CENTRAL PENN BUSINESS JOURNAL WEBINAR REAL ANSWERS ON TAX REFORM. Presented by Eric Wenger & Jonathan Clark

Transcription

1 CENTRAL PENN BUSINESS JOURNAL WEBINAR REAL ANSWERS ON TAX REFORM Presented by Eric Wenger & Jonathan Clark

2 ERIC R. WENGER CPA, MST Partner, Tax Services Group FIRM POSITION Eric is a Partner in RKL s Tax Services Group and serves as the Managing Partner of the Lancaster Office. He primarily advises closely held and family owned companies regarding tax and general business matters, including succession planning. Eric leads RKL s tax outsourcing practice, where he deals with issues including consolidated tax returns, multistate taxation and accounting for income taxes. Eric received a Bachelors in Accounting from Messiah College and a Masters in Taxation from Villanova University. CONTACT ewenger@rklcpa.com rklcpa.com/taxreform

3 JONATHAN M. CLARK CPA, MST Partner, Tax Services Group FIRM POSITION Jonathan is a Partner in RKL s Tax Services Group. He provides strategic tax planning and compliance solutions to privately held businesses and their owners, including family owned, management owned and private equity owned enterprises. Jonathan applies his specialized tax expertise to develop strategies for minimizing tax liabilities, evaluating tax consequences of alternative business decisions and frequently consults with businesses undergoing structural changes or complex transactions like mergers, acquisitions and sales. Jonathan received a Bachelors in Accounting from Liberty University and a Masters in Taxation from Villanova University. CONTACT jclark@rklcpa.com rklcpa.com/taxreform

4 WHAT CAN YOU EXPECT? REAL ANSWERS! Individual Business: Corporate and Pass-through Estate/Wealth Credits What to do immediately and in the next 12 months

5 INDIVIDUAL PLANNING Brackets & rates AMT Personal exemptions Standard deduction Mortgage interest State/local tax deductions Medical expenses Charitable contributions Misc. itemized deductions 529 Plans/IRAs Net operating losses

6 Individual Changes THE BIG PICTURE Don t file 2017 individual or business returns without thinking about whether there is an opportunity to defer income to 2018 or accelerate deductions to Lower tax rates in 2018 mean tax deductions are worth more in 2017 than 2018.

7 Individual Changes DEPENDENTS Claim the new, higher child tax credit. Phase out doesn t start until joint income exceeds $400,000.

8 Individual Changes KIDDIE TAX Follow the Trust tax brackets for kids unearned income.

9 Individual Changes RETIREMENT A Roth IRA/401(k) contribution may be a better alternative to making a traditional/deductible contribution.

10 Individual Changes RETIREMENT Consider converting some portion of Traditional IRAs to Roth IRAs while tax rates are lower (or to maximize tax benefit of having a lower income year).

11 Individual Changes EDUCATION SAVINGS Fund a 529 account and obtain PA tax deductions, avoid taxes on gains in the accounts. Now you can also use $10,000/year for private elementary and secondary schooling, too.

12 Individual Changes DIVORCE The timing of divorce decrees in 2018 versus 2019 could have significant impact on both spouses tax situations. PLAN ACCORDINGLY!

13 Itemized Deductions MEDICAL Medical expenses are more likely tax-deductible in 2017 or 2018 than in future years. Are there expenses that can be incurred sooner rather than later?

14 Itemized Deductions STATE & LOCAL TAX DEDUCTION Worried about the $10,000 limitation? Is the property used for rental, investment, or self-employment/business purposes?

15 Itemized Deductions STATE & LOCAL TAXES Owners of PA pass-through businesses, who itemize their deductions and have exceeded the $10,000 cap on state and local taxes: Make contributions to PA s EITC or OSTC programs. Beware of May 15 th or July 1 st application deadline.

16 Itemized Deductions CHARITABLE CONTRIBUTIONS Contribute to a Donor Advised Fund to bunch your itemized deductions.

17 Itemized Deductions CHARITABLE CONTRIBUTIONS Taxpayers over age 70½ who must receive Required Minimum Distributions from retirement accounts, should consider donating those amounts directly to charity for additional tax savings.

18 Itemized Deductions INTEREST DEDUCTIONS Home mortgage and home equity loans Trace the use of loan proceeds to maximize potential tax deductibility.

19 Itemized Deductions MISC. ITEMIZED DEDUCTIONS Might the employer be willing to cover some or all employee s out-of-pocket job expenses since those are no longer deductible for the employee?

20 Itemized Deductions MISC. ITEMIZED DEDUCTIONS Can individual tax preparation fees be allocated to your business or rental activities?

21 Itemized Deductions MISC. ITEMIZED DEDUCTIONS Casualty and theft losses are no longer deductible unless it s a Federally-declared disaster area. Something no one will hope for.

22 2018 Estimated Taxes IS SAFE HARBOR THE RIGHT ANSWER? Evaluate projected 2018 tax liabilities, instead of simply using prior year safe harbor methodology. State tax answers could differ significantly due to lack of conformity with Federal rules.

23 BUSINESS PLANNING Corporate rate 199A Bonus depreciation AMT repealed Interest limitations NOL changes Business loss limitations Small business exemptions Tax Credits DPAD repeal Foreign Estates

24 C Corporations TAX RATES Remember to revalue deferred tax assets and liabilities using the new 21% Federal rate. Fiscal filers have a blended rate.

25 C Corporations C CORPS WITH PROFITABLE FOREIGN SUBSIDIARIES: Must include in 2017 U.S. taxable income, the total amount of unremitted foreign earnings that were never repatriated back to the U.S. Should we elect to pay this additional tax liability over an 8 year period instead of all at once?

26 Business Changes LAST CHANCE TO DO AN NOL CARRYBACK! NOL s arising from a tax year ending after 12/31/17 are not eligible for the two year NOL carryback.

27 # SECTION 199A PASS-THROUGH DEDUCTION

28 199A Entity structure? Industry? Wages? Depreciable assets? Taxable income level?

29 199A How can you best avoid being caught in the qualified service provider definition?

30 199A Make self-employed retirement plan contributions to further reduce taxable income and potentially increase 199A deduction.

31 199A Consider bunching itemized deductions to maximize the potential benefit of Section 199A.

32 199A Are your wages from a business you own, set at the proper level to maximize the Section 199A deduction?

33 199A Don t tell the IRS you re operating a qualified service provider business if you re not! WATCH OUT for NAICS code disclosures on 2017 and 2018 returns.

34 199A I LL CREATE MY OWN LLC! Don t be quick to assume contractor status is preferable to employee. Weigh the facts and trade-offs.

35 199A REAL ESTATE FOLKS Remember that you could have NO payroll expense but still benefit from 199A.

36 Choice of Entity SHOULD I SWITCH TO A C-CORP? Annual distributions to owners? Succession/exit strategy? Double layer of tax State considerations 1202 gain exclusion potential

37 Depreciation 100% Bonus Depreciation Expanded Section 179 Given immediate tax depreciation deductions, coupled with labor shortages, is it time for your business to further explore robotics and automation?

38 Depreciation Are there prior cost segregation studies that were never done? It s never too late to do a look back cost segregation study and claim 2017 deductions at higher tax rates! Form 3115 needs to be filed by extended due date of 2017 return.

39 Depreciation 100% bonus depreciation opportunity applies for new and used assets placed in service after 9/27/17. So, consider taking advantage of this on 2017 tax returns.

40 Depreciation MERGERS & ACQUISITIONS: Consider impact of being able to deduct 100% bonus depreciation on personal property; even greater incentive for Buyers to want an asset deal.

41 Depreciation MULTI-YEAR PLANNING: In future years, if 100% bonus is going to go away (assuming it s not extended), it might be worth electing OUT of bonus in those years. Stay tuned!

42 Interest Limitation Should I accelerate the pay-down of high cost borrowing to avoid limitations on annual interest expense deductions?

43 Interest Limitation Consider changing your capital structure to avoid the interest expense limitations. Perhaps preferred equity may be a better solution to debt, despite different legal rights?

44 Interest Limitation Certain businesses can elect out of the limitation The tradeoff is deferring some depreciation benefits (ADS depreciable lives must be used).

45 Accounting Methods SMALL BUSINESS ALERT: Consider accounting method changes that defer income or accelerate deductions. Possibilities include the expanded use of cash method, UNICAP exception, percentage of completion exception, and requirement to keep inventory. Automatic changes can be made through extended due date of 2018 return.

46 Credits R&D, TIP, WOTC: These credits survived. Can you take advantage of them? Lower tax rates make deductions worth less and credits worth (proportionately speaking).

47 What Should I Do NOW? Maximize 2017 deductions Last year for NOL carrybacks Electing to change entity classification for the 2018 tax year? Depreciation catch-up for 2017 Accounting method changes 2018 Estimated tax planning

48 # QUESTIONS?

49 FOLLOW-UP OPTIONS # CLICK HERE TO LEARN MORE RKLcpa.com/TaxReform