Pub. 5318: Tax Reform Provisions that Impact Business

Pub. 5318: Tax Reform Provisions that Impact Business

Congress passed major tax reform in the Tax Cuts, and Jobs Act passed on December 22, 2017. This legislation, which affects individuals and businesses, is known as the TCJA or Reform Act.

The IRS released the Pub 5318 as a provision of the TCJA, which is important for understanding small and medium-sized businesses, owners, and tax practitioners. Companies affected by TCJA include corporations, S corporations, partnerships (including limited liability companies or LLCs), and sole proprietorships.

Changes in deductions, depreciation, expenses, loans, additional benefits, and other items can affect the tax liability and financial results of the Company. It is important to consider your business structure and your accounting practices when applying tax reform to your situation.

Certain provisions of the TCJA that affect individual taxpayers may also have an impact on business taxes. As a self-employed person or business owner, you must review personal tax reform changes and determine how these provisions affect your business' tax position.

This article is intended to provide an overview of changes to the TCJA that may affect your business.


Publication 5318 includes sections on:

  • Qualified Business Income Deduction 

  • Depreciation

  • Business-related losses

  • Business-related exclusions and deductions 

  • Business credits 

  • S corporations 

  • Farm provisions 

  • Miscellaneous provisions


  • Corporate Alternative Minimum Tax: Minimum tax credit on previous year's profits: allows a repayable loan to offset the taxpayer's tax burden for years after 2017, and before 2022, taxpayers can only collect 50% of the regular tax credit for years before 2021 and 100% after that.

  • Corporate Tax Rate: TCJA reduces the corporate tax rate to a fixed rate of 21% of taxable income for fiscal years beginning after December 31, 2017. Some companies choose to use fiscal year-end rather than calendar year-end for federal income tax purposes. Due to a provision of the TCJA, a business with a fiscal year of 1 January 2018 will pay federal income tax using a combined tax rate and not the fixed rate of 21% of the TCJA, which is generally applicable to taxable years from December 31, 2017.

  • Qualified Business Income Deductions: Several sole proprietors, partners, trust fund owners, and individual and independent shareholders of S corps may be eligible for a new deduction, known as Section 199A or the deductions for qualified business income - allows sole proprietors, partner corporations, beneficiaries, and S corporate shareholders deduct 20% of their qualified business income, subject to limitations. Typically, the deduction is less than (1) 20% of QBI plus 20% of eligible REIT dividends and income from qualifying publicly traded corporations or (2) 20% of taxable income less net capital gains.


Amendments to Section 168 and 179

  • 100% Temporary Bonus Depreciation: for qualifying assets commissioned after 09/27/2017 and before 01/01/2023, used goods are eligible subject to certain restrictions.

  • Depreciation Limits for Cars and Personal Use Property: Depreciation limits for cars are changed with different permissible depreciation deductions, depending on whether the taxpayer requests bonus depreciation; computer equipment and peripherals are removed from the listed property definition.

  • IRC §179 Property: maximum deduction increases to $ 1 million, eliminating $ 2.5 million; The IRC §179 property definition has been extended to some non-residential property improvements, including most improvements to a building, roof and heating systems, air conditioning, security, and fire protection.

  • Recovery Period for real property: The depreciative period of the Alternative Depreciation System (ADS) for reduced rent for residential buildings from 40 to 30 years. The separate categories of properties qualifying for lease improvements, properties qualifying for restaurants, and properties qualifying for retail improvements are combined into properties qualified improvement property (QIP) and no longer have a 15-year repayment period. A real estate or commercial company that chooses to eliminate the commercial interest limitation should use ADS to depreciate non-residential properties, residential rental properties, and QIP.


Net Operating Loss Deduction 

  • NOL Deduction: limited to 80% of the taxable income for the year instead of 100%; it can no longer be carried back (except for farms and some insurance companies), but it can be carried indefinitely to apply in future exercises.

  • Unincorporated loss deduction limit: for years ending after 12/31/17 and before 01/01/26, unincorporated taxpayers can only deduct a business loss equal to the value of the gains 'business plus $ 250,000 ($ 500,000 for joint taxpayers) in a fiscal year; losses above the limit can be transferred to NOL.

Business Related Exclusions and Deductions 

  • Deduction for meals and entertainment: Entertainment expenses forfeit all deductions; taxpayers can deduct 50% of the cost of business meals if the taxpayer (or the taxpayer's employee) is present and meals are provided to customers or business partners; food and beverages purchased at entertainment events are not considered entertainment when purchased separately with a separate receipt.

  • Like-Kind Exchanges: the processing is now limited to real estate exchanges; properties should be retained for productive use in a business or investment.

  • Limitation of business interest charges: Interest charges are limited to the amount of business interest income, 30% of adjusted taxable income, and floor plan interest expense; the interest expense cap does not apply to certain small businesses ($ 25 million or less in gross revenue in the past three fiscal years) and utility companies; real estate and agricultural companies can choose not to participate, but must use ADS for depreciation.

  • Reimbursement of qualifying moving expenses: For the 2018-2025 fiscal years, excluding these reimbursements from employee income is suspended, requiring employers to include reimbursements in the employee's salary.

Rehabilitation Tax Credit

The taxpayers can obtain a credit of 20% in a proportion of five years, and instead of the year, the building is placed in service. The 10% rehabilitation credit is eliminated for buildings before 1936. A transitional rule allows owners of historic structures or buildings before 1936 to use the previous law to meet certain conditions.


Expansion of Qualifying Beneficiaries of Electing Small Business Trusts: People who are not US citizens or permanent residents are referred to as non-resident aliens under the Internal Revenue Code. Previously, non-resident aliens were not eligible as shareholders of S Corps. However, as of January 1, 2018, TCJA allows non-resident aliens to be potential beneficiaries of a small business selection fund.

Charitable Contribution Deductions for Electing Small Business Trusts: For fiscal years beginning after December 31, 2017, the charitable donation deduction of an election of a small business trust is no longer decided by the rules generally appropriate to a trust. An ESBT calculates the deduction using the rules that apply to individuals. To calculate the deduction, an ESB must calculate the Adjusted Gross Income (AGI) limit. They do this in the same way as a natural person, except that deductions are allowed for costs related to the administration of ESBT and are costs that the fund would not have acquired if the property had not been in the ESBT.


Conversion from S Corporation to C Corporation: Some S corporations may find it beneficial to become a C corporation due to the new C corporation fixed rate of 21%. The recent changes make two changes to the existing law for C Corp. which:

  • Has the same shareholders in identical proportions, on the revocation date and on December 22, 2017.

  • Was an S company on December 21, 2017,

  • Revoke your choice of S Corp after December 21, 2017, but before December 22, 2019 

The following changes apply to these entities:

  • After the post-closing transition period, cash distributions are treated as from the Company's accrued adjustments account and pro-rata earnings and income.

  • The period to include the net adjustments required by law and attributable to the revocation of election S Corp (for example, a change from the treasury method to a mandatory accumulation method after the revocation of S Corp election) changed to 6-years. This 6-year period applies to net adjustments that reduce taxable income and net adjustments that increase taxable income.


Alternative Depreciation System for Electing Farming Business: farms that choose outside of the interest deduction limit must use ADS to write off any property with a payback period of 10 years or more; properties used on farms are not required to use the 150% decreasing equilibrium method; however, if the property is 15 or 20 years old, the taxpayer should still use the 150% descending balance method.

Treatment of agricultural properties: The payback period for new machinery used on a farm is reduced from 7 to 5 years. However, some agricultural properties (grain containers, cotton products, fences, and other land improvements) are not eligible for this provision.

Qualified Opportunity Zones (QOZ)

These areas are located in economically disadvantaged communities to stimulate investment. These zones provide tax advantages for those who invest in zones through qualified opportunity funds. Benefits include deferred income and the elimination of taxes depending on the duration of the investment.


Opportunity Zones

Opportunity zones are an economic development tool that encourages tax incentive investments in disadvantaged communities nationwide and in the United States. The recently adopted provision (section 1400Z-2) offers certain advantages for investments in these areas of opportunity by investing in qualified opportunity funds. Qualifying Opportunity Funds must be a partnership or corporation organized to invest in a Qualifying Property located in a designated Qualifying Opportunity Area.

After investing capital gains in a Qualified Opportunity Fund (QOF), investors enjoy the following benefits:

  • The abolition of capital gains tax on the sale of the investment is maintained for at least ten years.

  • By increasing the base, an exclusion of 10% of deferred profits after five years, which increases to 15% after seven years.

  • Postpone the recognition of income invested in a QOF until the date of sale or exchange of the investment or December 31, 2026.

To maintain eligibility as a qualifying opportunity fund and avoid penalties, the corporation or partnership incorporated as a QOF must meet the registration requirements to provide basic evidence and be eligible for excluding deferred earnings. Investors also have registration requirements that they must meet.

IRS Tax Challenge

Individuals and businesses have more time to file an administrative claim or bring a civil action for execution or improper execution. The TCJA has extended the period for filing an administrative action and undertaking from nine months to two years.



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