2018 fed tax_summary_whitepaper

On Friday, December 22nd, the U.S.
government passed the largest change in
U.S. federal tax law since 1986, called the
Tax Cuts and Jobs Act (the“TCJA”). This
document summarizes the key ways the
TCJA will change how small businesses in
the U.S. will be taxed.
Continued on next page ➞
Federal Tax
Summary
2018

2Impact of the Tax Cuts & Jobs Act of 2017© Fiducial, Inc
Federal Tax Summary
The TCJA will impact your businesses starting with the 2018
calendar tax year. Many of the changes to individual taxes are
scheduled to expire after 2025 unless further extended, but
many of the corporate tax changes are made permanent unless
changed by later law. While the TCJA is extensive, we have
highlighted for you below those areas that we feel may most
significantly impact your business. Please contact your Fiducial
advisor should you have any questions with the application of
these provisions to your business.
Passthrough Taxation
The TCJA significantly effects businesses that are sole
proprietorships, partnerships, S corporations or LLCs treated
as partnerships. The TCJA defines something called,“Qualified
Business Income,”for these types of businesses and provides
a 20% deduction of taxable business income passing through
these entities to individuals and trusts receiving the income.
For passthrough entities other than sole proprietorships, the
deduction cannot exceed 50% of W-2 wages paid by the business,
though certain capital-intensive businesses may still qualify.
One of the most important limitations to this deduction is to
professional service businesses, such as attorneys, accountants,
doctors and those using their expertise and reputation for their
businesses (however architects and engineers still qualify). The
20% business deduction phases out for married couples filing
jointly with $315K or more in taxable income or at $157K of
taxable income for individuals.
How this may impact you: If you are not taxed as a C corporation
then this deduction applies to your business, and presents an
opportunity for you to reduce your taxable income. Please speak
with your Fiducial advisor regarding how this law impacts you.

Tax Rates
If your business is organized as a C corporation, the TCJA changes
your corporate tax rate. Starting with the 2018 calendar tax
year, the tax rate for all C corporations becomes a flat tax of
21% with no further brackets. Dividends will still be taxed at
the existing ordinary or qualified rates (though the dividends
received deduction has been lowered for less than 80% and
20% owned businesses). Individuals, including those receiving
income from passthrough entities, temporarily have lower
rates from 2018 through 2025 spread out over seven brackets:
10%, 12%, 22%, 24%, 32%, 35%, and 37%. These rates vary for
married couples filing jointly, married couples filing singly and
heads of households. Below we provide charts comparing the
2018 corporate, married filing jointly, married filing singly, and
individual rates under the prior law (in blue) with the rates now
effective under the TCJA (in orange) for your review.
2018 Tax Brackets for C Corporations
2018 Rate (Old) 2018 Rate (TCJA)
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
$-
$50,000
$50,001
$75,000
$75,001
$100,000
$100,001
$335,000
$335,001$10,000,000$10,000,001$15,000,000$15,000,001$18,333,333$18,333,334
$19,000,000

2018 Tax Brackets for Individuals
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
$- $100,000 $200,000 $300,000 $400,000 $500,000 $600,000
2018 Tax Brackets for Married Filing Separately
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
$- $100,000 $200,000 $300,000 $400,000 $500,000 $600,000 $700,000
2018 Tax Brackets for Married Filing Jointly
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
$- $100,000 $200,000 $300,000 $400,000 $500,000 $600,000 $700,000

How this may impact you: Whether you own a C corporation or
receive passthrough income taxed at individual rates, the tax rates
applicable to your business income are most likely lower. Please
speak with a Fiducial advisor to see how these rates will apply to
your business income.
IRC §179 Property
For property placed in service starting with the 2018 calendar
tax year, the maximum IRC §179 expense is increased to $1M
and phased-out at $2.5M (up from $2M in 2017). If your business
claims §179 deduction for a property, that deduction is subject
to recapture if the business use of the property falls to 50% or
less. However, §179 allows a taxpayer to elect to expense only
particular qualifying assets within any asset class to meet that
test and apply §179 to those assets. Furthermore, the IRS clarified
that §179 depreciation can be used for improvements to certain
business property that may be considered fixtures attached to
the property, such as HVACs, fire protection alarm systems, and
security systems.
How this may impact you: If you are considering making
improvements to your physical space or plant, the odds are
favorable that the costs of these improvements may be deducted
as an expense against your taxable business income. Please speak
with your Fiducial advisor as to how these changes apply to
your business.
Bonus Depreciation
For certain new or used business property placed into service
after Sept. 27, 2017 (but before 2023 when certain phase-outs
begin), the TCJA now allows a business to depreciate and deduct
100% of the expense of that business property in its first year of
use. The 100% first-year equipment deduction is reduced from
80% to 20% between 2023 and 2026. This“bonus depreciation”

on qualified property should not be confused with the §179
deduction described above, since these different forms of
depreciation follow different rules.
How this may impact to you: The new definition of“qualified
property”for bonus depreciation now includes used property. If
you acquire and put into use qualified property for your business,
these accelerated depreciation methods may further reduce your
taxable business income for 2018 and in the coming years. These
depreciation changes may also make asset sales more favorable
to a business than stock purchases under prior law. Please speak
with your Fiducial advisor regarding how these new bonus
depreciation rules may apply to your business plans.
Motor Vehicles
For vehicles placed into service starting in 2018 or later, the
maximum amount of allowable depreciation is increased by: (i)
$10,000 for the first year in which the vehicle is placed in service;
(ii) $16,000 for the second year; (iii) $9,600 for the third year; and
(iv) $5,760 for the fourth and later years. For years after 2018,
these motor vehicle expense limitations, as well as the $25K SUV
limitation, will be adjusted for inflation. However, please note that
specialized vehicles like hearses, tow trucks, and ambulances are
still not subject to these depreciation limits.
How this may impact you: If you use non-specialized vehicles in
your business, you may be able to deduct the vehicles’costs more
quickly from your taxable business income.
Other Miscellaneous Items Disallowed
The TCJA eliminates or limits many popular business expenses
that people deducted under prior tax law and the deferral of
gain under §1031 (a.k.a.“1031 swaps”) for non-real property.
The popular deductions that have been eliminated include
items like domestic production activities, moving expenses, and

entertainment expenses. Tax law under the TCJA no longer allows
businesses to deduct any portion of those expenses. Deductions
for employee fringe benefits like parking and mass transit are also
eliminated. Under the TCJA, business meal expenses and food
provided by employers are now limited to a 50% deduction.
How this may impact you: Activities you may have deducted for
your business in the past may no longer be deductible, so please
speak to your Fiducial advisor regarding how these changes apply
to your business activities and tax exposure.
Interest Expense
Starting with the 2018 tax year, businesses with an average of
more than $25M of gross income may no longer deduct interest
expense in excess of 30% of businesses’adjusted taxable income,
regardless of any applicable net operating losses that your
business may have. This limit is generally determined at
the individual taxpayer level, but a special rule applies to
passthrough entities that require the determination to be
made at the entity level.
How this may impact you: If your business earns on average
over the last three years more than $25M and has debt or
inter-company loans, the tax deduction you may take for that
interest expense is now limited to 30%, so please speak with your
Fiducial advisor as to how this change in the tax laws applies to
your business.
Cash Method Accounting
Starting with the 2018 calendar tax year, C corporations may use
the cash method of accounting for tax and financial purposes
so long as they have a three-year average of less than $25M in
annual gross receipts, which is up from a $5M limit. This change
applies regardless of whether your business produces or sells
merchandise. S corporations and partnerships that do not have

a C corporation partner are still allowed to use the cash method
without regard to meeting the $25M average annual gross
receipts test.
How this may impact you: If your business is organized as a C
corporation (or is a partnership with a C corporation as a partner),
and earns between $5M and $25M in gross receipts in a given
year, the cash method of accounting is now available to you as
well. The cash method of accounting may improve the timing of
certain tax events, but please speak with your Fiducial advisor to
see if this change will help you meet your business goals.
Deferred Compensation
For options exercised or restricted stock units settled during
the 2018 tax year and later, a qualified employee in a pre-IPO
company may elect to defer recognition of this income for up
to five years (except for FICA or FUTA purposes). Within this time
period, an employee may now defer the recognition of this
income unless and until one of the following conditions are met:
The employee becomes an excluded employee (generally a
1% or more owner that is either CEO or CFO or related by
family to either);
• The first date the stock becomes transferrable;
• The first date the stock is traded on an established
security market; or
• The date the employee revokes the election.
How this may impact you: If you or your employees receive
equity options from your non-publicly traded company, the
period in which you may defer recognizing the options as income
has changed. Please speak with your Fiducial advisor as to how
these new rules will apply to you.

Alternative Minimum Tax (AMT)
Corporate AMT is repealed effective for the 2018 calendar tax year
and later. The individual AMT is retained, but with substantially
higher exemption amounts. Under the TCJA, the exemption
amounts for individuals are: $109,400 for those married filing
jointly and surviving spouses; $70,300 for single taxpayers; and
$54,700 for those married filing individually. In addition, the
phase-out for applying the exemption is 25% of taxable income
over $1M for married filing jointly and surviving spouses and
$500K for all others.
How this may impact you: If you have a C corporation, the
AMT no longer applies to your business return, and if you are
organized as a passthrough for tax purposes, then your individual
AMT exemption is higher, and the phase-out of the individual
exemption is substantially higher for you as well. This means
that the AMT is less likely to apply to your tax situation, but
please speak with a Fiducial advisor to determine the specific tax
consequences for you.
Net Operating Losses
For net operating losses (“NOLs”) first realized during the 2018
calendar tax year and later, the NOL deduction is limited to 80%
of taxable income, and carrybacks of those NOLs have been
eliminated. NOLs will not expire in the future under the TCJA,
and the prior tax law will continue to apply for NOLs that arose
before 2018.
How this may impact you: The NOL preservation has been
reduced to 80% of its value going forward, and will not be applied
to past years’gains as they had been under the prior tax law. If
you have any NOLs on your 2017 return, or you expect to sustain
a loss in any future year, please speak with your Fiducial advisor
regarding this new tax law.

Foreign Investment in U.S. Partnerships
Starting with the 2018 calendar tax year, foreign sellers of
interests in U.S. passthrough businesses must pay 10% of the
gain associated with the sale of that passthrough business that is
connected to the U.S. trade or business. The buyer of the foreign
owner’s passthrough interest must withhold and pay to the IRS
10% of the gain from the sale of that interest unless the seller
certifies that the it/he/she is a U.S. person.
How this may impact you: This new provision for U.S.
passthrough businesses is very similar to the FIRPTA withholding
provisions applicable to foreign sellers of U.S. real property for
those familiar with that regime, and is designed to avoid U.S. tax
evasion by foreign sellers of U.S. assets. If you are a domestic or
foreign buyer or seller of an active U.S. passthrough business,
please consult with your Fiducial advisor regarding the impact of
this provision on your transaction. ●

2018 fed tax_summary_whitepaper

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2018 fed tax_summary_whitepaper