2018 Tax Reform Update. John Price & Tony Perricelli

Transcription

1 2018 Tax Refrm Update Jhn Price & Tny Perricelli

2 Agenda Individual Tax Changes Crprate Tax Changes Planning & Strategies 2

3 Tax Refrm Update Timeline f Refrm Legislative Path SENATE CONFERENCE COMMITTEE WHITE HOUSE Nv. 2: Ways and Means Releases First Draft Bill Week f Nv. 6 Senate Finance Chairman Release Bill December 15: Reslved Differences. Send back t Huse and Senate fr Vte Dec 22, 2017 President Signs P.L Nv. 6 Ways and Means Begins Mark-Up Week f Nv. 27 Senate Bill Mark-Up, Amendments and Debate Nv. 16 Huse Vte Dec. 2 1:51AM Senate Vte 3

4 Individual Tax Changes

5 Individual Tax Changes Estate, Gift, and Generatin-Skipping Transfer Taxes Estate and Gift Taxes Beginning in 2018, the exemptin fr estate and gift taxes is increased t $10,000,000 (and adjusted frward fr inflatin frm 2011). Inflatin - There will be a rughly $11,000,000 estate and gift exemptin starting in Generatin-Skipping Transfer Tax Beginning in 2018, the amunt f the generatin-skipping transfer tax exemptin is increased t $10,000,000 (and adjusted frward fr inflatin frm 2011). Inflatin - There will be a rughly $11,000,000 generatin-skipping transfer tax exemptin starting in These increases are set t expire n December 31, 2025, and the exemptin amunts will return t the pre-tax refrm amunts. This makes the current planning techniques still relevant, even fr estates that d nt exceed the increased exemptin amunt. 5

6 Individual Tax Changes Ordinary Incme Tax Rates The current seven tax bracket system is retained, but the rates are lwered fr all taxpayers. Belw are the current rates fr Tax Rate Married Filing Jintly and Surviving Spuse Single Head f Husehld Married Filing Separately Estates & Trusts 10% 15% 25% 28% 33% 35% 39.6% $0-$18,650 $0-9,325 $0-$13,350 $0-$9,325 N/A $18,650-$75,900 $9,325-$37,950 $13,350-50,800 $9,325-$37,950 $0-$2,550 $75, ,100 $37,950-$91,900 $50,800-$131,200 $37,950-$76,550 $2,550-$6,000 $153, ,350 $91,900-$191,650 $131,200-$212,500 $76,550-$116,675 $6,000-$9,150 $233, ,700 $191,650-$416,700 $212,500-$416,700 $116,675-$208,350 $9,150-$12,500 $416,700-$470,700 $416,700-$418,400 $416,700-$444,550 $208,350-$235,350 N/A Over $470,700 Over $418,400 Over $444,550 Over $235,350 Over $12,500 6

7 Individual Tax Changes Ordinary Incme Tax Rates The current seven tax bracket system is retained, but the rates are lwered fr all taxpayers and the threshlds are adjusted belw. These rates and ther changes are effective 2018 thrugh

8 Individual Tax Changes Kiddie Tax Children that are subject t the Kiddie Tax will have tw different tax regimes fr their earned and unearned incme: Earned Incme: Taxed at the rates applied t single filers. Unearned Incme: Taxed at rdinary incme and preferential rates applied t trusts and estates. Children will n lnger be subject t their parents tax rate. Ages fr applicatin f kiddie tax are unchanged 8

9 Individual Tax Changes Abve-the-Line Deductins Mving Expenses Suspended thrugh tax year 2025; hwever, still available fr members f the U.S. military wh mve pursuant t a military rder. Alimny Effective fr divrce r separatin agreements entered int after December 31, 2018*: Deductin - The deductin fr alimny r separate maintenance payments is repealed. Inclusin - The inclusin f incme by the recipient is repealed. Existing alimny r separate maintenance agreements are grandfathered, as are mdificatins t existing agreements. *Please nte the 1-year delay n the implementatin f this prvisin 9

10 Individual Tax Changes Standard Deductin & Persnal Exemptins The standard deductin is increased t the fllwing amunts: Married Filing Jintly: $24,000 (up frm $12,700) Head-f-Husehld: $18,000 (up frm $9,350) All Other Taxpayers: $12,000 (up frm $6,350) The deductin is indexed fr inflatin in future years, The persnal exemptin is suspended thrugh tax year The persnal exemptin fr estates and trusts remains at $100 (cmplex), $300 (simple), $600 (estates). 10

11 Individual Tax Changes Itemized Deductins Medical Expenses The AGI threshld is lwered frm 10% t 7.5% fr all taxpayers fr tax years 2017 and State and Lcal Taxes Taxpayers are permitted a maximum $10,000 deductin ( ) n the sum f: (i) state and lcal real prperty taxes, (ii) state and lcal persnal prperty taxes, and (iii) state and lcal incme taxes (r sales tax, if elected). This limitatin des nt apply t real prperty taxes and persnal prperty taxes paid r accrued in carrying n a trade r business. 11

12 Individual Tax Changes Itemized Deductins (Cntinued) Mrtgage Interest Taxpayers are permitted t deduct the interest paid n acquisitin indebtedness f up t $750,000. Debt incurred n r befre December 15, 2017, is grandfathered under the previus law f interest paid n acquisitin indebtedness f up t $1,000,000. Hme Equity Interest The deductin fr interest paid n hme equity indebtedness is suspended. N grandfather prvisin fr hme equity interest. Bth effective

13 Individual Tax Changes Itemized Deductins (Cntinued) Charitable Cntributins Three mdificatins fr years : (1) Cash cntributins t public charities nw have a 60 percent f AGI limitatin (previusly it was 50 percent). (2) Denial f charitable deductin fr payments made in exchange fr athletic seating rights (previusly able t deduct 80 percent f amunts paid). (3) Remval f substantiatin exceptin fr certain cntributins reprted by the charitable rganizatin. 13

14 Individual Tax Changes Itemized Deductins (Cntinued) Casualty Lsses Suspended thrugh tax year 2025, unless the lss is attributable t a Federally declared disaster lss. If a taxpayer has a persnal casualty lss gain, they may deduct persnal casualty lsses nt attributable t a Federal declared disaster lss in the amunt equal t n mre than the persnal casualty lss gain. Wagering Transactins - In additin t the limitatin n gambling lsses, expenses incurred in carrying n any wagering transactin are als limited t the extent f gambling winnings. 14

15 Individual Tax Changes Itemized Deductins (Cntinued) Miscellaneus Itemized Deductins Subject t 2-percent flr - These have been suspended thrugh 2025 and include: investment fees and expenses tax preparatin fees unreimbursed business expenses Pease Limitatin Repeals the verall limitatin n itemized deductins thrugh

16 Individual Tax Changes Alternative Minimum Tax (AMT) The individual AMT has been retained. The exemptin amunts have been increased t the fllwing threshlds: Jint Filers: $109,400 ($54,700 fr MFS) All ther Filers: $70,300 The exemptin phase-ut threshlds are increased t: Jint Filers: $1,000,000 All ther Filers: $500,000 Trusts and Estates Remains unchanged. Many f the tax preference items that are AMT addbacks have been suspended. 16

17 Individual Tax Changes Business Lsses Businesses Lsses Fr business lsses are nly permitted in the current year t the extent that they d nt exceed the sum f: (i) Taxpayer s grss incme and (ii) $500,000 fr jint filers r $250,000 fr ther taxpayers Excess businesses lsses will be disallwed and added t the taxpayer s net perating lss (NOL) carryfrward. Carryfrwards are limited t the lesser f: (i) the carryfrward amunt r (ii) 80-percent f taxable incme determined withut regard t the NOL deductin. Fr pass-thrugh entities, this is applied at the partner/sharehlder level. 17

18 Individual Tax Changes Net Operating Lsses Net Operating Lsses Fr the deductin allwed is nw equal t the lesser f: (1) the aggregate f the net perating lss carryvers t such year, plus the net perating lss carrybacks t such year, r (2) 80 percent f the taxable incme cmputed withut regard t the NOL. NOLs can nw nly be carried frward t future tax years. The amunt f the carryver is limited t a maximum f 80 percent f the taxable incme cmputed withut regard t the NOL. 18

19 Individual Tax Changes Miscellaneus Prvisins Inflatin Adjustments Inflatin will be nw measured using the Chained Cnsumer Price Index (C-CPI). This methd is a generally slwer inflatinary adjustment than the current Cnsumer Price Index (CPI). This prvisin is permanent. Child Tax Credit Fr Increased t $2,000 per qualifying child, with up t $1,400 being refundable. Als, there is a new $500 nn-child dependent credit. Qualifying Child is defined as a dependent wh is under the age f 17 at the end f the tax year. Credit starts t phase-ut fr jint filers at AGI f $400,000 and fr ther filers at AGI f $200,000. Sec 529 Savings Plans Fr distributins after Dec. 31, 2017, qualified higher educatin expenses include tuitin at an elementary r secndary public, private, r religius schl, up t a $10,000 limit per tax year. 19

20 Crprate Tax Changes

21 Crprate Tax Changes Crprate Tax Rates Old Law Crprate Tax Rates graduated up t a max f 35%, persnal services taxed at max 35% Subject t AMT New Law Crprate Tax Rates lwered t flat 21%, n special rate fr persnal service crpratins AMT is repealed Permanent change, n expiratin 21

22 Crprate Tax Changes 20% Pass-thrugh deductin Old Law - N special deductin fr pass-thrugh entities New Law - New belw the line 20% deductin fr pass-thrugh entities S Crpratins, Partnerships, Sle Prprietrships Must have qualified business incme (QBI) frm a trade r business QBI des nt include incme earned as an emplyee e.g. S Crp wners pays himself W-2 wages 22

23 Crprate Tax Changes 20% Pass-thrugh deductin (cntinued) New Law - cntinued Subject t limits and exclusins unless yur verall taxable incme is less than $157,500 (single) r $315,000 (married filing jint) If incme is ver the limits, then: QBI cannt be frm specified service businesses such as law, medicine, accunting, cnsulting, investment services, etc. Architecture & engineering are nt specified service businesses Deductin allwed nly if business has W-2 wages and/r tangible prperty in use by the business t prduce incme Phaseut range is $50,000 fr single and $100,000 fr married filing jint 23

24 Crprate Tax Changes 20% Pass-thrugh deductin (cntinued) New Law - cntinued Way t early t have slid guidance Many cmmentatrs expect further legislatin t clarify the deductin New Sec 199A Replaces ld Sec 199 Dmestic Prductin Activities Deductin 24

25 Crprate Tax Changes 20% Pass-thrugh deductin (cntinued) New Law - cntinued 25

26 Crprate Tax Changes 20% Pass-thrugh deductin (cntinued) New Law - cntinued 26

27 Crprate Tax Changes Bnus Depreciatin Old Law 50% f basis f qualified prperty Only new purchases, n used items Persnal prperty and limited types f real estate imprvements Scheduled t be phased ut by 2020 New Law 100% expensing frm 9/27/17 thrugh 2022, Allwed fr new and used prperty Persnal prperty and a larger grup f eligible real estate imprvements including mst interir imprvements Phased ut frm years

28 Crprate Tax Changes Cst Recvery Sectin 179 Old Law Electin t expense up t $510,000 f qualifying prperty in 2017 instead f depreciating it ver time $510,000 cap is reduced dllar fr dllar fr all prperty in excess f $2,030,000 placed in service in 2017 Assets include tangible persnal prperty & ff-the-shelf sftware Sme real prperty imprvements allwed if elected, but nly if used in a business, n rental assets Deductin limited t taxable incme each year 28

29 Crprate Tax Changes Cst Recvery Sectin 179 (cntinued) New Law Beginning after 2017 Maximum expense amunt increased t $1,000,000 Phase ut threshld increased t $2,500,000 Includes qualified real prperty (if elected): Qualified imprvement prperty (cvers interir imprvements t existing buildings) Certain exterir imprvements t existing buildings including rfs, HVAC, fire prtectin, alarm & security systems One advantage f Sec 179 ver bnus depreciatin mst states allw Sec 179 but nt bnus depreciatin 29

30 Crprate Tax Changes Cst Recvery Sectin 179 (cntinued) Tax Years Max Deductin allwable Deductin phaseut begins at 2017 $510,000 $2,030, $1,000,000 $2,500, & later $1,000,000 + inflatin adj. $2,500,000 + inflatin adj. 30

31 Crprate Tax Changes Interest Expense Old Law Interest paid by a business is generally deductible in calculating taxable incme New Law Beginning after 2017 Deductin fr business interest expense is limited t the sum f: Business interest incme + 30% f the adjusted taxable incme + Flr plan financing interest fr dealerships Disallwed interest is carried frward indefinitely 31

32 Crprate Tax Changes Interest Expense (cntinued) New Law - (cntinued) Business interest defined as interest paid r accrued n indebtedness prperly allcable t a trade r business. It des nt include investment interest. Adjusted taxable incme is defined as taxable incme cmputed withut regard t: Any item f incme, gain, deductin, r lss which is nt prperly allcable t a trade r business Any business interest r business interest incme Net perating lsses Fr nly depreciatin, amrtizatin, r depletin (eases the transitin) 32

33 Crprate Tax Changes Interest Expense (cntinued) New Law - (cntinued) This rule nt applicable t taxpayers with average annual grss receipts f $25 millin r less fr the three-year perid ending with the prir taxable year Als des nt apply t rental prperty activity if nt cnsidered a trade r business. If rental is a trade r business, then taxpayer can elect ut f the interest rules in exchange fr different (slwer) depreciatin rules fr the rental prperty. Previusly mentined flr plan financing exceptin 33

34 Crprate Tax Changes Like-kind exchanges Prir Law N gain r lss recgnized if prperty is exchanged fr prperty f a likekind Bth ld and new prperties must be held fr prductive use in a trade r business r fr investment Applied t bth tangible persnal prperty (such as vehicles & equipment) and real prperty New Law Beginning after 2017 Nn-recgnitin f gain fr a like-kind exchange is limited t real prperty nly 34

35 Planning & Strategies

36 Planning & Strategies Individuals Increased Standard Deductin Bunching Strategies t maximize itemized deductins Defer/Accelerate Incme - examples Large gain n sale f stck/mutual funds culd cause yu t lse medical deductins since it raises the 7.5% f AGI amunt Plan fr best year t receive W-2 bnus payments frm emplyer if pssible Other phase uts based n incme such as child tax credits, new pass-thrugh deductin Defer/Accelerate Itemized Deductins - examples Plan elective medical prcedures t bunch with ther medical expenses t exceed the 7.5% f AGI amunt Plan yur charitable giving t make sure yu can itemize at least every ther year 36

37 Planning & Strategies Individuals Increased Standard Deductin Case Study Married taxpayers with: $150,000 incme $10,000 mrtgage interest $8,000 state & lcal tax $5,000 charity $160,000 incme $9,500 mrtgage interest $8,500 state & lcal tax $5,000 charity N bunching Bunching Charity Year Incme 150, , , ,000 Deductins (24,000) (24,000) (24,000) (28,000) Taxable incme 126, , , ,000 37

38 Planning & Strategies Businesses Depreciatin Cst Segregatin Study t re-characterize cmpnents f real prperty frm lng t shrt life Take advantage f new bnus depreciatin and Sec 179 rules Be careful with interplay between this strategy and new deductible interest limits after Mre depreciatin expense results in lwer taxable incme which limits interest. Als remember new excess business lss and NOL rules might limit current year benefit f big deductins 38

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