Noteworthy Considerations

THE CORPORATE AMT IS GONE

The corporate Alternative Minimum Tax (AMT) is history. However, businesses can still receive credit for previous AMT payments that exceed their regular tax liability through 2021.

SECTION 179

For 2020, the limit for Section 179 expensing on eligible property is now $1,040,000 and phases out completely at $2,590,000. The limits for 2021 are $1,050,000 and phases out completely at $2,620,000. Within these guidelines, Section 179 also allows for immediate and 100% expensing of qualified improvement property placed in service starting in tax year 2018. This provision phases out in 2023. Improvements include:

• Any improvement to a building’s interior but not building enlargements, elevators and escalators, or changes to the internal structural framework of the building


• Roofs, HVAC, and security and fire alarms.

BONUS DEPRECIATION

The amount of bonus depreciation percentage you can use for qualified property acquired and placed in service after September 27, 2017 until January 1, 2023 is now 100%. In contrast, the bonus depreciation percentage for qualified property that a taxpayer acquired before September 28, 2017 and placed in service before January 1, 2018, remains at 50%. Talk to your tax professional to get the specifics, of which there are many.

WORK OPPORTUNITY TAX CREDIT EXTENDED

The Work Opportunity Tax Credit is still available through December 31, 2025. This credit provides an incentive for employers to hire long-term unemployed individuals (i.e., those unemployed for 27 weeks or longer.) Generally, the credit is equal to 40 percent of the first $6,000 in wages paid out to the newly hired worker.

LUXURY VEHICLES

Depreciation limits have changed for passenger vehicles placed in service after December 31, 2017. If the taxpayer doesn’t claim bonus depreciation, limits range from $10,000 in the first year to $5,760 for years four and beyond.

• $10,000 for the first year,


• $16,000 for the second year,


• $9,600 for the third year, and


• $5,760 for each taxable year thereafter in the recovery period.

If the taxpayer claims 100% bonus depreciation, the first-year limit is $18,000, while the limits for the other years remain the same. However, computer or peripheral equipment placed in service after December 31, 2017 is excluded.

INTEREST EXPENSING

Through 2025, amended IRC Section 163(j) limits corporations’ business interest expensing to any business interest income, plus 30% of the business’ adjusted taxable income. This interest expensing provision doesn’t apply to companies with gross average receipts of $26 million or less for the three previous years.

MEALS AND ENTERTAINMENT

For 2021 and 2022, business meals from restaurants are 100% deductible, rather than the usual 50%. Entertainment expenses remain non-deductible.

ACCOUNTING METHODS

In 2020, if your average annual gross receipts were $26 million or less in the three previous tax years, you can choose either a cash or accrual method of accounting. If your gross receipts exceed that threshold, you must use the accrual method. For more information about the advantages and disadvantages of each method, speak with your tax professional, or see IRS Publication 538 – Accounting
Periods and Methods.