What’s new: Tax cuts and jobs act (Part 2)

1. BLENDED Federal Income Tax Rate: For Corporations tax elected to use a fiscal year will pay a blended tax rate and not the 21% flat rate. The new rate 21% is effective after December 31, 2017. You may want to consider amending your corporate tax return fiscal year ending January 31, 2018 to reflect the blended rate. For more information refer to Notice 2018-38.

2. Transition Tax on Foreign Earnings: Under IRC section 965, untaxed foreign earnings US company foreign subsidiaries are subject to15.5% if held in cash and cash equivalents or 8% rate for the remaining earnings and can be paid 8-year period installments. For more information refer to Notice 2018-07.

3. Foreign Person Transfer of Partnership Interest Withholding: Sale of partnership interest by a foreign taxpayer is subject to withholding under the new law provided that the sale is effectively connected with the conduct of trade or business in the US. For more information refer to Notice 2018-08, Notice 2018-29, IR-2018-81.

4. Interest Expense for Business: Deductions for business interest is now limited to business interest income plus 30% of business adjusted taxable income for certain large businesses under the amended section 163(j). For more information refer to Notice 2018-28.

5. Depreciation and Expensing: You can now elect to expense immediately any property subject to section 179 and deduct in the year the property is placed in service. The phase-out threshold increased to $2.5million from $2million with maximum deduction increased to $1million from $500thousand.

6. Limitation on Carried Interest: Carried interest is taxed at a lower tax rate rather than ordinary income. It refers to ownership interest in partnership that share in partnership’s net profits. The holding period is subject to extended 3-year rule beginning after December 31, 2017 for applicable partnership interest. . For more information refer to Notice 2018-18.

7. Proposed Regulation on 20% Deduction for Pass through Businesses: The 20% deduction of domestic qualified business income from trade or business is also referred as Section 199A and is available to taxpayers with 2018 taxable income below $315,000 for married filing joint returns and $157,500 for other taxpayers. For taxpayers earning more than the threshold amount, the deduction will be limited. For more information refer to Notice 2018-64, FAQs on section 199A at IRS.gov. And taxpayers can rely on proposed regulations until there is published final regulation.

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Disclaimer: Any accounting, business or tax advice contained in this communication is neither intended as a thorough, in-depth analysis of specific issues, nor a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties.

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Al-os & Associates  Accountancy Corporation provides accounting and tax services to individuals, corporations, LLCs and business entities. The Firm has a niche in defending taxpayers audited by the IRS and other governmental agencies.    

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