tcja - Linkenheimer LLP CPAs & Advisors

What Might Be Ahead as Many Tax Provisions are Scheduled to Expire?

Buckle up, America: Major tax changes are on the horizon. The reason has to do with tax law and the upcoming elections.

Our current situation

The Tax Cuts and Jobs Act (TCJA), which generally took effect in 2018, made sweeping changes. Many of its provisions are set to expire on December 31, 2025.

With this date getting closer each day, you may wonder how your federal tax bill will be affected in 2026. The answer isn’t clear because the outcome of this November’s presidential and congressional elections is expected to affect the fate of many expiring provisions. A new political landscape in Washington could also mean other tax law changes.

Corporate vs. individual taxes

The TCJA cut the maximum corporate tax rate from 35% to 21%. It also lowered rates for individual taxpayers, with the highest tax rate reduced from 39.6% to 37%. But while the individual rate cuts expire in 2025, the law made the corporate tax cut “permanent.” (In other words, there’s no scheduled expiration date. Tax legislation could still change the corporate tax rate.)

In addition to lowering rates, the TCJA revised tax law in many other ways. On the individual side, standard deductions were […]

By Linkenheimer LLP|2024-06-27T21:52:32+00:00June 27th, 2024|New Tax Laws, tcja|0 Comments

Update on Depreciating Business Assets

The Tax Cuts and Jobs Act liberalized the rules for depreciating business assets. However, the amounts change every year due to inflation adjustments. And due to high inflation, the adjustments for 2023 were big. Here are the numbers that small business owners need to know.

Section 179 deductions

For qualifying assets placed in service in tax years beginning in 2023, the maximum Sec. 179 deduction is $1.16 million. But if your business puts in service more than $2.89 million of qualified assets, the maximum Sec. 179 deduction begins to be phased out.

Eligible assets include depreciable personal property such as equipment, computer hardware and peripherals, vehicles and commercially available software.

Sec. 179 deductions can also be claimed for real estate qualified improvement property (QIP), up to the maximum allowance of $1.16 million. QIP is defined as an improvement to an interior portion of a nonresidential building placed in service after the date the building was placed in service. However, expenditures attributable to the enlargement of a building, elevators or escalators, or the internal structural framework of a building don’t count as QIP and usually must be depreciated over 39 years. There’s no separate Sec. 179 deduction limit for […]

By Linkenheimer LLP|2023-09-11T19:05:04+00:00September 11th, 2023|business, deduction, depreciation|0 Comments

Take Advantage of the Rehabilitation Tax Credit When Altering or Adding to Business Space

If your business occupies substantial space and needs to increase or move from that space in the future, you should keep the rehabilitation tax credit in mind. This is especially true if you favor historic buildings.

The credit is equal to 20% of the qualified rehabilitation expenditures (QREs) for a qualified rehabilitated building that’s also a certified historic structure. A qualified rehabilitated building is a depreciable building that has been placed in service before the beginning of the rehabilitation and is used, after rehabilitation, in business or for the production of income (and not held primarily for sale). Additionally, the building must be “substantially” rehabilitated, which generally requires that the QREs for the rehabilitation exceed the greater of $5,000 or the adjusted basis of the existing building.

A QRE is any amount chargeable to capital and incurred in connection with the rehabilitation (including reconstruction) of a qualified rehabilitated building. QREs must be for real property (but not land) and can’t include building enlargement or acquisition costs.

The 20% credit is allocated ratably to each year in the five-year period beginning in the tax year in which the qualified rehabilitated building is placed in service. Thus, […]

By Linkenheimer LLP|2023-04-17T17:58:43+00:00April 17th, 2023|credit, tcja|0 Comments

Changes in Sec. 174 Make it a Good Time to Review the R&E Strategy of Your Business

It’s been years since the Tax Cuts and Jobs Act (TCJA) of 2017 was signed into law, but it’s still having an impact. Several provisions in the law have expired or will expire in the next few years. One provision that took effect last year was the end of current deductibility for research and experimental (R&E) expenses.

R&E expenses

The TCJA has affected many businesses, including manufacturers, that have significant R&E costs. Starting in 2022, Internal Revenue Code Section 174 R&E expenditures must be capitalized and amortized over five years (15 years for research conducted outside the United States). Previously, businesses had the option of deducting these costs immediately as current expenses.

The TCJA also expanded the types of activities that are considered R&E for purposes of IRC Sec. 174. For example, software development costs are now considered R&E expenses subject to the amortization requirement.

Potential strategies

Businesses should consider the following strategies for minimizing the impact of these changes:

Analyze costs carefully to identify those that constitute R&E expenses and those that are properly characterized as other types of expenses (such as general business expenses under IRC Sec. 162) that continue to qualify for immediate deduction.

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By Linkenheimer LLP|2023-03-13T19:00:07+00:00March 13th, 2023|irs, research credit, tcja|0 Comments

Notification Of Change To Tax Accounting For Research Expenses

RESEARCH EXPENSES

Under the Tax Cuts and Jobs Act (TCJA), for taxable years beginning after December 31, 2021, specified research or experimental expenditures must be capitalized and amortized over five years (15 years for expenditures which are attributable to research conducted outside the United States). Under the TCJA provision, all research expenses are amortized beginning with the midpoint of the taxable year in which such expenses are paid or incurred.

Defining research and experimental expenditures

For taxable years beginning before January 1, 2022, it didn’t matter much whether a taxpayer classified an expenditure as an ordinary and necessary business expense or as research and experimental (R&E) expenditures because either way, the taxpayer could deduct the full amount in the year it was incurred.

But, with the TCJA’s requirement that research and experimental expenses must be amortized and capitalized for taxable years beginning after December 31, 2021, the classification becomes very important.

The IRS defines research and experimental expenditures as research and development costs in the experimental or laboratory sense, which include all costs that are incident to the development or improvement of a product.

The regulations do not provide an exhaustive list of what constitutes research and experimental expenditures. However, the regulations […]

By Linkenheimer LLP|2022-12-28T18:12:25+00:00December 28th, 2022|expensing, research credit, tcja|0 Comments