs Act for Businesses

Below is an overview of the key provisions in the Act that affect businesses.

Business Deductions and Credits

Section 179 Expensing. The expensing limitation would be increased from $500,000 to $1 million for qualified property placed in service in tax years beginning after 2017 with a phaseout beginning at $2.5 million. The new limitations would be adjusted for inflation. The bill would further expand the definition of §179 property and the definition of qualified real property for improvements made to nonresidential real property.

Bonus Depreciation. Bonus depreciation generally would be increased from 50% to 100% for qualified property placed in service after September 27, 2017, and before 2023. The Act expands the property eligible for this deduction to include used property acquired by the taxpayer. There is a scaled reduction in the full expensing percentage from January 1, 2023 until December 31, 2026.

Deductions for Income Attributable to Domestic Production Activities. For tax years beginning after December 31, 2017, would be repealed.

Entertainment Expense Deductions. For tax years beginning after December 31, 2017, no deduction will be allowed generally for entertainment, amusement, or recreation; membership dues for a club organized for business, pleasure, recreation, or other social purposes; or a facility used in connection with any of the above.

NOL Deduction. For tax years beginning after December 31, 2017, the NOL deduction would be limited to 80% of the taxpayer’s taxable income and provide that amounts carried to other years be adjusted to account for the limitation. Amounts may be carried forward indefinitely, but would no longer be able to be carried back for most businesses.

Corporations

Corporate Tax Rate. For tax years beginning after December 31, 2017, there will be a 21% flat corporate tax rate to replace the current rates that range from 15% to 35%. There also will no longer be a special tax rate for personal service corporations.

Alternative Minimum Tax. For tax years beginning after December 31, 2017, the alternative minimum tax for corporations is repealed. In 2018, 2019, and 2020, if the taxpayer has an AMT credit carryforward, taxpayer would be able to claim a refund of 50% of remaining credits (to the extent credits exceed regular tax for year). In 2021, taxpayer would be able to claim a refund of all remaining credits.

Pass-Through Entities

Pass-Through Tax Rate. For tax years beginning after December 31, 2017, a 20% deduction to taxable income for qualified business income from partnerships, S-corporations and sole proprietorship would be provided. Special rules apply when computing the deduction. The deduction would expire after December 31, 2025.

Please contact your AHP tax consultant to discuss your tax situation.