5 top tax reform opportunities for businesses

August 23, 2018 3:51 PM

There are no fewer than 130 new tax provisions in the Tax Cuts and Jobs Act, according to Shaun Hunley, a technical editor of PPC products for Thomson Reuters Checkpoint in the Tax & Accounting business of Thomson Reuters, but with tax practitioners starting to focus on helping clients address the act’s impact, he has singled out five major planning opportunities for businesses.

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No. 1: Rethink entity choice

S Corp, C corp, LLC and other entity types

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The TCJA makes major changes to the choice of entity decision. Because C corporations are now taxed at a flat rate of 21 percent (as opposed to a top rate of 35 percent under prior law), many business owners wonder whether they should structure or restructure their business operations as a C corporation.

Unfortunately, the answer isn’t simple. Although C corporations are now more attractive thanks to the lower rate, it may make more sense to continue operating as a pass-through entity.

No. 2: Acquire assets

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Thanks to the TCJA, this is a great time to acquire business assets. A business may be able to take advantage of very generous Section 179 deduction rules. The maximum amount that can be expensed this year is $1 million (up from $510,000 for 2017).

But there’s more good news. The Section 179 deduction is now available for certain tangible personal property used predominantly to furnish lodgings and certain improvements to nonresidential real property.

Above and beyond the Section 179 deduction, a business also can claim first-year bonus depreciation.

No. 3: Adopt a more favorable accounting method

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For tax years beginning after 2017, the ability to use the cash method is greatly expanded. Any entity (other than a tax shelter) with three-year average annual gross receipts of $25 million or less can use the cash method regardless of whether the purchase, production, or sale of merchandise is an income-producing factor.

No. 4: Watch out for new business interest expense limit

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Regardless of its form, every business will be subject to a net interest expense disallowance. Starting in 2018, net interest expense in excess of 30 percent of a business’ adjusted taxable income will be disallowed. However, a business won’t be subject to this rule if its average annual gross receipts for the prior three years are $25 million or less.

No. 5: Consider qualified equity grants

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The TCJA provides a new tax election for equity-based compensation from private employers. Specifically, the election covers stock received in connection with the exercise of an option or in settlement of a restricted stock unit, or RSU. From a tax perspective, many employees struggle with these forms of compensation because they don’t have the ability to liquidate their shares to pay their tax bill. This new election provides some relief.