On Dec. 20, a new tax reform bill titled Tax Cuts and Jobs Act was approved by the U.S. Senate and House of Representatives and is awaiting official and expected approval from President Donald Trump.
The bill, which is being widely viewed as the largest set of revisions to the U.S. tax code in 30 years, makes significant changes to the Internal Revenue Code and will have a dramatic impact on many taxation provisions for businesses.
Tax alterations that affect business
Below are some of the major changes many businesses can expect to see with the passing of the new tax legislation:
Corporate tax rate is lowered
The previous tax rate of 35 percent that was imposed on corporations will drop to 21 percent beginning in 2018. The bill also completely removes the corporate Alternative Minimum Tax of 20 percent. These cuts are intended to provide large Americans companies with the extra capital they need to be more competitive in global trade and create more jobs for citizens.
Creation of new tax deduction for small businesses
All businesses listed as sole proprietorships, partnerships, LLCs and S corporations will receive a 20 percent tax deduction.
Capital investment "expensing"
This gives businesses the opportunity to write off, or "expense", the full value of new investments for a full five years.
Repeals or restricts numerous business credits and deductions
As a result of the bill substantially reducing the tax rate for all businesses, the legislation will cut the Section 199 deduction for companies that produce domestically. It will also limit or lift many other special exclusions or deductions, including those for commuter benefits and employer-provided transportation.
The bill does retain business credits given for low income housing and research and development projects as well as deductions or exclusions for assistance programs in employer provided dependent care, education and adoption.
Providing incentives to keep work and money domestic
U.S.-based businesses that earn profits from operations in any foreign country will be granted a one-time, law tax rate, similar to that provided by other industrialized nations, according to Reuters.
Additionally, companies that store money or provide labor overseas will be tax exempt when repatriating their assets. These amendments are intended to prevent businesses from moving their activities internationally to avoid U.S. tax regulation and to encourage companies to keep working within the country.
Repeal of individual healthcare mandate tax penalty
The tax penalty for individuals failing to have health insurance, a segment of the Affordable Care Act, will be waived starting in 2019.
The proposed bill does not however affect provisions for tax treatment of employer-sponsored health plans and the ACA's Cadillac tax on high-cost employer-sponsored health coverage.
Triton Benefits & HR Solutions will continue to monitor the tax reform process for any future updates.