Late last year, President Trump signed the Tax Cuts and Jobs Act (the Act) into law, resulting in the most sweeping tax overhaul in decades.

Many of the changes in the Act—primarily those intended to favor businesses in an attempt to spur economic growth—are permanent. Other changes—primarily those benefitting individual taxpayers—are temporary (at least for now). Some of the temporary changes include provisions: (1) reducing the top individual tax rate from 39.6% to 37%; (2) nearly doubling standard deductions ($12,000 for individual taxpayers; $24,000 for married taxpayers filing jointly); (3) eliminating miscellaneous itemized deductions for employee taxpayers; and (4) doubling the child tax credit.

The impact of the Act on each individual and business will vary. While the Firm continues to analyze the potential implications for clients, below is a brief overview of those changes that may have the most significant impact upon the transportation industry:

• Reduction in the corporate tax rate. The corporate tax rate has been slashed from 35% to 21%.
• New deduction for pass-through entities. Pass-through entities continue to be taxed at the owner’s individual income tax rate. The Act provides for a new 20% deduction for domestic “qualified business income” with some limitations.
• Depreciation changes. For equipment acquired and placed in service after Sept. 27, 2017, taxpayers can now write off 100% of the cost under revised bonus depreciation rules.
• Like-kind exchanges. The Act limits like-kind exchange treatment (previously used by transportation companies to defer gains on equipment sales) to real property transactions.
• No employee deduction for unreimbursed employee business expenses. Employee drivers can no longer deduct business expenses they incur while traveling away from home in the business of the employer. While this change does not directly impact the ability of motor carriers to offer per diem plans, it is not entirely clear what effect this change may have on how per-diem plans are administered nor how the IRS may view the continuation of such plans.

This issue of The Transportation Brief provides additional insight on some of the above changes. The Firm will continue to analyze the Act in an effort to identify its intended and unintended consequences for the transportation industry.