On December 20, Congress passed a comprehensive tax reform bill that will have major implications for taxpayers across the country. This new tax code will affect private citizens and businesses alike, and it has a variety of effects for the recycling industry in particular. Here's what you need to know about the new tax bill and how it will affect your recycling business.
Corporate Tax Rates
The new bill reduces the corporate tax rate to 21 percent, down from the previous tax code's 35 percent. The new bill also eliminates the corporate alternative minimum tax, which required businesses to pay a minimum amount of tax, regardless of income, deductions and other factors. Finally, the interest charge domestic international sales corporation incentives for exporters will remain in place, enabling businesses to avoid paying taxes on certain exports, including recyclables. Exporting is incredibly popular in the recycling industry, so it is good that this aspect of the tax code hasn't changed.
The pass-through structure is common in the recycling industry, meaning that the business owner reports business income on their personal tax return, rather than on that of the business itself. This format is typical of companies that are organized as S corporations or limited-liability corporations as opposed to standard C corporations. Under the new tax code, pass-through businesses will be able to deduct 20 percent of qualified business income for the year. The bill incorporates a threshold provision to prevent business owners from classifying their personal income as business income.
Equipment and Asset Purchases
The new tax bill allows new equipment purchases to be expensed in full from the date of purchase, starting with purchases made in September 2017 or later, rather than accounting for the expense over several years. For the recycling industry, this new provision could affect all types of equipment, allowing recycling businesses to lower their taxable income right from the start. The cap on asset purchase deductions has been raised to $1 million, up from $500,000 allowed under the previous tax code.
Research and Development Expenses
Under the old tax law, qualified research and development expenses could be deducted from business income in full in the year that they were purchased. The new tax code requires these deductions to be spread out over a period of five years. For recycling businesses, this means a smaller deduction each year than in the past, but also that those deductions will be steadier over time.
Find Out More
Here at Central Kentucky Fiber Resources, LLC, we recognize that tax laws can be a bit intimidating for those who are unfamiliar with their intricacies. Because of this, we are making ourselves available to our clients and others interested in how the changes might affect their businesses. We will be happy to answer any questions you may have about the changes to the tax code and what they mean for our industry. Call us today to learn more!