TCJA and Your Business Deductions: Important Changes You Need to Know

The Tax Cuts and Jobs Act (TCJA) was officially signed into law in December of 2017. This legislation brought a significant overhaul to the tax code for individual taxpayers and tax-paying businesses. One area impacted by TCJA is how businesses must handle deductions for property depreciation and business expenses.

Guidelines for the Deduction of Property Depreciation

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The TCJA makes it possible for businesses to expense 100% of their depreciation for eligible property acquired between September 27, 2017 and January 1, 2023. The act effectively boosts a business’s bonus depreciation, making it possible for the business to lower their tax obligation. 

After January 1, 2023, the 100% depreciation figure will decrease 20% each year until it expires on January 1, 2027. The TCJA also raised the maximum dollar amounts for immediately expensing section 179 property. The max deduction is now $1 million (from $500,000), and the phase-out threshold for the deduction is now $2.5 million (from $2 million).

Depreciation maximums were also increased for passenger vehicles, and owners of section 179 property can include expenses for improvements that they make to non-residential spaces when calculating their deductions. If you use the alternative depreciation system, know that the TCJA changes the recovery period from 40 years to 30 years for rental property. However, the recovery period remains at 40 years for non-residential real property.

Changes to Business Expenses and Deductions

The passage of the TCJA also impacts how your business must handle the deduction of certain business expenses. If your business is a pass-through entity, you’re now able to deduct 20% of your qualifying business income.

TCJA eliminated the ability to deduct the full cost of certain business expenditures. Businesses are no longer able to deduct the full amount of entertainment and meal expenses. Instead, you can now deduct 50% of the expenses as long as the meal or entertainment is for a customer, potential customer, or other similar business contact. 

There are also changes to the limits that govern how much interest a business can deduct. The provisions of the TCJA state that business with $25 million or less in annual gross receipts may deduct interest expenses that don’t exceed the sum of the business’s interest income and 30% of the company’s adjusted gross income and floor-plan interest. Requirements for the exchange of like-kind properties have also been changed so that only real property is eligible for a like-kind exchange.

If your company must make a payout in a sexual harassment or sexual abuse case, the TCJA specifically states that the payout is not deductible on your taxes. Payments made to lobbying and political groups, including local lobbying groups, do not qualify as tax deductions.

For more information on the TCJA and how it affects your business, contact us at 702-870-7999 today.