The Impact of the Tax Cuts and Jobs Act

Published by Doug Chaffins at January 2, 2019

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The Tax Cuts and Jobs Act (TCJA) is a massive bill of over 500 pages. Because of the huge number of changes, each taxpayer is affected differently, and each 2018 tax return must be examined separately to determine both the positive and the negative impacts of the bill.

Here, we offer best practices and tips to navigate this major tax legislation that affects individuals, businesses and tax-exempt entities.

What do you feel is the most significant change? Why?

For individuals, it is the elimination of personal exemptions and most itemized deductions. For large businesses the biggest change is the decrease in the corporate tax rate from 35% to 21% and for small pass-through businesses, it is the creation of the Section 199A 20% deduction for Qualified Business Income (QBI).

Are there any changes to the tax code that concern you?

Mainly just the added complexity of the changes to the tax code. The Section 199A provision with caps and phase-outs is extremely complicated and will require detailed analysis by CPAs of both the business and the business owner’s tax returns.

Which industries would greatly benefit from the new tax law?

Really all businesses will see a benefit except for some very profitable service businesses like attorneys, medical practices and financial services firms.

For your clients, which deductions and benefits will have the greatest impact?

Again, for businesses it will be the rate changes and the Section 199A 20% deduction. For individuals it will be the elimination of personal exemptions and miscellaneous itemized deductions.

As these are some of the key industries that you serve, what are some of the long-term effects of tax reform for the following:

  1. Construction industry: Companies and owners will pay lower taxes and will benefit from rate changes and the Section 199A 20% deduction.
  2. Film industry: Many individuals who will be unable to deduct out-of-pocket expenses as miscellaneous itemized deductions and are paid mostly as W-2 employees will try to negotiate contracts with production companies to be paid as 1099 contractors or set up loan out companies to recognize income and deduct their expenses.
  3. Not-for-Profit sector: The biggest impact for not-for-profits will be a decline in contributions because of the higher standard deductions and the taxpayer’s strategy of bunching several years’ contributions into a single year.
  4. Attorneys and Law Firms: Many attorneys and law firms will benefit from the Section 199A 20% deduction but will require careful year-end planning.

What are some of the accounting implications of tax reform?

The biggest opportunity will be for companies with under $25,000,000 in revenue to change to cash basis of accounting for tax reporting and expense inventories in the current year.

The recent tax code changes by the Tax Cuts and Jobs Act will change several aspects of how you file your taxes. Aside from the above changes to performing arts write-offs, other changes may affect deductions you can claim, what you owe, and even what is taxed. When you need experienced CPA assistance in the greater Atlanta area, contact Fricke & Associates, LLC today.

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