The U.S. House of Representatives and U.S. Senate passed H.R. 1, the “Tax Cuts and Jobs Act,” on December 20th, and the President signed the act into law on December 22nd.
In addition to the reduction in corporate and personal income tax rates, here are three ways that businesses in the sign, graphics and visual communications industry may benefit from this law:
- “Pass-through” businesses will receive a significant reduction in taxes
Most sign, graphics and visual communications businesses are “pass-through”, ie. companies organized as sole proprietorships, partnerships, LLCs, or S corporations that don't pay the corporate income tax. “Pass-through” businesses will receive a 20 percent deduction for the first $315,000 of joint income, on top of the lowering of personal income tax rates.
- Short-lived capital investments can be fully and immediately expensed
Current law applies the depreciation tax benefit over multiple years, and the new law will allow full and immediate expensing of short-lived capital investments for five years and will also increase the Section 179 expensing cap from $500,000 to $1 million.
- Estate tax exemption will more than double
With many sign companies being family-owned, the tax law will provide greater leeway to sign company owners who want to pass their estate on to potential heirs.
These provisions will become effective for companies in the sign, graphics and visual communications industry in 2018. Businesses will be able to keep more of their profits and more easily make capital investments, including purchases of production and management equipment, such as crane trucks, printers and computers.
In addition, here are two ways that customers of sign, graphics and visual communications companies may also benefit from the new tax law:
- Temporary signs can still be deducted as advertising expenses
The new law does not reduce or eliminate the deduction for businesses’ advertising expenses. This is important because costs for temporary signs are considered advertising. Retailers can continue to deduct temporary signs as an advertising expense. Costs for permanent signs are not considered advertising, but their purchase can be depreciated by businesses as long-term assets (Section 179).
- Support for signs in historic areas will continue
The law preserves a 20 percent Historic Tax Credit; this incentive is often used to purchase new exterior signage in historic areas.
Please consult your attorney or tax expert to take full advantage of this new law.