With the recent passing of the Tax Cuts and Jobs Act, you are probably wondering how it will affect your small business in 2018 and beyond. This is the biggest change to our nation’s tax law in more than three decades, which means there are lots of changes, additions and modifications that you should become familiar with. For example, the Section 179 tax deduction limit for 2018 doubled from what it was last year. With so much news coverage of this historic tax law, it might be time-consuming to find the information you are looking for. So, Balboa Capital gathered all of the key findings and included them in this blog post.
Tax Cuts and Jobs Act overview
The Tax Cuts and Jobs Act (H.R. 1) was passed by the House of Representatives on November 16, 2017, and by the Senate on December 2, 2017. It was signed into law by President Trump on December 22, 2017. This sweeping tax reform was developed to generate more than $600 billion in additional revenue over the next ten years. Changes were made to individual income tax rates, and corporate tax rates, and the final bill contains approximately $1.4 billion in tax cuts. Most of the corporate tax changes are permanent, and the individual tax changes are temporary and scheduled to expire at the end of 2025.
Changes to business taxes
At the core of the Tax Cuts and Jobs Act is a multitude of business tax cuts designed to help boost the economy. After reading the pages in the new bill, we found lots of new tax cuts that can help businesses like yours save money, invest with confidence, and become more competitive. Here are some highlights:
- The C corporate income tax rate was permanently lowered to 21%, effective January 1, 2018.
- The corporate alternative minimum tax (AMT) was repealed for tax years beginning after December 31, 2017.
- The Section 179 tax deduction limit for 2018 was increased from $500,000 to $1 million, and the phase-out amount jumped to $2.5 million.
- Bonus depreciation increased from 50% to 100% on qualifying business equipment through 2022. This will decrease to 80% in 2023, 60% in 2024, 40% in 2025, and 20% in 2026.
- Qualifying used business equipment is now eligible for bonus depreciation.
- The depreciation limits on passenger cars used for business increased to $10,000 in year one, $16,000 in year two, $9,600 in year three, and $5,760 in years four and beyond.
- Some pass-through businesses can claim a 20% deduction on qualified business income.
- Net operating loss (NOLS) carrybacks were eliminated, and net operating loss carryforwards are limited to 80% of taxed income.
- Business interest deduction is now capped at 30% of earnings before EBITDA from 2018 to 2022.
- Businesses with $25 million or less in annual revenue can use the cash method of accounting instead of the accrual method. Last year, the annual revenue threshold was $5 million, so this is a $20 million increase.
Now is the time to invest in your business
The lower corporate tax rate and increased expensing limits and tax credits are presenting small business owners with a great opportunity to invest in their companies. If you are in the market for new or used equipment, or want to finally get that expansion plan off the ground, Balboa Capital can help. Our equipment leasing and small business loan solutions are just what you need.