In an attempt to level the playing field
between businesses that capitalize through
equity and those that borrow, the TCJA caps
the interest deduction at 30% of the adjusted
taxable income of a business. Every dealer
and retailer are subject to disallowance of a
deduction for net interest expense in excess of
30% of the operation’s adjusted taxable
income. A special rule applies to pass-through entities that requires the 30% determination to be made at the entity level rather
than at the tax filer level—in other words at
the partnership level instead of the partner
Other exceptions exist for small businesses, generally those with gross receipts
that have not exceeded a $25 million threshold for a three-year period, to protect their
ability to write off the interest on loans that
help them start or expand a business, hire
workers and increase paychecks.
The simplification of the rules governing
the method of accounting that must be used
for tax purposes is a welcome option. Under
the TCJA, businesses with average annual
gross income of less than $25 million may
now use the simple cash-basis accounting
Accrual basis taxpayers include amounts
in income when all the events have occurred
that fix the right to receive income can be
determined with reasonable accuracy. Cash
basis taxpayers generally include amounts in
income when actually or constructively
With the cash method of accounting, a
dealer or retailer may account for inventory as
non-incidental materials and supplies. Or, as
an alternative, a business with inventories
using the cash method of accounting would
be able to account for its inventories using the
method of accounting reflected on its financial statements or its books and records.
Under this provision, the current $5 million threshold for corporations and partnerships with a corporate partner is increased to
$25 million. The requirement that such businesses satisfy the $25 million limits for all
prior years has also been repealed.
And, those businesses that are required to
change their accounting method because of
these new rules will find the change treated as
initiated by the taxpayer and made with the
IRS’s consent. What’s more, the adjustment
period will be six years.
Before the TCJA, a 20% tax credit existed
for rehabilitation expenditures for certified
historical structures. A 10% credit existed for
rehabilitated building expenditures, which
generally meant a building that was first
placed in service before 1936.
Under the TCJA, the 10% credit for qualified rehabilitation expenditures for pre-1936
buildings has been repealed. The 20% credit
for qualified rehabilition expenditures for certified historic structures can still be claimed
over a five-year period, beginning in the tax
year when the rehabilitated structure is placed
The TCJA has also repealed the tax credit
so many busineses benefited from when retrofiting or fixing their premises to be handicapped friendly. On a related note, the ADA’s
Disabled Access Credit that has helped many
stores, shops, factories and businesses become
ADA compliant has also been repealed.
One of the major benefits of net operating
losses (NOLs) was the fact that they could be
carried back to more prosperous years to create a refund of taxes paid in those earlier years
and providing an immediate infusion of badly
needed cash. The NOL deduction has been
severely curtailed. The write-off is now limited to 80% of taxable income and only in
special cases will a NOL carryback be permit-ted. Fortunately, there is no limit on how far
forward NOLs may be carried.
Fringe benefit limits
The new law flatly disallows deductions
for entertainment expenses, eliminating the
necessity of attempting to prove whether
these expenses are sufficiently business-related. The 50% limit on the deductibility of
business meals has, on the other hand, been
expanded to include meals provided through
an in-house cafeteria or otherwise on the
premises of the business.
A dealer or retailer’s deduction for fringe
benefits such as transporation (e.g., parking
and mass transit) is no more, although such
benefits received by an employee, even the
business’s owner or key employee, can continue to be excluded from the recipient’s
. . . and more
Obviously, there are many more changes
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Section 179 allows up to $1 million (up
from $500,000 in 2017) of expenditures for
business equipment and property to be
treated as an expense and immediately
deducted. The ceiling beyond which the Section 179 expensing allowance must be
reduced dollar-for-dollar has also been
increased from $2 million to $2.5 million.
Improvements including roofs, heating,
ventilation, air conditioning systems, fire prevention, alarms and security systems now
qualify under the new Section 179 rules, providing another opportunity for dealers and
retailers that actually need equipment.