O&MM Fabricator - March/April 2018 - 31

Pass-Through Businesses
Pass-through businesses operating as partnerships, limited liability companies (LLCs),
S corporations and sole proprietorships, pass
their income to their owners who pay tax at the
individual rate. The TCJA created a 20 percent
deduction that applies to the first $315,000 of
income (half that for single taxpayers) earned
by metal fabrication shops operating as passthrough businesses.
All businesses under the income thresholds, regardless of whether they're considered
"service businesses" or not, can take advantage of the 20 percent deduction. For passthrough income above this level, the new law
also provides a deduction for up to 20-percent,
but only for "business profits," reducing the
owners top, effective marginal tax rate only
to no more than 29.6 percent.
The TCJA also places limits on who can
qualify for the pass-through deduction, with
strong safeguards to ensure that so-called
"wage income" does not receive the lower
marginal tax rates for business income. Thus,
that 20-percent deduction applies only to business income that has been reduced by the
amount of "reasonable compensation" paid
the owner. Exactly what is "reasonable" compensation has not been defined by lawmakers
or the IRS as yet.
The Corporate Alternative
Minimum Tax
Lawmakers long ago created a unique 20
percent tax rate as part of a parallel tax system
that limited tax benefits to prevent large-scale
tax avoidance. Under this system, incorporated businesses were required to calculate
both their ordinary tax bill and the AMT tax,
paying whichever was higher. Fortunately, the
corporate AMT has been eliminated, lowering taxes and eliminating the confusion and
uncertainty that surrounded it in the past.
Cost Recovery -
Increased Expensing
Unlike in earlier years when an ornamental
and miscellaneous metals fabrication business
was required to claim depreciation, spreading the recovery of their equipment costs
over several years, today, many fabricators
will be able to fully and immediately deduct

100-percent of the cost of certain equipment.
What's more, this provision has been made
retroactive to September 27, 2017.
Of course, the faster write-off of equipment
costs is only temporary. It is at the 100 percent
level for expenditures between September
27, 2017 and January 1, 2023. After 2023 and
before 2025, the amount deductible drops
to 60-percent with a further decrease to
40-percent after 2025 and to 20 percent after
2026. On January 1, 2027, the equipment cost
write-off disappears.
Section 179
Despite the narrowing of differences
between bonus depreciation and the tax
law's Section 179, first-year expensing, with
both offering 100 percent write-offs for new
and used property, Section 179 remains an
attractive and improved option. The immediate write-off, or "expensing" of capital
assets is appealing because, unlike so-called
"bonus" depreciation, the use of equipment
doesn't have to begin with the metals fabrication business.
Section 179 allows expenditures of up to
$1 million (up from $500,000 in 2017) for business equipment and property to be treated
as an expense and immediately deducted
rather than depreciated. The ceiling after
which the Section 179 expensing allowance must be reduced, dollar-for-dollar,
has also been increased from $2 million to
$2.5 million.
Interest Expenses
In the past, with a few exceptions, our
tax laws protected the ability of small businesses to write-off or deduct the interest on
loans as a legitimate business expense. In an
attempt to "level the playing field" between
businesses that capitalize through equity
and those that borrow, the TCJA caps the
interest expense deduction to 30 percent of
the adjusted taxable income of the metals
fabrication business.
While net interest expense in excess of 30
percent of the operation's adjusted taxable
income is now "disallowed," a special rule
applies to pass-through entities that requires
the 30 percent determination be applied at the
entity level rather than at the tax filer level. In

other words, at the partnership level instead
of the partner level.
Other exceptions exist for small businesses,
generally those with gross receipts that have
not exceeded a $25 million threshold for a
three-year period. This protects their ability to
write off the interest on loans that help them
start or expand a business, hire workers and
increase paychecks.
Like-Kind Exchanges,
Swaps and Trade-Ins
The tax law's Section 1031 governing likekind exchanges, currently allow fabricators
to defer the tax bill on the built-in gains in
property by exchanging it for similar property.
Although more a strategy for deferring a tax
bill when business assets are sold or otherwise disposed of, using multiple exchanges
fabricators have long been able to defer gains
year-after-year and ultimately escape taxation entirely.
Under the TCJA, like-kind exchanges
will be limited to so-called "real" property
(but not for real property held primarily
for sale). The provision redefines like-kind
exchanges and includes language that would
limit Section 1031 exchanges to exchanges
of like-kind "real" property. This ensures
real estate investors maintain the benefit of
deferring capital gains realized on the sale
of property.
Research and Development
Generally, "specified research and experimental expenditures" means, at least according to our lawmakers, research, development
or experimental expenditures paid or incurred
by a business. The frequently overlooked and
often misunderstood Research & Development
(R&D) Tax Credit for increased R&D expenditures was originally designed to encourage
businesses to develop cutting edge "Made in
America" products and services. It has been
preserved under the TCJA.
Naturally, a metal fabricator can choose to
deduct certain reasonable research-related
expenditures on their tax returns. They can
forgo a current deduction, capitalize the
research, experimentation or development
expenses and recover them ratably over
the useful life of the research, a period no
March/April 2018 * O&MM Fabricator | 31



Table of Contents for the Digital Edition of O&MM Fabricator - March/April 2018

President’s Letter
Letter From the Executive Director
NOMMA Network
NOMMA Education Foundation
2018 Top Job Winners Showcase
Laminated Glass Railing: New Requirements and Pointers for a Successful Installation
Francis & Hazel
The Tax Cuts and Jobs Act
NOMMA Member Savings Program–Metalfab Update
Supplier Members
New & Returning Nomma Members & Iron Club Members
Gold Members
Take a Stroll Down Memory Lane - Nomma’s First Years, Part Ii
Index of Advertisers
O&MM Fabricator - March/April 2018 - Intro
O&MM Fabricator - March/April 2018 - bellyband1
O&MM Fabricator - March/April 2018 - bellyband2
O&MM Fabricator - March/April 2018 - cover1
O&MM Fabricator - March/April 2018 - cover2
O&MM Fabricator - March/April 2018 - 3
O&MM Fabricator - March/April 2018 - 4
O&MM Fabricator - March/April 2018 - 5
O&MM Fabricator - March/April 2018 - 6
O&MM Fabricator - March/April 2018 - 7
O&MM Fabricator - March/April 2018 - 8
O&MM Fabricator - March/April 2018 - President’s Letter
O&MM Fabricator - March/April 2018 - 10
O&MM Fabricator - March/April 2018 - Letter From the Executive Director
O&MM Fabricator - March/April 2018 - NOMMA Network
O&MM Fabricator - March/April 2018 - 13
O&MM Fabricator - March/April 2018 - 14
O&MM Fabricator - March/April 2018 - 15
O&MM Fabricator - March/April 2018 - NOMMA Education Foundation
O&MM Fabricator - March/April 2018 - 17
O&MM Fabricator - March/April 2018 - 2018 Top Job Winners Showcase
O&MM Fabricator - March/April 2018 - 19
O&MM Fabricator - March/April 2018 - 20
O&MM Fabricator - March/April 2018 - 21
O&MM Fabricator - March/April 2018 - Laminated Glass Railing: New Requirements and Pointers for a Successful Installation
O&MM Fabricator - March/April 2018 - 23
O&MM Fabricator - March/April 2018 - 24
O&MM Fabricator - March/April 2018 - 25
O&MM Fabricator - March/April 2018 - Francis & Hazel
O&MM Fabricator - March/April 2018 - 27
O&MM Fabricator - March/April 2018 - 28
O&MM Fabricator - March/April 2018 - 29
O&MM Fabricator - March/April 2018 - The Tax Cuts and Jobs Act
O&MM Fabricator - March/April 2018 - 31
O&MM Fabricator - March/April 2018 - 32
O&MM Fabricator - March/April 2018 - 33
O&MM Fabricator - March/April 2018 - 34
O&MM Fabricator - March/April 2018 - NOMMA Member Savings Program–Metalfab Update
O&MM Fabricator - March/April 2018 - 36
O&MM Fabricator - March/April 2018 - Supplier Members
O&MM Fabricator - March/April 2018 - 38
O&MM Fabricator - March/April 2018 - New & Returning Nomma Members & Iron Club Members
O&MM Fabricator - March/April 2018 - 40
O&MM Fabricator - March/April 2018 - Gold Members
O&MM Fabricator - March/April 2018 - 42
O&MM Fabricator - March/April 2018 - Take a Stroll Down Memory Lane - Nomma’s First Years, Part Ii
O&MM Fabricator - March/April 2018 - 44
O&MM Fabricator - March/April 2018 - Index of Advertisers
O&MM Fabricator - March/April 2018 - 46
O&MM Fabricator - March/April 2018 - cover3
O&MM Fabricator - March/April 2018 - cover4
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