Here is a recap of a few of the major provisions in the Tax Cuts and Jobs Act that will directly impact many construction businesses:
• Rate reductions. The previous graduated corporate tax structure has been replaced with a flat 21 percent rate. For individuals, tax brackets were redefined, and the standard deduction and child tax credits were doubled.
• Pass-through provisions. Shareholders in S corporations and LLCs can now take a 20 percent deduction on pass-through income, subject to certain limitations.
• Alternative minimum tax (AMT). The corporate AMT has been repealed. Exemptions and phase-out thresholds for the personal AMT have increased substantially.
• Net operating loss (NOL) deductions. New limits apply to the NOL deduction. The two-year carryback provision was repealed, but the carryforward provision is now indefinite rather than limited to 20 years.
• Domestic production activity deduction (DPAD). The DPAD has been repealed.
• Interest expense deductions. New limits apply to the deductibility of interest expenses for taxpayers with gross receipts over $25 million.
• Section 179 expensing. The law raises Section 179 expense limitations and phase-out levels.
• Expensing for new and used equipment. Most equipment purchased after September 2017 can now be expensed rather than depreciated.
• Cash basis and accounting changes for small businesses. The average gross receipts limit increased from $10 million to $25 million, giving more taxpayers the option of choosing the completed contract method for recording long-term contract revenues.
This is only a partial list of the many major changes in the tax code, and there are numerous qualifications and limitations to these provisions. As you prepare for the upcoming tax season, expect to take some time with your accountant to review what’s changed.