method of accounting for income
tax purposes. Under the new bill,
the average annual gross receipts
requirement has been increased to
$25 million. This is effective for any
contracts entered into after Dec.
31, 2017. It is important to note that
for commercial contracts, percent-
age of completion is still required to
be used for purposes of the alterna-
tive minimum tax (AMT).
While under the final bill AMT
was repealed for businesses taxed
as a ‘C’ corporation, it was not re-
pealed for individuals. However, it
did provide for increased individual
exemptions. The 2018 exemption
amount was increased from
$86,200 to $109,400 and the phase
out threshold increased from
$164,100 to $1 million for married
filing joint taxpayers. The exemption
amount for single taxpayers in-
creased from $55,400 to $70,300
and the phase out threshold in-
creased from $123,500 to
$500,000. Contractors, other than ‘C’ cor-
porations, considering making the
switch to a method other than PCM
for 2018, will want to consider the
potential for AMT impacts before
making a final decision. If a contrac-
tor switches to a method other than
PCM for 2018, any contracts en-
tered into before Dec. 31, 2017,
would be taxed under the prior
method of accounting even if the
contract continued into 2018.
25 percent of W-2 wages, plus 2.5
percent of the unadjusted basis of
all qualified property. This deduction
applies for tax years beginning after
Dec. 31, 2017 and beginning before
Jan. 1, 2026.
4. Standard deduction,
charitable contributions
and the Pease Limitation
Personal exemptions are re-
moved in the bill in favor of a higher
standard deduction effective for tax
years beginning after Dec. 31, 2017
and beginning before Jan. 1, 2026.
The new standard deduction
amounts will be $24,000 for married
filing joint or surviving spouse,
$18,000 for an unmarried individual
with at least one qualifying child,
and $12,000 for single filers.
Charitable contributions – which,
under old law, were limited to 50
percent of a taxpayer’s AGI – will
now be limited to 60 percent of AGI
effective for tax years beginning
after Dec. 31, 2017 and beginning
before Jan. 1, 2026. The bill will
also repeal the current 80 percent
deduction for certain contributions
to universities made in connection
with athletic seating rights.
The overall limitation on itemized
deductions referred to as the Pease
Limitation will be suspended for tax
years beginning after Dec. 31, 2017
and beginning before Jan. 1, 2026.
This limitation essentially reduced
the value of certain itemized deduc-
tions for high income taxpayers by
three percent for every dollar over
the taxable income limit. The
phaseout was capped at 80 percent
of the total value of itemized deduc-
tions. 2017-2018 edition
3. Pass-through income
deduction Aligning with a reduced corpo-
rate tax rate, Congress provided
pass-through entities with a deduc-
tion for a percentage of their tax-
able income. Starting in 2018, a
deduction will be allowed for tax-
payers who have qualified business
income (QBI) from a partnership, ‘S’
corporation, or sole proprietorship,
subject to limitations. The 20 per-
cent deduction is limited to the
lesser of (1) 20 percent of their
pass-through business income or
(2) the greater of (a) 50 percent of
the W-2 wages paid in the qualified
trade or business, or (b) the sum of
The North Carolina Construction News — Winter 2018 — 9