The Tax Cuts and Jobs Act ("TCJA") changed deductions that
affect businesses. This side-by-side comparison can help businesses understand
the changes and plan accordingly.
Changes to Deductions
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Deductions
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2017 Law
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What changed under
TCJA
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No previous law for comparison. This is a new provision.
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This new provision, also known as Section 199A, allows a deduction of up to
20% of qualified business income for owners of some businesses. Limits apply
based on income and type of business.
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A business can deduct up to 50% of entertainment expenses
directly related to the active conduct of a trade or business or incurred
immediately before or after a substantial and bona fide business discussion.
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The TCJA generally eliminated the deduction for any
expenses related to activities considered entertainment, amusement or
recreation. However, under the new law, taxpayers can continue to deduct 50%
of the cost of business meals if the taxpayer (or an employee of the
taxpayer) is present and the food or beverages are not considered lavish or
extravagant. The meals may be provided to a current or potential business
customer, client, consultant or similar business contact. If provided
during or at an entertainment activity, the food and beverages must be
purchased separately from the entertainment, or the cost of the food or
beverages must be stated separately from the cost of the entertainment on one
or more bills, invoices, or receipts.
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New limits on deduction for business interest expenses
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The deduction for net interest is limited to 50% of
adjusted taxable income for firms with a debt-equity ratio above 1.5.
Interest above the limit can be carried forward indefinitely.
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The change limits deductions
for business interest incurred by certain businesses. Generally,
for businesses with 25 million or less in average annual gross receipts,
business interest expense is limited to business interest income plus 30% of
the business’s adjusted taxable income and floor-plan financing interest
There are some exceptions to the limit, and some
businesses can elect out of this limit. Disallowed interest above the limit
may be carried forward indefinitely, with special rules for partnerships.
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Like-kind exchange treatment applies to certain exchanges
of real, personal or intangible property.
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Like-kind exchange
treatment now applies only to certain exchanges of real property.
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No previous law for comparison. This is a new provision.
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No deduction is allowed for certain payments made in
sexual harassment or sexual abuse cases.
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Although lobbying and political expenditures are generally
not deductible, a taxpayer can deduct payments related to lobbying local
councils or similar governing bodies.
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TCJA repealed the exception for local lobbying expenses.
The general disallowance rules for lobbying and political expenses now apply
to payments related to local legislation as well.
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If you would like to discuss how these changes affect your
particular situation, and any planning moves you should consider in light of
them, please give me a call.
Very
truly yours,
Amare
Berhie, Senior Accountant
CFO Services http://youtu.be/EYJdQtbPZAI
(651)
300-4777
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