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Mar 15, 2018

Things to Think About When Filing 2017 Business Tax Returns

Sponsored Content provided by Robert Burrus - Dean , Cameron School of Business - UNC-Wilmington

This Insights article was contributed by Dr. Victoria Hansen, Associate Professor of Accounting, Cameron School of Business

While we are all excited for the new tax law changes coming in 2018, we first have to file 2017 tax returns.

As always, tax provisions have been adjusted for inflation for 2017. In addition, while most of the changes to the Internal Revenue Code (IRC) from the Tax Cuts and Jobs Act of 2017 (TCJA) are effective starting in 2018, some provisions impact 2017 returns.

Depreciation is always a big deduction for most businesses. For 2017, the immediate expensing provisions under IRC Section 179 have been adjusted for inflation. Businesses can elect to immediately expense and deduct up to $510,000 of qualified business property placed in service during the tax year.

The maximum allowable deduction of $510,000 is reduced $1 for $1 for businesses with purchases of qualified business property over $2,030,000. The $510,000 deduction is fully phased out with purchases of $2.54 million. 
Bonus depreciation is also available for 2017 tax returns, although the rules have been slightly changed from last year. For qualified property purchased before Sept. 28, 2017 the bonus depreciation rules allow for the deduction of 50 percent of the cost of qualified business property. For assets purchased after Sept. 27, 2017, the TCJA provides an increased bonus deduction of 100 percent of the cost of qualified business property.

Bonus depreciation can be taken after the Section 179 deduction is maximized. However, taxpayers can elect bonus depreciation even if they do not elect to take a Section 179 deduction. 

Qualified business property is tangible property depreciated under MACRS [Modified Accelerated Cost Recovery System] with a recovery period of 20 years or less, and computer software defined in and depreciated under IRC Section 167(f)(1).

Both new and used property qualify under Section 179. However, bonus depreciation applies only new property. Qualified business property must be placed in service before Dec. 31, 2017.

The TCJA also eliminates the deduction of some previously deductible expenses effective in 2017. Local lobbying expenses paid or incurred after Dec. 21, 2017 are no longer deductible. Local lobbying expenses include amounts paid for lobbying efforts with respect to legislation before a local government body (including Indian tribal governments).

Also, effective Dec. 21, 2017, a deduction will be generally disallowed for penalties paid to or at the direction of the government or specified nongovernmental unit with respect to a violation or potential violation of any law.

Finally, 2017 is the final year that the Section 199 manufacturers’ deduction will be available. This deduction has been repealed as part of the TCJA. The Section 199 manufacturers’ deduction allows qualifying manufactures engaged wholly or significantly in domestic production within the U.S. can qualify to reduce their tax bill.

Qualifying manufacturers include taxpayers who are engaged in:

  • The manufacture, production, growth or extraction of tangible personal property
  • The production of qualified film
  • The production of electricity, natural gas or water
  • The construction of real property
  • The provision of architecture/engineering services
The Section 199 deduction is equal to nine percent of the net income from the qualified domestic production and is limited to 50 percent of the domestic production-related wages paid by the qualifying manufacturer.

The above information relates to federal income taxes and may not be applicable for state income tax purposes. In fact, many states specifically do not follow federal tax depreciation rules. The deductions discussed above are subject to additional rules and limitations. Be sure to contact your tax professional before claiming any deductions to make sure you qualify. 

Robert T. Burrus, Jr., Ph.D., is the dean of the Cameron School of Business at the University of North Carolina Wilmington, named in June 2015. Burrus joined the UNCW faculty in 1998. Prior to his current position, Burrus was interim dean, associate dean of undergraduate studies and the chair of the department of economics and finance. Burrus earned a Ph.D. and a master’s degree in economics from the University of Virginia and a bachelor’s degree in mathematical economics from Wake Forest University. The Cameron School of Business has approximately 60 full-time faculty members and 20 administrative and staff members. The AACSB-accredited business school currently enrolls approximately 2,000 undergraduate students in three degree programs and 200 graduate students in four degree programs. The school also houses the prestigious Cameron Executive Network, a group of more than 200 retired and practicing executives that provide one-on-one mentoring for Cameron students. To learn more about the Cameron School of Business, please visit http://csb.uncw.edu/. Questions and comments can be sent to [email protected].  

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