DETHLOFF & ASOOCIATES BLOG - MOSTLY (BUT NOT ALL) TAX
The largest changes to income tax law since 1986 as proposed are listed below. The stated goal is to have the bill passed by Thanksgiving, so it is important to give feedback to your representatives as soon as possible.
The proposed business tax law changes are not as dramatic as those impacting individual tax returns. The drop in corporate income tax rates and pass-through entity income rates is the most significant. The elimination of the domestic production activity deduction would also affect a significant number of our clients.
1. Maximum corporate tax rates would be reduced to 20% from 35%. For a personal service corporation, the maximum rate would be 25%.
2. Dividends received by a domestic corporation from a specified 10%-owned foreign corporation would be allowed as a deduction in an amount equal to the foreign-source portion of such dividend.
3. A portion of net income distributed by a pass-through entity to an owner or shareholder would be treated as “business income” subject to a maximum rate of 25%. Provisions are included to guard against reclassifying wages as business income to utilize the lower rate.
4. The 100% bonus depreciation (§168(k)) would be extended through Dec. 31, 2022.
5. Section 179 expensing would be increased to $5,000,000 for taxable years beginning after Dec. 31, 2017, and before Jan. 1, 2023. A phase-out would apply if the business places in service more than $20,000,000 of §179 property during the taxable year.
6. The gross receipts test on the use of the cash method of accounting by a corporation or partnership with a corporate partner would be increased to $25,000,000.
7. Interest deduction would be limited for large corporations and partnerships. Businesses with gross receipts of less than $25,000,000 would be exempt.
8. The NOL carryback would be eliminated except for a one-year carryback for eligible disaster losses. The NOL carryforward would be indefinite (currently 20 years) but limited to 90% of taxable income (like AMT limitation now.).
9. Section 199 deduction for income attributable to domestic production activities would be repealed.
10. Self-created property (patent, invention, design, formula, or process) would not be treated as a capital asset.
11. Incentive stock options would be treated like non-qualified stock options (taxed at exercise unless subject to forfeiture or §83(b) election).
12. Section 1031 would apply to real property exchanges only.
13. Rehabilitation credit, work opportunity credit, and disabled access credit would be repealed.
14. No tax-exempt bonds could be issued for professional stadiums.
Please contact us if you would like to discuss the proposals in more detail.