The Tax Cuts and New Jobs Act (TCJA)

Transcription

1 The Tax Cuts and New Jobs Act (TCJA) October 2, 2018 October 2, 2018 Format for today: 45 minute presentation 30 minutes for question and answer How to: Housekeeping Items Expand slides to full screen Ask questions Technical issues? Contact Joel Sager at

2 Today s Speaker Angela Pecora Farm Accounting Manager Today s Objectives Understand the Tax Cuts and New Jobs Act (TCJA) and how they may apply to you as an individual and/or your businesses Consider the impact today and in the future Get your questions answered by AgChoice tax professionals 2

3 Disclaimer Any tax advice herein is based on our interpretation of current tax law. Tax law is subject to continual change, at times on a retroactive basis. Should the law or its interpretation change, our advice may be subject to change. Please consult with your professional tax advisor prior to acting on any of the information disclosed. Individual Tax Rates Married Filing Jointly (MFJ) Taxable Income Over But Not Over Is Taxed At $ 0 $ 18,650 10% $ 18,650 $ 75,900 15% $ 75,900 $ 153,100 25% $ 153,100 $ 233,350 28% $ 233,350 $416,700 33% $416,700 $ 470,700 35% $ 470, % Taxable Income Over But Not Over Is Taxed At $ 0 $ 19,050 10% $ 19,050 $ 77,400 12% $ 77,400 $ 165,000 22% $ 165,000 $ 315,000 24% $ 315,000 $ 400,000 32% $ 400,000 $ 600,000 35% $ 600,000 37% 3

4 Individual Tax Rates MFJ Comparison Example Taxable Income Difference (tax savings) $ 15,000 $ 1,500 $ 1,500 $ 0 $ 50,000 $ 6,568 $ 5,619 ($ 949) $ 90,000 $ 13,978 $ 11,679 ($ 2,299) $ 175,000 $ 35,885 $ 30,579 ($ 5,306) $350,000 $ 90,717 $ 75,379 ($ 15,338) $ 450,000 $ 124,383 $ 108,879 ($ 15,504) $650,000 $ 202,631 $ 179,879 ($ 22,752) Capital gains rates remain the same at 0%, 15% and 20% and based on the same breakpoints that were in effect before the new law. Filing Status 0% 15% 20% Single $0 $38,600 $38,601 $425,800 Over $425,800 MFJ $0 $77,200 $77,201 $479,000 Over $479,000 The breakpoints have been indexed for inflation. Head of household filing status preparer due diligence requirement Your tax preparer is going to ask more questions! Personal/dependency exemptions suspended until

5 Standard deduction Filing Status Standard Deduction MFJ $ 24,000 Head of Household $ 18,000 All other individual taxpayers $ 12,000 Child tax credit Increased to $2,000 (from $1,000) per qualifying child Qualifying child = individual under age 17 with a SSN Alimony Post 2017 divorce decrees/separation agreements, alimony is not deductibe or taxable. Those before 2018 are grandfathered. Health care mandate (still effective for 2018!) No longer a penalty for indivdiuals who do not maintain heath insurance that provides at least the minimum essential coverage starting in Modification to 529 Qualified Tuition Programs Old law = account established for a beneficiaries qualified higher education expenses. New law = such plans may distribute up to $10,000 tax free for a beneficiaries tuition expenses at a public, private or religious elementary or secondary school. Applied on a per student basis. 5

6 State and local taxes Limited to a total deduction of $10,000 for any state and local income taxes, property taxes and sales taxes. Limitation does not apply to state/local/property/sales taxes applicable on to Schedule C, F, E businesses. Mortgage interest Deductible on debt up to $750,000 starting with loans taken out in Prior mortgage debt ($1 million) is grandfathered. No longer a deduction for interest on home equity loans/loc unless the loans are used to buy, build or substantially improve the home that secures the debt. Tax preparers are going to be asking you how the funds were used! Cash contributions Limit on contributions is increased from 50% to 60% of donor s contribution base. Contribution base = AGI Moving expense deduction Eliminated, except for certain armed forces members. Miscellaneous itemized deductions No longer a deduction for previous expenses that were subject to the 2% of AGI limited such as tax preparation fees, union dues, investment expenses and unreimbursed business expenses. 6

7 Section 179 Expense Maximum amount a taxpayer may expense increased to $1,000,000. Phase out threshold increased to $2,500,000. Definition of qualified real property eligible for 179 expensing now includes the following improvements to nonresidential real property: Roofs Heating, ventilation and air conditioning property Fire protection and alarm systmes Security systems Bonus Depreciation Additional first year deduction is available for new and used property acquired after 9/27/17 and before After 2023, allowance phases down. Date Acquired Bonus Depreciation September 28, 2017 December 31, percent percent percent percent percent 2027 None 7

8 Farm equipment/machinery New assets used in a farming business now have a shorter recovery period of 5 years, instead of 7 years. Used machinery or equipment (even though new to the taxpayer!) remains at the 7 year recovery period. This same provision repealed the use of the 150 percent declining balance depreciation method required for property used in a farming business (i.e. 3, 5, 7, and 10 year property); the 200 percent declining balance method is now in place. However, 15 and 20 year property are still required to use the 150DB method. Like kind exchange treatment (IRC Sec. 1031) Gains on selling/buying/trading can no longer be deferred. No longer applies to machinery/equipment or other personal property. It is now only applicable to real property. 8

9 Net operating loss (NOL) modification NOL s arising in tax year 2018 will carry forward, not back. Farming losses are still eligible for a 2 year carry back. NOLs carry forward indefinitely, rather than expiring after 20 years. Will only offset 80% of taxable income Pre 2018 NOLs are grandfathered such that they can offset 100% of taxable income. Business interest deduction Does not apply to taxpayers with average annual gross receipts of $25 million or less for the 3 year period ending with the prior tax year. If above limitation is not applicable, deduction is limited to 30 percent of adjusted taxable income. DPAD (domestic production activities deduction) Repealed for tax years beginning after Corporate income tax rate reduced New tax law reduced corporate tax rate to a flat 21 percent. Estate planning implications 2018 annual gift exclusion amount = $15,000 per donee Lifetime exemption amount = $11.2 million per decedent 9

10 Section 199A deduction Intended to replace the elimination of the DPAD. New deduction provides a 20 percent deduction for qualified business income (QBI). The deduction reduces taxable income, not adjusted gross income (AGI). Does not impact self employment (SE) tax. Available for sole proprietors or individuals through a partnership or S corporation. The deduction is subject to further limitations if taxable income exceeds $157,500 (single) or $315,000 (MFJ) threshold. Sec. 199A What is QBI? Net business income (Schedule F/C) Ordinary business gains/loss from (i.e. sale of equipment) Sec. 199A What is not QBI? Long term capital gains are not part of QBI (i.e. raised/cull cow sales) Wages and/or guaranteed payments Dividends/interest income Social security income 10

11 Sec. 199A What are the further limitations? The lessor of: QBI x 20% OR The greater of 50% of the allocable wages of the qualified businesses (i.e. W2, Box 1 wages, less any wages not subject to income tax w/h and then add any employee deferrals to pension plans (such has 401k deferral)) 25% of allocable wages + 2.5% of the unadjusted basis, immediately after purchase, of all qualified property Qualified property = tangible, depreciable property held/used for use in trade or business. Unadjusted basis = original cost of 10 year property or less and still being depreciated. 11

12 Sec. 199A Other items to note If QBI is negative, then the loss carries over to reduce QBI in subsequent years. Farmers who have placed their land into one entity and then farm that ground in another entity, will now be able to aggregate these entities into one business. This allows the farmer to combine the rent income with the farm income and apply the 199A rules. Cash rent landlords will not quality for the 199A deduction if the land is being farmed by unrelated parties. Carryover losses incurred prior to 2018 will be ignored in calculating your income that qualifies for 20% deduction. TCJA Final Thoughts Watch for the final regulations. Be patient with your tax preparer as they consider how all of the changes impact your individual situation. Tax planning is key. 12

13 Questions? Contact Information Angela Pecora Farm Accounting Manager ext Farm Accounting Team: Steven Allaman Mary Bixler Tracy Blattenberger Lacey Coleman Connie Dennison Dave Fleming Leslie Hoover Aubrey Jones Sarah Meyers Kenny Nearhoof Wendy Nulty Megan Ritchey 13