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Introduction
Congress's recent tax bill not only reshapes the landscape for individuals but also introduces sweeping changes for businesses. For corporations, the legislation reflects a balance between promoting domestic investment and tightening compliance on cross-border transactions. These measures will affect corporate tax planning, reporting obligations, and long-term strategic decisions.
Permanent Extension of TCJA Corporate Tax Reductions
The Bill preserves the 21% flat corporate tax rate introduced by the TCJA. By making this rate permanent, U.S. corporations gain predictability that fosters planning and international competitiveness.
Permanent R&D and Bonus Depreciation Provisions
Companies may now permanently expense domestic research and development costs and claim 100% bonus depreciation on qualifying assets. These measures accelerate cost recovery and encourage capital reinvestment.
Pass-Through Deduction Retained — Temporary Extensions
The 20% deduction for pass-through entities, such as partnerships and S corporations, is retained and, in some cases, enhanced. While certain enhancements remain temporary, permanency of the base deduction provides stability for small and medium businesses.
Expanded SALT Deduction Cap
The state and local tax (SALT) deduction cap is raised to $40,000, but phases out for higher-income taxpayers. This change primarily benefits businesses and owners in high-tax states, though with limits for very high earners.
Altered Estate Tax Policies Affecting Business Owners
While primarily an individual measure, increased estate and gift tax exemptions affect business continuity planning. Owners of closely held businesses may leverage higher exemptions to facilitate succession planning and intergenerational transfers.
Pro Tax Tips
- Capital investment: Businesses should consider accelerating purchases of depreciable assets to maximize permanent bonus depreciation.
- Entity choice review: Evaluate whether a C corporation or pass-through structure is most tax-efficient under the new regime.
- Multi-state operations: Firms in high-tax states should reassess SALT deduction strategies in light of the new cap.
- Succession planning: Closely held businesses should integrate elevated estate exemptions into long-term transfer strategies.
- Professional tax help: Corporate tax compliance can't be left to chance. Always consult an experienced tax attorney before filing your returns to keep you protected and to ensure you're taking advantage of all legal tax reduction strategies.
FAQs
Will the corporate tax rate change again in the near future?
The OBBB makes the 21% corporate rate permanent, though future Congresses could act to adjust it.
Can foreign R&D costs still be expensed immediately?
No. The OBBB applies only to domestic research and development expenses.
Does the SALT deduction increase apply to corporations directly?
No. The SALT deduction is applied at the individual level, but business owners in pass-through entities may benefit indirectly.
Should small businesses still consider incorporation?
Yes. With permanency in both corporate rates and pass-through deductions, the optimal choice depends on each business's income levels, growth trajectory, and succession plans.
Are there sunset dates for the pass-through enhancements?
Yes. While the core 20% deduction is permanent, some enhanced provisions expire after 2028, requiring careful timing.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
