How Does The 2018 Tax Reform Affect My Business?
By: Mike McCraw
The tax reform passed in late 2017 for the 2018 fiscal year was the first major tax reform since the Reagan administration’s efforts in 1986. The consensus regarding the plan is generally positive for almost all business owners, with the most beneficial provisions and applications favoring U.S. headquartered businesses with a majority of revenue stemming from domestic operations, as well as relatively low levels of leverage. The plan is expected to increase cash balances for U.S. corporations, which in turn is expected to increase business investment and growth efforts via acquisitions.
Developments for All Companies
- Reduction in Corporate Rate – A permanent change in the corporate tax rate, a reduction to a 21% flat tax from the 35%graduated rate.
- Repeal of Corporate Alternative Minimum Tax – Repealed as of January 1, 2018 with AMT credit carryover eligible through 2021 with a refundable credit thereafter.
- Net Operating Losses – Limited to 80% of taxable income starting in 2018 and the elimination of any NOL carrybacks.
- S Corp to C Corp Conversions – Dependent on current structure, and use of earnings, converting to a C corporation could be more advantageous than ever under new regulations.
- Changes to Qualified Business Income – Changes here can impact businesses owners where a majority of income is from yearly distributions of profits, which means finding the right balance of reasonable compensation & dividend income to maximize total take home pay for owners.
Potential Savings for Companies
- Deduction of Business Interest – For companies that have accessed debt markets and exceed $25M in revenue, interest expense can only be expensed when in excess of 30% of adjusted taxable income. As companies crest key revenue hurdles, new tax provisions incentivize companies to invest in growth in order to minimize tax liability.
- Changes to Entertainment & Meal Expenses – Many companies have employee benefits that include various entertainment and meal expenses. The elimination of entertainment deductions and the 50% deduction limitation for meals can highly impact firms that have relied on this as a strong employee benefit for hiring/retention and/or utilized the deduction liberally.
*Please consult a tax & accounting professional for further details surrounding 2018 Tax Reform
About Founders Advisors
Founders Advisors (Founders) is a merger, acquisition & strategic advisory firm serving middle-market companies. Founders’ focus is on oil and gas, SaaS/software, industrials, internet, healthcare, digital media and industrial technology companies located nationwide, as well as companies based in the Southeast across a variety of industries. Founders’ skilled professionals, proven expertise and process-based solutions help companies access growth capital, make acquisitions, and/or prepare for and execute liquidity events to achieve specific financial goals. In order to provide securities-related services discussed herein, certain principals of Founders are licensed with M&A Securities Group, Inc. or Founders M&A Advisory, LLC, both members of member FINRA & SiPC. M&A Securities Group and Founders are unaffiliated entities. Founders MA Advisory is a wholly-owned subsidiary of Founders Advisors, LLC. Neither Founders M&A Advisory nor Founders Advisors, LLC provide investment advice. For more information, visit www.foundersib.com