On December 22, 2017, President Trump signed the Tax Cuts and Jobs Act (TCJA) into law. Included in the law, which contains the most significant changes to the taxation of corporations, individuals and passthrough entities in 31 years, are several noteworthy provisions related to taxpayers in manufacturing, distribution and retail, as highlighted below. Unless otherwise noted, these changes are effective for tax years beginning after December 31, 2017.

• Elimination of the Section 199 deduction, also commonly referred to as the domestic production activities deduction or manufacturers’ deduction — effective for tax years beginning after December 31, 2017.
• Doubling of bonus depreciation to 100% and expansion of qualified assets to include used assets — effective for assets acquired and placed in service after September 27, 2017, and before January 1, 2023. The 100% allowance is phased down by 20% per calendar year for property placed in service after December 31, 2022.
• Doubling of the Section 179 expensing limit to $1 million and an increase of the expensing phaseout threshold to $2.5 million.
• While the R&D tax credit was retained, for tax years beginning after December 31, 2021 amounts defined as specified research or experimental expenditures are required to be capitalized and amortized ratably over a five-year period beginning with the midpoint of the taxable year in which the expenditures were paid or incurred.
• Businesses would be exempt from the requirement to maintain inventories if annual average gross receipts for the three preceding tax-years do not exceed $25 million. This provision would allow businesses to: 1) treat inventories as non-incidental materials and supplies, or 2) follow the taxpayer’s method of accounting reflected in an “applicable financial statement” for the tax year, or if the taxpayer doesn’t have an applicable financial statement for the tax year, the taxpayer’s books and records prepared in accordance with the taxpayer’s accounting procedures.
• Taxpayers who meet the $25 million gross receipts test mentioned above would also be exempt from the uniform capitalization rules found in Code Section 263A.

Please note that this is just a brief overview of some of the most significant TCJA provisions. Contact your tax advisor to learn more about how these and the other provisions of the bill will affect you in 2018 and beyond.

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