New Tax Rates / Deduction
C Corporation Tax Rates |
20% Deduction for Pass-through Entities |
C Corps will now be taxed at a flat rate of 21% now compared to the progressive tax rates for previous years shown below.
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Pass-through entities (sole props, rentals, partnerships, LLCs, and S Corps) may receive up to 20% off of their net qualified business income.
The phaseout limits for this deduction are as follows:
All other businesses will not lose the deduction completely if they go above the phaseout thresholds, however, will be subject to other limitations. |
Changes to Business Deductions
Depreciation |
Section 179 limit has been increased to $1 million in 2018 from $510,000 in 2017. Phaseout for 2018 is $2.5 million.
Bonus Depreciation allows for a 100% deduction for property on property placed in service between 9/27/17 and before 1/1/23 for most property. It also includes used property whereas prior, it only applied to new property. This is not new, but worth mentioning: the De Minimus Safe Harbor election now allows for property under $2,500 to be expensed versus capitalized. |
Entertainment |
Entertainment expenses such as golf outings, fishing trips, tickets to sporting events, and theater tickets are no long deductible.
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Meals |
Meals with business associates and clients are still deductible at 50%.
Team building meals incurred for recreational, social, or similar activities mainly for the benefit of employees are still 100% deductible. However, staff meals (eaten in-office for the convenience of the employer) that used to be 100% deductible are now only 50% deductible. These types of meals will no longer be deductible starting 2025. |
NOL Deduction |
In the past, NOLs were allowed to be taken back two years and then carried forward for 20 years. The new law states that any losses incurred after 12/31/17 can only be carried forward (indefinitely). In addition, the NOL can only offset 80% of taxable income going forward compared to 100% allowed in past years.
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Transportation Fringe Benefits to Employees |
Deductions and expenses associated with providing qualified transportation fringe benefit to employees are no longer deductible. This would include ride sharing, transit passes, parking, and bicycle commuting reimbursement.
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Tax Credits
Employer-Provided Family Leave Credit |
For 2018 and 2019, there is a new credit of 12.5% of wages paid to qualifying employees during any period in which such employees are on family and medical leave if the rate of payment under the employee program is at least 50% of wages normally paid to the employee. There is a .25% increase (not to exceed 25% of wages) for each percentage point by which the rate of payment exceeds 50% of regular wages. The maximum amount of leave is 12 weeks.
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Please note that California has not conformed to many of these federal changes yet, many of the above laws are for federal only.