Question

Now that the details and analysis of the tax reform legislation is available, please review the attached article and provide two changes in the legislation that you think are good tax law changes and two that you think are bad tax law changes. Please defend your recommendations on each change.

Analysis of the Final Tax Reform Bill Cooley Alert December 20, 2017

https://www.cooley.com/news/insight/2017/2017-12-20-analysis-of-the-final-tax-reform-bill

Answer 1

The two good tax law changes in the enw legislation:-

1. Repeals corporate AMT: The corporate AMT is repealed. Corporations that previously were subject to the AMT are eligible for a refundable credit (subject to limitations until 2022) against their regular tax liability. The corporates which were before subject to payment of atleast Alternate Minimum Tax are now not required to pay this AMT giving them a big relief. Also, they can avail the credit against their regular tax liability.

2. Bonus Depreciation: Generally, a taxpayer who buys business assets that will have a useful life of more than one year is required to capitalize the cost of the asset (i.e., take depreciation deductions over the asset’s useful life instead of deducting the cost in the year of purchase). Certain assets are eligible to be depreciated under an “accelerated” system, permitting larger depreciation deductions over a shorter period of time. To stimulate investment, an additional first-year depreciation deduction, referred to as “bonus depreciation,” is allowed for certain property placed in service during prescribed years. Generally, only new property is eligible for bonus depreciation due to a requirement that the “original use” of the property start with the taxpayer. 100% of the cost of certain new and used business assets may be immediately expensed if placed in service after September 27, 2017, and before 2023.

The two bad tax law changes in the enw legislation:-

1.“Orphan Drugs” Tax Credit: Eligible taxpayers may claim a 50% tax credit for qualified clinical testing expenses incurred in testing “orphan drugs” (drugs for rare diseases or conditions). Qualified clinical testing expenses are costs incurred to test an orphan drug after the drug has been approved for human testing by the FDA but before the drug has been approved for sale. The Final Bill reduces the orphan drug credit from 50% to 25%

2. Dividends Received Deduction (DRD): A corporation can deduct a percentage of the dividends it receives from other domestic corporations. The percentage that is deductible increases based on the payee’s ownership of the payor. Starting in 2018, the Final Bill reduces the DRD percentage from 70% to 50% (in the case of less-than-20%-owned subsidiaries), and from 80% to 65% (in the case of less-than80%-owned subsidiaries).