Houston CPA Firm Shares Top Tax Reform Savings Strategies

The Tax Cuts and Jobs Act brought sweeping changes to the U.S. tax code and Houston CPA firm Doeren Mayhew shares top tax-savings strategies business owners should consider:

• Tax Rate Reductions: The corporate tax rate has been reduced to 21 percent, plus Alternative Minimum Tax (AMT) was eliminated. Businesses with AMT credit carryovers may offset 100 percent of their regular corporate income tax in years 2018 through 2020. For those years, corporations may also obtain a refund for 50 percent of the excess credit in each of those years. Any remaining credit will be refunded in 2021. With these provisions, businesses may now have the cash flow to support future growth initiatives.
• S Corporation Conversion: S corporations that convert to C status during the period Dec. 22, 2016, through Dec. 22, 2018, have six years to distribute their cumulative S corporation earnings tax free. This provides taxpayer’s with an opportunity to replace capital invested at individual income tax rates with lower-taxed corporate equity by distributing prospective corporate earnings tax-free to the extent of the S corporation’s Accumulated Adjustments Account (AAA) balance.
• Qualified Business Income Deduction: If you are self-employed or have a pass-through entity, such as a partnership or S corporation, you may now be eligible for a 20 percent deduction of qualified business income in 2018.
  
  Leveraging this deduction may help to reduce estimated tax payments and optimize cash flow for other business expenditures.

• 100 Percent Bonus Depreciation: This deduction has been expanded to allow full expensing (100 percent) for “qualified property” placed in service after Sept. 27, 2017, and before Jan. 1, 2023. Beginning in 2023, the deduction is then phased out over four years to 80 percent, 60 percent, 40 percent and 20 percent. Under prior law, businesses could only use bonus depreciation for new property, but used property purchases can also now be applied toward this deduction.
• Section 179 Expensing: Businesses can now annually expense up to $1 million of business property it places in service after 2017. The intent of Section 179 is to provide an additional benefit to small taxpayers, so the deduction is phased-out between $2.5 million and $3.5 million. Additionally, similar to the new bonus depreciation rules, Section 179 expensing applies to both new and used property.
• Qualified Improvement Property: If your business owns its property, you can now recover expenses related to the improvement of the interior of your building over a 10-year life, unless your business has elected out of applying interest expense limitations using the real estate business exception. The recovery period for electing real estate business taxpayers will be 20 years.
  
  The real estate business exception applies taxpayer activities in real property development, redevelopment, construction, reconstruction, acquisition, conversion, rental, operation, management, leasing and brokerages. The new qualified improvement property that generally covers improvements to the interior of a commercial building replaces the categories for qualified leasehold property, qualified restaurant property and qualified retail improvement property.

Seeking insight from a Houston tax advisor on how to apply these tax-saving strategies or to evaluate whether you qualify? Contact the Houston CPAs at Houston CPA firm Doeren Mayhew today.