Changes to Business Taxes for 2018
The new tax law has significant impacts on businesses. Here are the key facts of the new law:
- Lowers the corporate income tax rate permanently to 21 percent, starting in 2018.
- Increases the Section 179 Deduction from $500,000 to $1 million permanently.
- Increases the Bonus Depreciation from 50% to 100% through 2022.
- Allows full and immediate expensing of short-lived capital investments for five years.
- Limits the deductibility of net interest expense to 30 percent of earnings before interest, taxes, depreciation, andamortization (EBITDA) for four years, and 30 percent of earnings before interest and taxes (EBIT) thereafter.
- Eliminates net operating loss carrybacks and limits carryforwards to 80 percent of taxable income.
- Eliminates the Domestic Production Activities Deduction (section 199)
- Eliminates the corporate alternative minimum tax.
What’s the difference between Section 179 and Bonus Depreciation?
Before 2018 the most significant differences were:
- Section 179 allowed for 100% deduction and Bonus Depreciation was only 50%.
- Section 179 had a spending limit of 2.0 mil which is now 2.5 mil and Bonus Depreciation had none.
- Section 179 allowed for Used Equipment and Bonus Depreciation did not.
- Section 179 was only available up to the amount of your income in 2017, but unused Bonus Depreciation could be carried forward to future years or if your businesses had a net loss in 2017 you could carry-forward the Bonus Depreciation to future years.
Now in 2018, through 2022:
- Both allow for a 100% deduction.
- Section 179 still has the spending limit.
- Both now allow for Used Equipment.
- Bonus Depreciation is still the only way to carry forward any extra unused amount.
Which one is better?
Since Bonus Depreciation is now 100% through 2022, has no spending limit, can be used for Used Equipment and unused amounts can be carried forward, Bonus Depreciation is now the preferred deduction, unless your accountant has other reasons that make them prefer Section 179 during this time.
The contents of this post are for informational purposes only. Please confer with your tax advisor as to how the recent tax laws changes may directly impact you.