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38 MoldMaking Technology —— MARCH 2018 THE BOTTOM The Impact of Tax Reform on Moldmaking By Michael J. Devereux II, CPA, CMP In December of 2017, Congress passed, and President Trump signed into law, the Tax Cuts and Jobs Act of 2017 (the Act), making numerous changes to the way that moldmakers are assessed and how they pay their income taxes. The Act dropped tax rates across the board, changed tax credits and incentives and limited or altogether eliminated deduc- tions. Overall, mold builders' U.S. tax bills should decrease. Here is a breakdown of the changes that are most likely to impact mold builders and related suppliers. C Corporation Changes The Act, which went into effect on January 1, 2018, permanent- ly reduces the corporate tax rate to a flat 21 percent, replacing the graduated rates of 15 to 35 percent. For shops with non- calendar year-ends, the IRS will use Internal Revenue Code (IRC) §15 and apply the different tax rates on a pro-rata basis, based upon the number of days before January 1, 2018 and the number of days after December 31, 2017. In addition, the Act eliminates the corporate Alternative Minimum Tax (AMT) for tax years beginning after 2017. The Act also allows tool shops to request refunds of the AMT credit carryforwards over the next four years. Any AMT credits remaining in 2021 will be refunded to the taxpayer. Pass-Through Entity Deduction The Act allows individuals and some trusts that own an inter- est in a partnership, S Corporation or a sole proprietorship to deduct 20 percent of domestic qualified business income for tax years beginning after December 31, 2017 and before January 1, 2026. However, some limitations exist. For example, the deduc- tion is equal to the lesser of the combined qualified business income of the taxpayer or 20 percent of the taxable income. The deduction reduces taxable income, not adjusted gross income. Also, eligible owners are entitled to the deduction whether they itemize their deductions or claim the new, great- er standard deduction. Consultants, attorneys and accountants working with moldmakers may have additional limitations to the deduction. What is more, the deduction is limited to the greater of 50 percent of the W-2 wages that the mold shop pays. Or, the deduction is limited to the sum of 25 percent of the W-2 wages that the mold shop pays plus 2.5 percent of the unadjusted basis, immediately after purchase, of all qualified property. The unadjusted basis is the basis of property that would be used to figure a gain on the sale of the property but without reduction for any depreciation deductions. Property and Equipment In one of the only retroactive provisions, the Act allows for 100-percent bonus depreciation for eligible property that is placed into service after September 27, 2017 through December 31, 2022, with the benefit phased out over the next five years as follows: • 80-percent bonus depreciation for property placed in service during 2023 • 60-percent bonus depreciation for property placed in service during 2024 • 40-percent bonus depreciation for property placed in service during 2025 • 20-percent bonus depreciation for property placed in service during 2026 In a change from past bonus depreciation rules, this applies to both new and used qualified property, assuming it is "new to the taxpayer." That is to say, if a mold shop leases a piece of equipment and then purchases the equipment, it will not qualify for bonus depreciation since the equipment is not new to the mold shop. Additionally, shops may elect under IRC §179 to deduct the cost of qualifying property placed in service during the tax year rather than elect to recover the costs through depreciation deductions. The Act increases the §179 depreciation limit from $510,000 to $1,000,000 for tax years beginning after December 31, 2017. The IRC §179 limit is phased-out, dollar-for-dollar, for purchases exceeding a threshold amount, which the Act increased from $2,000,000 to $2,500,000. If Congress was aiming for simplification with the Tax Cuts and Jobs Act of 2017, it missed the mark.