1. Defer income to next year. Push income to into next tax year and deductions into this year. In general, it tends to be advantageous to push income into a future tax year and deductions into this year, due to the time value of money.
2. Reduction in corporate income tax rate. For tax years that begin after Dec. 31, 2017, the corporate tax rate, which had been at graduated rates as high as 35%, is reduced to a flat 21% rate. Please note however, for corporations that are not personal service corporations and whose taxable income is less than $50,000, their marginal tax rate under the new law is higher than it was previously.
3. Deduction for pass-through income. For tax years that begin after Dec. 31, 2017, pass-through businesses, e.g., sole proprietorships, partnerships, limited liability companies and S corporations, may be able to take a deduction of up to 20% of their business income. However, “specified service trades or businesses”, e.g., businesses that involve performance of services in the fields of health, law, consulting, athletics, financial services and brokerage services, don’t fully qualify unless the taxpayer’s taxable income is equal to or below $157,500 ($315,000 for married individuals filing jointly) and don’t qualify at all if the taxpayer’s taxable income is above $207,500 ($415,000 for married individuals filing jointly). As a result, taxpayers who are in those businesses will not want to push income into the New Year if doing so will cause taxable income to exceed the above dollar amounts.
4. Expensing and depreciation. Taxpayers will want to accelerate the purchase of depreciable assets (both NEW AND USED) to take advantage of the 100% bonus depreciation provision included in the Act for property placed in service after Sept. 27, 2017. Limitations on automobile depreciation are greatly increased for automobiles placed in service after Dec. 31, 2017, many taxpayers will benefit from postponing the purchase of automobiles until 2018.
5. Limit on deduction of business interest. For tax years that begin after Dec. 31, 2017, every business, regardless of its form, is generally subject to a disallowance of a deduction for net interest expense in excess of 30% of the business’s adjusted taxable income. The amount of any business interest not allowed as a deduction for any taxable year is treated as business interest paid or recruited in the succeeding tax year. This new rule does not apply to businesses with average annual gross receipts that do not exceed $25 million. And there are other exceptions as well.
6. Disallowance of deduction for entertainment expenses. Amounts incurred or paid after Dec. 31, 2017 for entertainment will not be deductible, except for certain meals which may be 50% deductible. Taxpayers should try to pay for any already-incurred expenses during the last days of December. And, to the extent practical, they may wish to incur expenses, e.g., buy tickets to events, and pay for those newly incurred expenses, during the last days of December.
7. Disallowance of employer deduction for employee transportation fringe benefits. Amounts incurred or paid after Dec. 31, 2017 for employee transportation fringe benefits, e.g., parking and mass transit, will not be deductible. Try to pay for any such already-incurred expenses, e.g., by reimbursing employees, during the last days of December.
About the author: Aarti Kapadia, CPA, MBA, is a principal at A.K. Accounting and Tax PLLC in Phoenix, Arizona. For more information reach her directly at (602) 324-9674 or at AartiKapadiaCPA@gmail.com