In fact, they change every year, with 2017-2018 being one of the most significan
ID: 426926 • Letter: I
Question
In fact, they change every year, with 2017-2018 being one of the most significant in recent years. In this discussion, please research what some of these changes are for businesses and answer the following questions:What were the most significant changes in this new tax law? What would be the effect on a business for which you might work as an engineer Would there be any changes in the way businesses deal with depreciation? A big change in taxes and depreciation also occurred in the 1980s. Research and summarize the effects of the Accelerated Cost Recovery System (ACRS) on taxes and depreciation. What is your opinion of ACRS?
Explanation / Answer
US tax law for 2017-18 which had come into effect from 1st January, 2018 comprised of positive aspects such as reduction in federal tax rate for corporations from 35% to 21%, repeal of alternate minimum tax and within next five years expensing out of purchases pertaining to capital asset. Lowering of corporate tax rate to 13.125% provided as additional incentive on earnings by US export corporations all through up to 2025.
Thus this export incentive were pertaining to earnings from sales, services, leasing and licensing for foreign use thus it indeed facilitated with an opportunity for foreign companies to consider US as the hub nation for doing business. However there was imposition of limitations on the amount of interest expense allowed as deduction and introduction of new measures such as Base Erosion Anti-abuse Tax (BEAT) to avert US tax base attrition by levying additional US tax on some deductible payments made to related foreign parties.
There is disallowance of deduction pertaining to net business interest expense of a taxpayer provided it exceeds 30% of business’ adjusted taxable income for instance EBIDTA or EBIT. The provision would apply to all business and interest payments irrespective of whether done to related or unrelated parties. Furthermore the fresh provision pertaining to interest limitation could unreasonably impact US corporations that employ higher leverage and could find themselves experiencing financial difficulty due to economic downturn or otherwise.
Economic Recovery Tax Act of 1981 included the accelerated cost recovery system (ACRS) which indeed impacted with an alteration in rules towards asset depreciation purchased from 1980 to 1986. Thus rather than depreciating income generating assets by utilizing a straight-line approach based on the lifetime of the asset ACRS facilitated taxpayers to depreciate assets on shorter schedules based on cost recovery system.
Furthermore accelerated depreciation facilitated with an enhancement in deduction amount thus resulting an increase in deduction claim by property owners which the regulators firmly believed would indeed help to speed up economic development. ACRS was later altered in the year 1984 and was replaced by Tax Reform Act, 1986 with the modified accelerated cost recovery system (MACRS).