Last week, the U.S. Treasury Department and the IRS issued an update regarding the Tax Cuts and Jobs Act (TCJA, P.L. 115-97), simplifying tax accounting regulations for small businesses. These new changes will apply to tax seasons starting in 2019 and 2020 and will be available to businesses that meet the requirements outlined below.
Businesses That Qualify for TCJA Changes
These modifications could greatly benefit small businesses, making tax accounting a much more simplified process. Eligible businesses will include taxpayers that meet the gross receipts test. This qualification means any business with average annual gross receipts of $26 million or less after adjustments due to inflation. The only exceptions to this rule are businesses that are classified as tax shelters who do not qualify for these simplified tax accounting rules.
Updates to the Tax Cuts and Jobs Act
These updates to TCJA can benefit small businesses through simplified tax accounting, but in what specific ways?
Businesses that meet the gross receipts test and are not classified as tax shelters qualify for this simplified cash method accounting and are also exempt from uniform capitalization rules (Sec. 263A). These updates also include clarity on non-incidental materials and applicable financial statements (AFS).
In addition to various clarifications and tweaks, the latest updates also include guidelines for the look-back method after the enactment of base erosion and anti-abuse tax (BEAT) and the repeal of the corporate alternative minimum tax. This applies to the percentage of completion method in cases when businesses have long term construction contracts.
If you’re not sure how these changes will affect your business, Hall & Company’s experts are happy to help with a personalized consultation. Looking for more information regarding TCJA updates, statutory changes, and clarified definitions? Check out the full proposal from the IRS.
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