Tax Update for. Banks. Paul Fries, CPA, MST June 8, 2017

Transcription

1 Tax Update for Banks Paul Fries, CPA, MST June 8, 2017

2 Federal Tax Reform - Trump Business tax rate reduction to 15% Current top corporate rate = 35% Territorial-based system of taxation Much more common around the world Current U.S. system = worldwide taxation One-time tax on repatriation of overseas earnings held by foreign subsidiaries of U.S. companies Elimination of special interest tax breaks 2

3 Federal Tax Reform Trump (Cont.) Individual income tax brackets Currently 7 brackets Max. rate = 39.6% Proposal = 3 brackets (10%, 25%, and 35%) Doubling of the standard deduction 2016 = $6,300 Single; $12,600 MFJ Increase in tax credits for child care and dependent care expenses Elimination of itemized deductions other than mortgage interest and charitable contributions Repeal Alternative Minimum Tax (AMT) Repeal Estate Tax Repeal 3.8% Net Investment Income Tax 3

4 Federal Tax Reform House GOP Corporate Tax Rate Reduction 35% to 20% Tax Rate from pass-through entities = 25% Expensing rather than depreciating investments in equipment and structures No net interest expense deduction permitted Border adjustments tax Existing repatriated foreign earnings = 8.75% 3 Individual tax brackets (12%, 25%, and 33%) Increase standard deduction Elimination of itemized deductions other than mortgage interest and charitable contributions Repeal AMT, Estate Tax, and 3.8% Net Investment Income Tax Interest, dividends, and capital gains = 16.5% 4

5 NYS Budget Millionaire s Tax extended through 2019 Top personal tax rate through 2019 = 8.82% Top personal tax rate effective 2020 = 6.85% Tuition-free College SUNY/CUNY Family income less than $100k (2017), $110k (2018), and $125k (2019) Must work in NYS for the number of years student attended college under the program, or scholarship converts to student loans Enhanced credits (child care, youth jobs) No NYS S-corp conformity Uber 5

6 Tax Planning Considerations Financial Statement Tax Implications Multi-state Tax Considerations NYS Tax Considerations Optimizing REIT benefits Temporary Tax Differences Tax Accounting Methods Review New tangible property regulations & cost segregation studies Tax Credits historic, low income Capital gain strategies Captive Insurance Companies Non-bank Subsidiary for Muni bond investments 6

7 Financial Statement Tax Implications Tax Rate Reduction = DTA Write-down ASU Stock Compensation Difference between tax deduction and book expense recognized through tax expense on Income Statement o Former treatment = recognized in Equity (APIC pool) Effective Dates (although early adoption permitted) o Public Company = 2017 o Non-public Company = 2018 ASU B/S Classification of DTA/DTL Simplified Presentation All DTA s and DTL s classified as a single net non-current item Effective Dates (although early adoption permitted) o Public Company = 2017 o Non-public Company =

8 Multi-State Tax Considerations Economic Nexus States expanding reach under economic nexus standard Revenue by State reports important to produce Adjacent State Provisions PA Shares Tax = $100k of PA sourced income NJ = No de minimis gross receipts test o One customer in theory triggers nexus Min tax = $500 o Worldwide payroll in excess of $5M = Min tax of $2,000 CT = $500,000 of CT gross receipts MA = $500,000 of MA sourced income or $10M in MA assets or 100 MA customers 8

9 NYS Tax Considerations Combined Filing, Apportionment, NYS NOL, & R-S-T Modifications Mortgage Recording Tax credits Eligible = 1-6 units Refundable o All 2015 refundable credit claims under NYS desk audit Empire Zone Expiration Certified before 4/1/2005 = 14 years of benefit Certified after 4/1/2005 = 10 years of benefit Optimizing REIT benefits REIT in place for one day during year = T-Mod Comparison to S-Mod deduction 9

10 NYS S Modification: Is the Loan A Qualifying Loan? 10

11 NYS S Modification (Cont.) Definitions: Residential Real Estate Loan (1) Loan secured by an interest in real property which is, or will become, residential real property. Also includes a loan made for the improvement of residential real property. Therefore, the definition could include such items as the home equity loan or a refinance. Residential real property includes single or multifamily dwellings, facilities in residential developments dedicated to public use or property used on a nonprofit basis for residents, and mobile homes used on a transient basis. Active business (2) A business qualifies as an active business if the value of the financial instruments (ie. stocks, bonds, and other investment securities that are marked to market) it holds for investment do not exceed 50% of the value of its total assets. < 100 employees (3) Employee count is not including general executive officers. Affiliated Group (4) A business may not be part of an affiliated group, unless the group would have itself met, as a group, the active business, employee and gross-receipts requirements as stated

12 Temporary Tax Differences Timing Differences Important Deductions at 34% worth more than at 15%! Tax Accounting Methods Review Prepaid Expenses Loan Write-offs Tangible Property Regulations & Cost Segregation Studies Any significant branch rehab projects in current year? Any significant building projects in recent years that may benefit from a cost seg study? Applying the combination of tax rules regarding partial dispositions, cost segregation, and new QIP bonus depreciation = big tax savings 12 12

13 Tangible Property Regulations Bonus Depreciation = available through 2019 De Minimis Capitalization Policy Up to $5,000 for audited companies Qualified Improvement Property (QIP) New bonus depreciation category for building improvements (including 39-year tax life property) Any improvement to the interior of a commercial building (that is not part of the internal structural framework ) Applies whether you own the building or are leasing from a 3 rd party Covers branch remodels, office renovations, etc. Does not include: o Residential real property o Addition or enlargement o Elevator or escalator o A brand new building (building must have previously been placed in service) 13 13

14 Other Tax Planning Considerations Tax Credits Historic, Low Income Capital Gain Strategies To avoid expiration of capital loss carryforwards Captive Insurance Companies IRS scrutinizing these structures (as transactions of interest ) must have legitimate insurable risks o New Micro-captive disclosure requirements Non-bank Subsidiary for Muni bond investments Technically, TEFRA interest expense disallowance applies only to banks Strategy enables acquisition of Non-bank Qualified Muni s which have higher yields, without the enlarged TEFRA disallowance o Bank Qualified Muni s = % disallowance o Non-bank Qualified Muni s = % disallowance 14 14

15 Thank You!