New Business Interest Limitations under IRC 163(j)

The Tax Cuts and Jobs Act introduced many new tax deductions. However, it also introduced several provisions that have the ability to raise taxable income. One of the biggest changes involves interest expenses. Certain companies may need to limit how much of their business interest they can actually deduct against gross receipts.

While the limitation applies to companies that have $25,000,000 or more of gross receipts or is a tax shelter, it also affects syndicates. Syndicates are any business where 35 per cent of a company’s losses pass-through to a partner or S Corporation shareholder. This webinar will discuss this little oddity and how to avoid the limitations in this case.

The calculation for the limitations is also complicated. There are many different things a preparer needs to look at to determine exactly how much of the business interest will be limited. If the business interest is limited, we will also look at what happens to the interest in future years. Also covered in this webinar will be how to determine if a company is subject to the business interest limitations, and calculating the business interest limitation.

This presentation will look at the new IRC 163(j) business income deductions. It will cover:

• Figure out what the new business interest limitation is and who it applies to
• How to calculate the deduction
• How entities that have less than $25,000,000 in average annual gross receipts could still get caught up in this reduction of interest expenses
• Planning opportunities when interest expenses are limited
• Navigate the new IRS forms for the business interest limitation

This new limitation can severely change a company’s taxable income. It’s important to figure out if a business will be limited in their interest expense deductions on their taxes. If they are, it could change their debt or equity discussions in financing a company. If the limitation applies, then it will be important for the company to consider equity as a way to raise funds since there is no deduction. In addition, figuring out the limitation correctly will limit IRS exposure at audit.

• CPA
• Attorney
• EA

Nick Preusch CPA, JD, LLM, is a tax manager with PBMares, LLP. Nick has participated in helping high wealth individual and large business entities with complex tax compliance, along with specializing in international, non-for-profit tax issues, and tax ethics issues.

Nick has also worked with the Internal Revenue Service as a Revenue Agent and an Attorney with the IRS Office of Professional Responsibility. Nick is a graduate of Carthage College with a BS in Accounting and Business, University of Connecticut with a MA in Accounting, Case Western Reserve University with a JD, and Georgetown University with an LLM in taxation. Nick has also authored publications for the AICPA’s Journal of Accountancy, AICPA’s Tax Advisor, NATP’s Tax Pro Journal, and CCH’s Journal of Tax Practice and Procedure. He also co-authored a textbook, Tax Preparer Penalties and Circular 230 Enforcement, published by Thomson Reuters. He has lectured nationally on topics such as ethics, complex tax transactions and IRS practice and procedure.

Currently Nick is an adjunct professor at the University of Mary Washington. Nick has been recognized as the Top 5 Under 35 CPAs in Virginia by the VSCPA in 2017 and CPA Practice Advisor’s Top 40 Under 40. He is a member of the VSCPA’s Tax Advisory Committee and Ethics Committee, and the AICPA’s Tax Practice and Responsibilities Committee.