Insights & Planning Points from the Proposed 199A Regulations INSIGHTS & PLANNING POINTS AUGUST 22, 2018

Transcription

1 Insights & Planning Points from the Proposed 199A Regulations INSIGHTS & PLANNING POINTS AUGUST 22, 2018

2 TO RECEIVE CPE CREDIT Individuals Participate in entire webinar Answer polls when they are provided Groups Group leader is the person who registered & logged on to the webinar Answer polls when they are provided Complete group attendance form Group leader sign bottom of form Submit group attendance form to within 24 hours of webinar If all eligibility requirements are met, each participant will be ed their CPE certificate within 15 business days of webinar

3 OUR PRESENTERS Jesse Palmer, CPA Director of Tax Quality Control Damien Martin, CPA National Tax Assistant Director

4 QUALIFIED BUSINESS INCOME DEDUCTION December 22, 2017 TCJA enacted creating new Internal Revenue Code (IRC) Section 199A March 23, 2018 Consolidated Appropriations Act, 2018 fixed the socalled grain glitch & made other changes August 8, 2018 Proposed regs 1.199A-1 through 1.199A-6 released October 1, 2018 Comments on proposed regs due August 16, 2018 Proposed regs published in Federal Register October 16, 2018 Public hearing on proposed regs Final Regs

5 QUALIFIED BUSINESS INCOME DEDUCTION Full phaseout = $207,500 (single) $415,000 (married filing jointly (MFJ)), indexed Threshold = $157,500 (single) $315,000 (MFJ), indexed Click here for PDF & footnotes

6 (WHAT WE KNOW FROM THE STATUTE) WHAT S QUALIFIED BUSINESS INCOME? YES NO Domestic Specified service trade or business (SSTB)(1) Interest(3) & dividends Guaranteed payments REIT dividends Qualified trade or business (T/B)(2) Performing services as an employee Capital gains & losses Reasonable comp PTP income (1)Except if taxpayer claiming deduction has taxable income below threshold amount (2)Includes net amount of items of income, gain, deduction & loss with exceptions listed (3)Except interest income that is properly allocable to a T/B

7 (WHAT WE LEARNED FROM THE PROP REGS) WHAT S QUALIFIED BUSINESS INCOME? YES NO Qualified T/B = 162(a)* 481(a) adjustment after 12/31/2017 Income from guaranteed payments for use of capital 1231 treated as capital gain or loss Ordinary 751(a) & (b) gain Previously disallowed losses after 12/31/17 NOLs *Includes self-rental!

8 SPECIFIED SERVICE TRADE OR BUSINESS Health Law Athletics Trading or Dealing Accounting Actuarial Science Brokerage Services Investment Management Financial Services Performing Arts Consulting Principal Asset Reputation/Skill of Employees/Owners

9 SPECIFIED SERVICE TRADE OR BUSINESS Health Good (Not an SSTB) Health clubs/spas providing physical exercise/conditioning to their customers Payment processing Research, testing & manufacture/sales of pharmaceutical/medical devices Bad (SSTB) Medical services provided by individuals directly to a patient/service recipient, e.g., physicians, pharmacists, nurses, dentists, veterinarians, physical therapists & psychologists

10 SPECIFIED SERVICE TRADE OR BUSINESS Financial Services Good (Not an SSTB) Bad (SSTB) Banking Managing wealth (wealth planners) Advising clients with respect to finances Developing retirement plans (retirement advisors) Developing wealth transition plans Providing advisory & other similar services regarding valuations, mergers, acquisitions, dispositions, restructurings & raising financial capital by underwriting or acting as a client s agent in the issuance of securities & similar services (investment bankers)

11 SPECIFIED SERVICE TRADE OR BUSINESS Consulting Good (Not an SSTB) Performance of services other than advice & counsel Providing training & educational courses Performance of consulting services embedded in/ancillary to the sale of goods/performance of services on behalf of trade/business that s not otherwise an SSTB if there s no separate payment for consulting services Bad (SSTB) Providing professional advice & counsel to clients to assist in achieving goals & solving problems (includes advocacy with intention of influencing decisions made by government or governmental agency)

12 SPECIFIED SERVICE TRADE OR BUSINESS Principal Asset Reputation or Skill of Employees Or Owners Good (Not an SSTB) Bad (SSTB) You re not famous! Receiving income for endorsing products/services Licensing or receiving income for use of individual s image, likeness, name, signature, voice, trademark or any other symbols associated with individual s identity Receiving fees or income for appearing at events or on radio, television or other media formats

13 DE MINIMIS SAFE HARBOR If gross receipts of T/B > $25 million $25 million < 5% SSTB gross receipts < 10% SSTB gross receipts Specified service trade or business

14 OPERATIONAL GUIDANCE W-2 wages Wages reported on W-2s issued by other parties count as long as T/B is common employer, i.e., professional employer organizations Wages allocated among multiple T/Bs Wages must be reported on Form W-2 filed with Social Security Administration on or before 60 days after due date

15 OPERATIONAL GUIDANCE Qualified property Basis adjustments under 734(b) & 743(b) don t count Unadjusted basis immediately after acquisition (UBIA) is not affected by bonus deprecation or 179 Property doesn t count if acquired within 60 days of year-end & disposed of within 120 days unless used in T/B for at least 45 days or can prove wasn t done to manipulate the deduction

16 OPERATIONAL GUIDANCE Other QBI determined for each T/B T/Bs with net QBI losses allocated to T/Bs with positive QBI Wage & capital tests apply after apportioning net losses Negative QBI carried over to following year; wages & UBIA of qualified property doesn t carry over Deduction doesn t reduce Basis Net earnings from self-employment Net investment income

17 AGGREGATION UNDER THE PROP REGS Elective if certain criteria met (see next slide) Not the same as 469 grouping rules Treat multiple T/Bs as a single T/B for purposes of wage & capital limitations Irrevocable & consistent reporting required from year-to-year (unless change in facts) Annual disclosure required at owner level (IRS can disaggregate if not met) T/B #1 T/B #2

18 AGGREGATION UNDER THE PROP REGS TWO OF THREE Each T/B must independently qualify as a T/B Can t be an SSTB ALL FOUR 50% or more ownership by same person (group of persons) Same tax year Products or services same or customarily offered together Share facilities or significant centralized business elements Operated in coordination with or reliance upon one or more T/Bs in the group

19 ANTI-AVOIDANCE GUIDANCE Effective for tax years ending after December 22, 2017 Crack & Pack prevented An SSTB includes any T/Bs with 80 percent or more of its property or services to an SSTB if 50 percent or more common ownership of the T/B s Multiple trusts treated as single trust if Substantially same grantors & beneficiaries Principal purpose is to avoid federal income tax Employees can t be converted to independent contractors Considered employees for purposes of deduction if they continue to provide substantially same services (unless they can provide evidence to substantiate nonemployee status)

20 KEY TAKEAWAYS Taxable income Monitor for developments T/B (especially rentals) SSTB Evaluate aggregation (case-by-case) Manage threshold amounts (multiyear tax outlook) Watch interplay with other TCJA provisions Carryovers are complex & we ll need guidance Choice of entity considerations

21 KEY TAKEAWAYS W-2 wages Determine using one of three methods provided in Notice day rule for reporting/filing Relevant pass-through entity (RPE) reporting requirements Qualified property Property doesn t count after depreciable period ends Consider potential impact on planning for the step-up in basis at death RPE reporting requirements

22 AREAS TO WATCH IN COMMENTS Each trade or business Gross receipts attributable to performance of services in an SSTB greater than the de minimis rule Multiple rental activities of a real estate professional Definitions of SSTB Computational challenges Complexity of tracking UBIA of qualified property Ordering of previously suspended loss carryovers Guidance for tiered entities UBIA of qualified property when significant portion disposed prior to year-end

23 QUESTIONS?

24 LEARN MORE & STAY CURRENT Tax Reform Resource Center bkd.com/taxreform Simply Tax Podcast bkd.com/simplytax BKD Thoughtware bkd.com/thoughtware

25 CONTINUING PROFESSIONAL EDUCATION (CPE) CREDIT BKD, LLP is registered with the National Association of State Boards of Accountancy (NASBA) as a sponsor of continuing professional education on the National Registry of CPE Sponsors. State boards of accountancy have final authority on the acceptance of individual courses for CPE credit. Complaints regarding registered sponsors may be submitted to the National Registry of CPE Sponsors through its website: The information contained in these slides is presented by professionals for your information only & is not to be considered as legal advice. Applying specific information to your situation requires careful consideration of facts & circumstances. Consult your BKD advisor or legal counsel before acting on any matters covered.

26 CPE CREDIT CPE credit may be awarded upon verification of participant attendance For questions, concerns or comments regarding CPE credit, please the BKD Learning & Development Department at

27 The information contained in these slides is for your information only, based on data available as of the date of the presentation, & is not to be considered as tax or legal advice. Applying specific information to your situation requires careful consideration of facts & circumstances. We are under no obligation to update these slides if changes occur. Consult your BKD advisor before acting on any matters covered.

28 THANK YOU! Jesse Palmer Damien Martin