The new tax law impacts electrical contractors in a number of ways, and most of them are good, according to Marco Giamberardino, MPA, executive director, Government Affairs, for NECA. "It is the biggest rewrite of the Code in 31 years, and it means lower rates for almost everyone," he said.
Business structure changes
For "C" corporations, the tax rate has been decreased from 35 percent to 21 percent, and the Alternative Minimum Tax (AMT) for these corporations has been eliminated.
As regards "S" corporations, LLCs, and partnerships, which are taxed at personal rates, if the businesses can meet certain thresholds, they will end up at about a 29.6 percent rate.
"As it relates to parity, this is about the same percentage rate reduction as it is for 'C' corporations - about 14 percent, so this is a good thing," Giamberardino said. "In addition, companies organized as trusts are able to take advantage of these benefits."
One concern, though: While the "C" corporation tax rates reductions are permanent, the "S" corporation and personal rate reductions are not.
"They expire in 2026, so we are working hard to seek rate permanency going forward," he said.
Other issues of concern were the individual AMT and the estate tax.
"We wanted both of these repealed," he said. "The AMT was not fully repealed, but the thresholds were increased significantly."
The exemption for the AMT was raised to $70,300 for singles and $109,400 for married couples.
The estate tax was not repealed either, and the 40 percent tax rate was not lowered, but the amount of the per-spouse exemption was doubled and now also indexed for inflation. In specific, the amount of money exempt from tax—previously $5.49 million for individuals and $10.98 million for married couples—is now double that.
"People who are involved in estate transactions are now not taxed on the first $11 million or so as an individual and the first $22 million or so as a married couple, which is a significant victory for the industry," Giamberardino said.
Changes in the tax law may also affect projects that electrical contractors might get involved in.
There are some plusses for contractors who are involved in energy efficiency projects in general, in that, with it being estimated that at least 80 percent of taxpayers will see their taxes reduced, more businesses and homeowners will have more money to spend for energy efficiency projects.
In addition, the new tax law expands business expensing by raising the cap on deductible business investments to $1 million. Although businesses depreciate or capitalize most larger investments over a number of years, they can now expense these investments up to the $1 million cap, deducting the full cost of the equipment from taxable income in the first year. Of course, this can make energy efficient equipment and energy efficiency projects more financially attractive to homeowners and businesses.
The new law also does not end tax exemption for certain bonds that are used to finance low-income housing and some energy efficiency improvements.
On the down side, though, the new law eliminates a specific type of support for state and local energy efficiency and clean energy projects by ending the authority for new tax credit bonds, including Qualified Energy Conservation Bonds. These are state and local bonds that are subsidized by the federal government and are set up to finance energy efficiency improvements to public buildings, green community programs, and certain renewable energy projects.
In terms of solar, the new law preserves the permanent 10 percent tax credit, and the eligibility requirements remain the same.
Electric vehicles also dodged a bullet. The new law does not end the tax credit for the purchase or lease of electric vehicles and hybrid vehicles. Drivers can still claim a credit of up to $7,500.