The Tax Cuts and Jobs Act: Key Changes for Businesses

Here are some of the most important changes for businesses under the new tax law.

The Tax Cuts and Jobs Act, a sweeping tax reform, was signed into law on December 20, 2017. Most of its provisions take effect starting in tax year 2018. Below are some of the key changes under the Act that will affect businesses in the coming years.

Corporate Tax Rate Reduced

Lowers the corporate tax rate to 21 percent starting in 2018 from the current top 35 percent rate. The 15% rate on corporate income below $50,000 is eliminated.

New Deduction for Pass-Through Entities

Creates a new 20% deduction for pass-through entities, such as LLCs, S Corporations, partnerships, and sole proprietorships. Certain service businesses, such as health care and law, are not allowed to take the deduction if their income exceeds certain levels.

Section 179 Expensing Increased

Increases the Section 179 maximum annual deduction limit to $1 million from $500,000 and increases the phase-out threshold to $2.5 million from $2 million starting in tax year 2018.

Bonus Depreciation Increased

Increases to 100% the first-year bonus depreciation percentage (from the current 50% rate) for long-term assets placed in service after September 27, 2017. Allows bonus depreciation to be used for purchases of used property as well as new property.

Computers No Longer Listed Property

Computers are no longer classified as listed property starting in tax year 2018.

Entertainment and Meals Deduction Eliminated

Eliminates deductions for entertainment and meal expenses starting in tax year 2018. Businesses may still deduct 50% of cost of food consumed by employees during work or travel.

Net Operating Loss Carrybacks Eliminated

Eliminates the net operating loss carryback and limits carryforwards to 80 percent of taxable income.

Business Vehicle Depreciation Limits Increased

Increases the allowable depreciation limits for certain passenger automobiles to: $10,000 for the first year in which the vehicle is placed in service (up from $3,160), $16,000 for the second year (up from $5,100), $9,600 for the third year (up from $3,050), and $5,760 for the fourth and later years in the recovery period (up from $1,875). For passenger autos eligible for bonus first year depreciation, the maximum first year depreciation allowance remains at $8,000.

Alternative Minimum Tax Repealed

Repeals the corporate alternative minimum tax.

Effective date: January 1, 2018