First of all, these changes are based on the Tax Cut and Jobs Act passed by the House. It has not passed the Senate. Until it does, we don’t know what tax changes are coming. The tax plan is so massive that we need to start thinking about strategies even though we’re not sure exactly what is going to happen. Please stay tuned to this website for the latest info.
The interest deduction for businesses is going to change.
The business will only be allowed an interest deduction up to 30% of the business’s EBITDA.
Yep, we’re all turning into accountants with this new law. EBITDA means earnings before a deduction is taken for interest, tax, depreciation and amortization. Any unallowed interest can carried forward for up to 5 years. After 5 years, the carryforward goes away.
There is one piece of good news. This is only valid for businesses with gross receipts over $25 million. Less than that, and you’re exempt.