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New Changes in Tax Provisions for Smaller Businesses

The new tax law and resulting provisions have certainly led to much discussion – and confusion.  If you’re a small to mid-size business owner, be sure to understand and take advantage of some of the positive outcomes as a result of these changes.

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The new tax law and resulting provisions have certainly led to much discussion – and confusion.  If you’re a small to mid-size business owner, be sure to understand and take advantage of some of the positive outcomes as a result of these changes.

The new 2018 tax changes have provoked all kinds of responses, not the least of which is general confusion. Take the new business tax provisions for example. Some of these provisions have been a real challenge for companies that are subject to these rules, but in fact not every business is subject to these rules. For smaller and mid-size businesses on the South Shore, this may be welcome news.

Within the Tax Jobs and Cuts Act of 2017, opportunities exist for companies with average gross receipts of less than $25 million to avoid some of these more onerous provisions, including the new rules for the deductibility of business interest, which can have a pretty significant impact on a company that may be highly leveraged.

One of the biggest changes for companies that fall under the $25 million threshold is their required method of accounting. Under the prior law, companies that had more than $5 million in average gross receipts must use the accrual method of accounting; now, any business with average gross receipts up to $25 million can use the cash method instead, even if they previously needed to use the accrual method due to inventory. This change provides many companies that have a high number of receivables an opportunity for deferral, and as such many can realize significant benefits.

Additionally, interest limitation provisions are not applicable for those under the $25 million benchmark – this is a deduction for business interest that is otherwise limited to 30% of the taxpayer’s Adjusted Taxable Income for the tax year. Uniform capitalization rules, which require additional capitalization of costs as inventory for tax purposes, can also be avoided if average gross receipts are less than $25 million.

The maximum amount a taxpayer may expense under Section 179 also increased, from $500,000 to $1 million. For middle-market companies in particular, there is definite benefit with this change.

The new tax provisions have certainly been especially favorable for C corporations, as all of these changes are permanent in nature, and of course the corporate tax rate was lowered from 35% (in most cases) to a flat rate of 21%. Alternative minimum tax has also been eliminated.

The new tax law and resulting provisions have certainly led to much discussion – and confusion. If you’re a small to mid-size business owner, be sure to understand and take advantage of some of the positive outcomes as a result of these changes.

Disclaimer: Any written tax content, comments, or advice contained in this article is limited to the matters specifically set forth herein. Such content, comments, or advice may be based on tax statutes, regulations, and administrative and judicial interpretations thereof and we have no obligation to update any content, comments or advice for retroactive or prospective changes to such authorities. This communication is not intended to address the potential application of penalties and interest, for which the taxpayer is responsible, that may be imposed for non-compliance with tax law.

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