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Tax Cuts and Jobs Act: A comparison for businesses [1]

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Date: 2023-09

Revenue Procedure 2018-40 PDF provides further details on these changes.

The TCJA allows small business taxpayers with average annual gross receipts of $25 million or less in the prior three-year period to use the cash method of accounting. The law expands the number of small business taxpayers eligible to use the cash method of accounting and exempts these small businesses from certain accounting rules for inventories, cost capitalization and long-term contracts. As a result, more small business taxpayers can change to cash method accounting starting after Dec. 31, 2017.

Changes regarding conversions from an S corporation to a C corporation

In the case of an S corporation that converts to a C corporation: Net adjustments that are needed to prevent amounts from being duplicated or omitted as a result of an accounting method change and attributable to the revocation of the S corporation election (e.g. adjustments required because of a required change from the cash method to an accrual method): net adjustments that decrease taxable income generally were taken into account entirely in the year of change, and net adjustments that increase taxable income generally were taken into account ratably during the four-taxable-year period beginning with the year of change.

Distributions of cash by the C corporation to its shareholders during a post-termination transition period (generally one year after the conversion) are, to the extent of stock basis tax-free, then capital gain to the extent of remaining accumulated adjustments account (AAA). Distributions more than AAA are treated as dividends coming from accumulated Earnings and Profits (E&P). Distributions after that period are dividends to the extent of E&P and taxed as dividends.

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[1] Url: https://www.irs.gov/newsroom/tax-cuts-and-jobs-act-a-comparison-for-businesses

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