Conformity to Federal Internal Revenue Code (IRC)

Idaho law conforms to the Internal Revenue Code (IRC) as of Jan. 1, 2018. See House Bill 463 signed by Governor Otter on March 12, 2018.

Individuals

For individuals, the changes include:

• Increasing the standard deductions
  • Single = $12,000
  • Head of Household = $18,000
  • Married Filing Jointly = $24,000
• Eliminating the personal exemptions
• Eliminating dependent exemptions
• Eliminating or capping most itemized deductions
• Changing the definitions for qualified expenses from a 529 Education Savings account to include K-12 and private schools
• Creating a nonrefundable Idaho child tax credit of $130 per qualifying child. House Bill 675 subsequently increased the credit to $205.
• Reducing the individual income tax rate 0.475%. The top rate for individuals is now 6.925%.

Business

For businesses, the changes include:

• Increase of IRC Section 179 expense limit to $1 million.
  • The section 179 is an immediate expensing or accelerated depreciation election. The new law raises the expense limit from $500K to $1 million.
  • Bonus depreciation (section 168(k)) is a separate issue and Idaho doesn’t conform to that section.
• Simplified accounting for small business.
  • Simplified accounting increases the threshold for a business to be required to use accrual basis accounting from $5 million in gross receipts to $25 million. For example, a business will be able to take a deduction for some additional items that it previously would have kept as assets until used.
• Interest expense limited to 30%.
  • Interest expense deductions for a business are being limited to 30% of the sum of adjusted taxable income and taxable interest income.
• 1031 exchanges limited to real estate.
  • The section 1031 exchange allows deferring reporting any gain on the exchange of property except for cash received, until ultimately sold. This provision limits exchanges of like-kind property to real property.
  • No longer allows like-kind exchanges for other investment property such as airplanes or art.
• S corporation to C corporation conversion rules.
  • The S corporation to C corporation conversion will allow some post-conversion distributions.
• Inclusion of income (more choices).
  • The inclusion of income provision requires businesses to report taxable income no later than when it’s reported on their financial statement.
• Repeal Section 199, the domestic production deduction.
  • The deduction’s original intent was to encourage investment in domestic facilities. With the new federal territorial tax regime established with the Tax Cuts and Jobs Act, this provision isn’t necessary.
• Repeal employee entertainment expense.
  • Employee recreational memberships aren’t allowed. Professional memberships for business are allowed.
• Repeal employee transportation and parking reimbursement.
  • Employee commuting and parking expenses are no longer allowed.
• Section 199A – Reduce most pass-through income by 20% on the owner’s income tax return.
• Section 461(l)(2) – Disallow active pass-through losses in excess of $500,000 for joint filers, $250,000 for all others.
• Reduction of the corporate income tax rate by 0.475%. The top rate for corporations is now 6.925%.