2017 Tax Reform Update. Brian Newhouse, CPA, ABV Travis Lorton, CPA Alegria & Company, P.S.

Transcription

1 2017 Tax Reform Update Brian Newhouse, CPA, ABV Travis Lorton, CPA Alegria & Company, P.S.

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3 Overview Goals and Background Key Tax Proposals (House vs. Senate) Key Tax Proposals (Farm Specific Impacts) What Was Not Included and Next Steps

4 Goals Above all, the mission of the committees is to protect American jobs and make taxes simpler, fairer, and lower for hard-working American families. We have always been in agreement that tax relief for American families should be at the heart of our plan. We also believe there should be a lower tax rate for small businesses so they can compete with larger ones, and lower rates for all American businesses so they can compete with foreign ones. The goal is a plan that reduces tax rates as much as possible, allows unprecedented capital expensing, places a priority on permanence, and creates a system that encourages American companies to bring back jobs and profits trapped overseas. *Joint Statement on Tax Reform, July 27, 2017 House Speaker Paul Ryan (R-WI), Senate Majority Leader Mitch McConnell (R-KY), Treasury Secretary Steven Mnuchin, National Economic Council Director Gary Cohn, Senate Finance Committee Chairman Orrin Hatch (R-UT), and House Ways and Means Committee Chairman Kevin Brady (R-TX)

5 Background October 27 - Senate and House pass a fiscal year 2018 budget resolution November 2 - House Ways and Means Committee releases detailed tax reform proposal ( The Tax Cuts and Jobs Act TCJA) November 9 House Ways and Means Committee releases amended TCJA November 9 Senate Finance Committee Chair (Orrin Hatch) releases Senate Proposal November 14 Senate Finance Committee Chair releases a modified version of the TCJA

6 Key Tax Proposals Corporate Tax Rates 35% top rate 20% flat rate, 25% flat rate for PSCs Individual Tax Rates 7 tax brackets ranging from 10% % 4 tax brackets ranging from 12% % (with a bubble tax 6% bubble tax on income between $1M - $1.2M) 20% flat rate for all corporations starting in tax brackets ranging from 10% % (reductions of 0% - 3% at each tax bracket) Standard Deduction $6,350 / $12,700 $12,000 / $24,000 $12,000 / $24,000 Personal Exemption $4,050 for each household member Repealed Repealed

7 Key Tax Proposals Child Tax Credit $1,000 credit per child under age 17; phaseouts at $75K / $110K $1,600 credit per child / $300 per non-child dependent; phaseouts at $115K / $230K Family Tax Credit N/A $300 per filer N/A Medical Expenses State and Local Taxes Student Loan Interest Generally, 10% of AGI Deductible (Property taxes, Income Tax, Sales Tax) Up to $2,500 deduction, phaseouts apply Repealed Property taxes only deductible up to $10K $1,650 credit per child / $500 per non-child dependent Generally, 10% of AGI Repealed Repealed Up to $2,500 deduction, phaseouts apply

8 Key Tax Proposals Mortgage Interest Pease-Phase Outs Deductible on loans up to $1M ($100K on HELOC); Limited to 2 properties Itemized deductions / personal exemptions phased out when AGI exceeds $261.5K / $313.8K Existing mortgages grandfathered; Deductible on loans up to $500K; Limited to primary residence Repealed Same as existing law except repeal of interest deductions on HELOCs Repealed

9 Key Tax Provisions Exclusion of Gain from Sale of Principal Residence Estate tax / GST / Gift Tax $250K / $500K exclusion if residence 2 / 5 years 40% after $5.5M/$11M exemption; $14K annual exclusion per gift donee $250K / $500K exclusion if residence 5 / 8 years. Phased out when income exceeds $500K 40% after $10M/$20M exemption through 2022; Gift tax at 35% from 2023; Estate and GST repealed in 2023 $250K / $500K exclusion if residence 5 / 8 years. 40% after $10M/$20M exemption

10 Key Tax Proposals Pass-through Income Taxed at owner s individual tax rate 25% rate on business profits; either based on 70 / 30 split of wages to business profits OR a deemed return on capital investments in the business; 9% tax rate on $75K of net business taxable income earning less than $150K 17.4% deduction of domestic qualified business income ; Deduction limited to 50% of SE income from the business (i.e. Wages from an S- Corporation). Limit does not apply for taxpayers with taxable income not in excess of $500K / $250K

11 Key Tax Proposals AMT Net Operating Loss Deduction 20% of alternative minimum taxable income (Corporate); 26% / 28% of alternative minimum taxable income (Individual) 2-year carryback (5- year carryback for farmers); 20-year carryforward Repealed 50% of credit carryforwards available in , rest in 2022 Carrybacks generally eliminated; Indefinite carryforward period limited to 90% of taxable income and increased for inflation Repealed - 50% of credit carryforwards available in , rest in 2021 Carrybacks generally eliminated; Indefinite carryforward period limited to 90% of taxable income (80% of taxable income after 2023)

12 Key Tax Proposals (Farm) Bonus Depreciation Section 179 Expense 50% of qualifying new property placed into service for 2017; 40% for 2018; 30% for 2019; eliminated after Expense up to 100% of qualifying property up to $510K; Phased-out when purchases between $2.03M - $2.5M 100% for qualifying property (new or used) placed into service between Sept. 27, 2017 Dec. 31, Expense up to 100% of qualifying property up to $5M; Phased-out when purchases exceed $20M 100% for qualifying property placed into service between Sept. 27, 2017 Dec. 31, 2022.* Expense up to 100% of qualifying property up to $1M; Phased-out when purchases exceed $2.5M

13 Key Tax Proposals (Farm) Depreciable Life of Farm Property Section 199 (DPAD) Deduction Like-kind exchanges Generally 7 150% declining balance 9% deduction on lesser of qualified production activity income or taxable income Gain or loss deferred when a wide range of income producing property is exchanged N/A Generally, 5 200% declining balance Repealed for 2018 Repealed for 2019 Only allowed for real property Only allowed for real property

14 Key Tax Proposals (Farm) Business interest Employer Provided Housing Generally deductible Generally deductible if for the benefit of the employer Limited to 30% of EBITDA; 5-year carryforward of disallowed amounts; Not applicable for businesses under $25M of Gross Receipts or Real Estate businesses Limit the exclusion to $50K/ $25K and one residence; Considered compensation to Shareholders Generally, similar to the House Bill with a few differences. Farmers over the income threshold can elect to deduct 100% of their interest subject to using different depreciation methods N/A

15 What Was Not Included? No Loss of Stepped-up Basis in Estates No Changes to Self-Employment Tax Rules (Included in the Original House Bill) No Changes Preferential Capital Gain tax rates No Repeal of Additional Medicare Tax (NIIT) No Changes to 401(k) Rules

16 Next Steps House expected to vote today on TCJA (Thursday, November 16 th ) Senate expected to vote on TCJA next week (week of November 27 th ) If passed by both chambers, work will begin on reconciling the bills with a goal to be approved by the President before the end of the year