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Tax Reform and Your Business: What You Need to Know

The recently passed tax reform bill will have significant implications for individuals, small businesses, non-profit organizations and corporations. The impact of these changes to our long-existing tax laws requires thoughtful consideration be given to existing business structures, operating and partnership agreements.

Every business is unique, and there are a variety of ways you may be impacted by these changes. We’ve outlined a few key provisions of the tax reform bill to highlight areas where reviewing and updating your existing structure and legal documents may benefit your organization:

Reduces the corporate tax rate to 21%.

Repeals the corporate Alternative Minimum Tax.

Individuals, trusts and estates are eligible for a 20% deduction of qualified business income from pass-through (partnership, S Corporation or sole proprietorship) and disregarded entities.

For personal service businesses (realtors, attorneys, architects, engineers) the 20% deduction is available for married couples filing jointly with incomes up to $315,000 ($157,500 for single taxpayers) and is only applied to the amount of income designated as pass-through.

For employee-based businesses (restaurants and manufacturers) the 20% deduction is limited to 50% of wages (or wages plus capital expense).

Business interest expenses may be limited to 30 percent of the taxpayer’s earnings before interest, tax, depreciation and amortization (EBITDA) for taxable years beginning after 2017 and before 2022, and 30 percent of a taxpayer’s earnings before interest and tax (EBIT) for taxable years beginning after 2021. Businesses with average annual gross receipts of $25 million or less are exempt.

Eliminates the deduction for income attributable to domestic production, impacting owners of qualifying production property.

Limits like-kind exchanges to real property not primarily held for sale.

Eliminates the current rules regarding partnership technical terminations, allowing partners to more easily transfer partnership interests.

Qualifying business property placed in service after September 27, 2017, and before January 1, 2023, will qualify for 100 percent expensing.

Limits the deduction for net operating loss carryovers to 80 percent of taxable income.

Exempts from U.S. tax the foreign-source portion of dividends received from certain foreign corporations (C Corp only).

Enacts deemed repatriation of currently deferred foreign profits, at a rate of 15.5 percent for cash and cash-equivalent profits and 8 percent for reinvested foreign earnings.

The new base erosion and anti-abuse tax (BEAT) adopts a number of base erosion provisions which will be applied to companies if 10% of cross-border payment amounts to affiliates exceed their regular U.S. tax liability.

Doubles the estate tax exemption from $5.6 million to $11.2 million

Woods, Fuller, Shultz & Smith P.C. has an experienced team of business and tax law attorneys. We have the expertise to advise business owners on the most beneficial structures for their operations. Our knowledge of corporate and partnership taxation enables us to help with entity selection, capitalization, operation, sale, and liquidation of businesses. Our attorneys provide integrated tax and business advice essential for effective planning.

January 16, 2018