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What to Know About the 2018 Tax Reform

What to Know About the 2018 Tax Reform

Author: Thomas Vick/Tuesday, June 26, 2018/Categories: SNI Companies, SNI Financial, Financial Staffing, SNI Certes, Financial Staffing, Accounting Now

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“The Tax Cuts and Jobs Act”, passed by Congress in December 2017, may result in a difference in your tax liability. Although not applicable until the 2018 tax year, here are four significant changes to become acquainted with as you look ahead in your tax planning.

Corporate Tax Rates

The Act lowers the corporate tax rate to a flat 21% on all income.

In 2017, the average corporate tax rate was 35% on income greater than $10 million. Not only is this a significant cut, it also makes the U.S. a bit more comparative to other countries, as the average global corporate tax rate is 25%, it is thought that the new rate in the US , will keep more jobs in the United States versus companies going global in search of tax breaks.

Employee Fringe Benefits

The Act also makes significant changes to the tax impact of certain employee benefits, such as moving expenses and work-related transportation expenses.

Moving expenses will no longer be deductible for the employee and employer reimbursements for moving expense will not be tax-free. Alternatively, reimbursed moving expenses will be deductible for the employer as compensation expense if treated as W-2 wages.

Transportation stipends paid to employees will still be tax-free for employees, but only deductible for employers, as compensation expense, if treated as W-2 wages.

Interest Deduction

Interest deductions will be limited to 30% of a business’s taxable income.

Until 2018 and the introduction to the Tax Cut and Job Act, businesses in the United States were allowed to deduct business interest 99% of the time. The only exception to this new limitation is for businesses whose average gross receipts do not exceed $25 million for three taxable years.

Accounting Methods

More businesses may be eligible for cash-basis tax returns.

The cash method of accounting recognizes an organization’s revenue when cash is actually received, as opposed to when earned, and recognition of expenses when they actually are paid in cash, not when incurred. The 2018 tax reform has now extended the list of taxpayers who are eligible for this method of accounting by making it available to any company with average gross receipts less than $25 million for three previous taxable years.

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Thomas Vick
Thomas Vick

Thomas Vick

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