Are you a contractor with average annual gross receipts over the past 3 years of $25 million or less? Do you have ownership in a contractor corporation that was previously subject to alternative minimum tax (AMT)? If you answered yes to either of these, then the 2017 Tax Cuts and Jobs Act may have a significant impact on your tax return.
The 2017 Tax Cuts and Jobs Act increased the average annual gross receipts threshold to $25 million. This threshold was previously set at $10 million, and because of this increase, there will be many contractors that were previously classified as large contractors that can now be classified as small contractors. Contractors classified as large contractors must use the PCM, or Percentage of Completion Method when accounting for long term contracts. However, contractors classified as small contractors may elect to use the Contract Completion Method or the Cash Method. Since AMT is calculated using the PCM method, contractors that use these alternate methods may be subject to AMT adjustments.
The 2017 Tax Cuts and Jobs Act also repealed AMT for C corporations that have tax years beginning on January 1, 2018. As a result, corporations who use alternate methods of accounting for long-term contracts will no longer be subject to AMT. Some corporations that were previously subject to AMT may have AMT credit carryforwards that can be utilized up to the tax year 2021.
For more information regarding the impact of the Tax Cuts and Jobs Act and AMT on your contracting business, please reach out via email, give us a call at (401) 921-2000, or fill out our online contact us form.