Major changes to the US tax law (the biggest changes in 30 years) came through by the US Congress, which means it’s time to re-strategize with your tax planner. The most dramatic changes occurred on the corporate side of the law, so ensure your business is doing everything it can to take advantage of new savings potentials.
Corporate Tax Rate Reduction
Corporate tax rate for 2018 has been dramatically simplified and reduced to 21% across all corporations, no matter how much taxable income is reported. This is a sharp contrast to previous 2017 tax rates as follows:
|Income range||Corporate tax rate 2017|
|$18,333,333 and above||35%|
On average, global business tax rates are about 25%, so this makes the US more competitive at scale. This move will also help keep jobs in the US and create many more in the years to come.
Previously, businesses that made sales outside the US effectively were being double taxed, and this is no longer the case. As well, many of the biggest US corporations hold a lot of pretax cash overseas (according to Citigroup, a total of $2.5 trillion). The bill is allowing a repatriation at 15.5% – a MAJOR discount for companies like Goldman Sachs and Apple. A Merrill Lynch survey of 300 companies found that 46% of respondents would use some of the money to buy back shares and 65% of respondents said they would use the savings to pay down debt. Especially as interest rates are slowly on the rise, paying down debt now will save these corporations billions in interest over the next few year.
Small Business Deductions on Pass-Through Income
Small businesses and real estate investors can now take a 20% deduction on their income. Other service providers such as doctors, lawyers, and accountants will only receive this on income less than $157,500 and $315,000 joint returns.
Business Vehicle Depreciation
The business vehicle depreciation has increased, which not only is great for business owners, it may affect the auto industry by incentivizing people to buy cars instead of lease.
Old vs New Depreciation Rates
- Year 1: $3,160 –> $10,000
- Year 2: $5,100 –> $16,000
- Year 3: $3,050 –> $9,600
- Year 4: $1,875 –> $5,760
Business Equipment Depreciation & Deductions
Section 179 has been expanded to include not only computers and machinery but also:
- Residential rental properties
- HVAC units
- Fire alarms
- Security devices
Business may now also take a 100% for new or used equipment including trucks, SUVs, and office equipment.