The 2018 Tax Cuts and Jobs Act has gained much attention over the last month. Just last week, some of the country’s largest corporations began to publicize how they will take advantage of the new law.

Walmart announced that it will spend $700 million on wage increases and bonuses, and additional benefits will be paid for family leave. JP Morgan Chase will open 400 new branches and increase hourly wages to between $15 and $18 in more than 100 cities.

Lastly, Apple announced that it plans to contribute $350 billion to the U.S. economy. In its announcement, Apple indicated that it forecasts $38 billion in tax charges to repatriate overseas profits. In addition, taking a page from Amazon, the company announced plans for a new campus to house technical support for customers.

We have heard for months that big business would benefit from the tax bill. What has been lost in the mix, is that hundreds of small businesses will also benefit. Without doubt, decreased tax rates will allow local business owners to keep more of their hard earned revenue. Some of the new tax provisions provide increased expensing for purchases of equipment, shortened depreciation lives for qualified real property, and most notably, a 20 percent deduction of “Qualified Business Income.”

Highlights of these provisions include:

Increased expensing: Many local businesses will benefit by being able to expense up to $1 million for equipment and qualified real property outlays. The expensing election is phased out for businesses that purchase more than $2.5 million of such property during the year.

Items that can be expensed may include new roofs, HVAC systems, fire protection systems and equipment used in a trade or business. I anticipate that there will be a surge in spending to update facilities and equipment in the upcoming months.

Deduction for Qualified Business Income: For tax years beginning after Dec. 31, 2017, the new law provides that generally, a person who has qualified business income from a partnership, S-corporation or sole proprietorship, is allowed to deduct up to 20 percent of qualified income to reduce taxable income. Though there are many complications to the provision, the deduction will only be available to businesses that pay wages.

Essentially, it rewards profitable companies that employ people. Generally speaking, the 20 percent deduction will be limited to 50 percent of the wages paid.
As an example: Jan Doe construction is a local S-corporation, with wages of $175,000 and net income of $95,000. Jan, the 100 percent shareholder, will be allowed a deduction from her taxable income equal to 20 percent of the $95,000 in net income, or $ 19,000. Since the $19,000 is less than 50 percent of wages, she will be allowed the full $19,000 deduction.

Note that sole proprietors without employees will be ineligible for the deduction and should look to start tax planning as soon as possible.

If they are properly taken advantage of, we expect that both of these tax saving provisions will enable hundreds of Maine business owners to invest more money into their operations. Further, small business owners now have an opportunity to keep a little more of their hard earned profits for themselves.

Jamie Boulette has 30 years of tax experience and is managing director of Perry, Fitts, Boulette & Fitton CPAs with locations in Bath and Oakland.

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