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Author: Lindsey Miller

There’s no secret that the new tax plan approved by Congress and sent to President Trump is very generous to many different types of companies and industries, including those that have foreign income producing activity.

In 2018, both small and large businesses will see significant change to their tax situation, and will need to do planning early in the year to maximize tax benefits throughout the year.

Key Changes in the New Tax Plan for Companies

The 500-page bill includes the following key changes for US based companies with domestic and foreign operations:

1. Corporate tax rate     

  1. Cut from 35% to 21%
  2. Repeals the corporate AMT

Freed Maxick Insights

With the new rate beginning in 2018, it gives corporations very little time to push through deductions at the higher rate. With such a drastic decrease to the corporate rate (40%), it could result in pass-through entities converting to C corporations.

2. Pass Through businesses   

  1. Establishes a 20% deduction of certain business income, but deductions are limited once the income reaches $157,500 for singles and $315,000 for joint. 

Freed Maxick Insights

As mentioned above, it is possible to see pass-through businesses convert to C corporations with the new corporate tax rate.

But be careful, this provision does not apply to all pass through businesses. Certain specified service trade or businesses are excluded.

 

3. Deductions and Credit

  1. Numerous deduction and credits eliminated including Domestic Production Activities, non-         real property like kind exchanges and others
  2. Research and development expenses are now amortized over five years, beginning in 2023
  3. Rehabilitation credit remain but have been modified
  4. Interest expenses limited to 30% of modified taxable income number 

Freed Maxick Insights

With a 40% decrease in the corporate tax rate, the effect of losing these deductions or credits could increase your effective tax rate. Tax credits are still available, so if your business largely relies on tax credits, it will be important to understand the impact and what remains. 

 

4. Bonus Depreciation

  1. Increased from 50% to 100% deduction of costs of depreciable assets can be taken in one year but equipment must be purchased after September 27, 2017, and before January 1, 2023

Freed Maxick Insights

This will be a huge planning opportunity for many businesses; with no taxable income limitation on bonus depreciation (unlike Section 179 expensing), businesses will be able to take advantage of fully expensing acquisitions (new or used!) in the year placed in service.

 

5. International Tax

  1. Current "worldwide" tax system changed to a territorial system where corporations will not         be taxed on foreign profit
  2. Companies can repatriate cash held overseas by paying a one-time mandatory tax, based on foreign earnings and, at a tax rate of 15.5% on cash and 8% on property 

Freed Maxick Insights

With the new tax on deemed repatriation, it may be great time for businesses to bring money back and invest in the U.S.

Of course, if you have any questions or concerns, call the Freed Maxick Tax Team at 716.847.2651 to discuss your tax situation. Or, connect with us here to schedule a Tax Situation Review.

For more insight, observations and guidance on the new Tax Cuts and Jobs Act, visit our Tax Reform webpage.