Tax Issues When Planning for Your Business in 2018

Jul 9, 2018Business, Business Tax

The Tax Cuts and Jobs Act makes sweeping changes. But some of the new provisions won’t necessarily be relevant to your situation. Here is a quick reference guide to the major changes under the new law to help you understand what is changing.

In general, these changes are effective for tax years beginning after December 31, 2017. For businesses, these changes are permanent, unless otherwise noted.

BuzzwordsEffects of Business Taxes
Alternative minimum tax (AMT)Repeals AMT for corporations.
Bonus depreciationSignificantly expands first-year deductions but only temporarily.
Cash-basis accountingIncreases the annual gross-receipts threshold for eligibility to use this simplified reporting method.
Corporate tax rateInstalls a flat 21% tax rate that also applies to personal service corporations.
Cost segregation studiesChanges the depreciation rules and recovery periods; may warrant a study to reclassify certain costs, thereby accelerating deductions.
Domestic production activities deduction (DPAD)Eliminates this break, also known as the manufacturers’ deduction under Sec. 199.
Entertainment deductionsReduces or eliminates tax breaks for business entertainment.
Entity choiceIntroduces new considerations when deciding on business structure; applies 1) temporary changes for 2018 through 2025to owners of pass-through entities and 2) permanent changes to C corporations. 
Family and medical leave programsProvides a new credit for employers.
Foreign operationsProvides tax incentives to repatriate foreign income and conduct operations in the United States.
Fringe benefitsEliminates deductions for the cost of providing certain transportation-related employee benefits.
Interest expense deductionsRepeals the earnings stripping rules; provides new limits on interest expense deductions, with several exceptions.
Like-kind exchangesEliminates Sec. 1031 like-kind exchanges for exchanges of personal property; retains Sec. 1031 for exchanges of real estate.
Loan balances for departing employeesIntroduces new rules for employees with outstanding 401(k) loan balances.
Long-term construction contractsExpands the exception from the requirement to use the percentage-of-completion (PCM) method to report income from long-term construction contracts.
Meal expensesAllows 50% deductions for on-premises cafeterias and meals provided for the convenience of employers for 2018 through 2025; eliminates these deductions after 2025.
Moving expensesRequires employers to include job-related moving expense reimbursements as taxable income on employees’ W-2s (except for active-duty members of the military) for 2018 through 2025.
Net operating loss (NOL) deductionsImposes new limits; disallows NOL carrybacks but allows indefinite NOL carryforwards.
Owners’ compensationMay affect pass-through income deduction for qualified business income (below).
Pass-through income deduction for qualified business income (QBI)Creates a new deduction for sole proprietorships, limited liability companies (LLCs), partnerships and S corporations that’s subject to numerous restrictions and available only from 2018 through 2025.
Recovery periodsReduces the recovery periods for qualified improvement property; simplifies the rules.
Research costsRequires specified research or experimental expenditures to be capitalized and amortized rather than currently deducted; goes into effect in 2022.
Section 179 expensingPermanently liberalizes the Sec. 179 first-year depreciation rules.
Share-based paymentsAllows qualified employees who exercise these instruments to defer related income for up to five years; may encourage private companies to issue these awards and employees to exercise them.
Uniform capitalization (UNICAP)Expands the exception for small taxpayers from the requirement to follow the complicated UNICAP rules for inventory accounting.
Vehicle deductionsMakes temporary and permanent favorable changes to depreciation rules for vehicles used more than 50% for business.

Note: Be aware that federal tax law changes could affect state income tax obligations. This trickle-down effect will create uncertainty as states decide whether to conform to or decouple from the changes to the federal rules.


In the wake of the new tax law, midyear tax planning meetings are critical for business owners. We have provided only abbreviated explanations of each issue listed above. Discuss the details of the relevant provisions with your Smith Schafer professional to determine how the changes will affect your tax situation for 2018 and beyond.


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