Recently I was talking to a friend/client that is an engineer. We were discussing some of the tax law changes, that went into affect in the 2018 tax year, and how it will affect his engineering firm.  After we went over some of the tax law changes, he stated “You must be a genius to keep up with all of these tax changes.” He continued “the principals regarding structural integrity and the properties of concrete strength have remained pretty much the same over the years”. He then asked “How do you keep up with all of the changes?”

Honestly, there is a lot of change, and the only thing consistent in the tax code is change. Fortunately I am surrounded by a great team of smart, dedicated professionals that help keep the changes manageable.  Outlined below are just a few of the changes. If you are not aware of these changes, you may be missing out on some tax deductions, or on the other hand, exposing your business to an IRS audit.

Architects and Engineers get special treatment

Architects and Engineers must have a great lobby in Washington D.C. With the implementation of the “Tax Cuts and Jobs Act” (TCJA) most service firms were limited on the amount of qualified business income deductions that could be taken through IRC Section 199A. The new tax law treats Architects and Engineers more favorably that almost any other professional service firm. It is significant that Architects and Engineers are excluded from the carve-out that excludes the benefit of the deduction to most other professional service firms.

Limits on the Deduction of Business Interest – IRC Sec. 163 (j)

For tax year beginning in January 2018, all businesses, regardless of its formation type, will be subject to disallowance of an interest expense deduction. Interest expense in excess of 30% of the business’ taxable income will be disallowed in the current period and carried forward indefinitely to future tax years.  Small businesses with average annual revenue under $25 Million (3 year average) are exempt from this 30% limitation.  Relying on a professional that understands this tax law can help business owner’s structure debt in a manner that will be most effective.

Increased 1^st Year Depreciation Expensing (IRC Sec. 179)

The limit on the first year depreciation, otherwise known as section 179, has increased to $2,500,000 for eligible assets placed into service in 2018 and beyond. Also noteworthy is “Qualified Real Property” eligible for the Section 179 deduction is expanded to improvements to non-residential real property such as roofs, HVAC, fire protection, alarm, and security systems.  The changes mentioned above are just the tip of the iceberg. If you have any questions regarding the items outlined above, or any tax law questions in general, we have a team of Tax Genius’ that can help you navigate the ever changing tax code.

Robert S. Cox, CPA