The future of tax reform

Transcription

1 The future of tax reform Oct 26, :00 pm 2:00 pm ET 1 CPE Credit Please disable pop-up blocking software before viewing this webcast

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4 The future of tax reform Oct 26, :00 pm 2:00 pm ET 1 CPE Credit

5 Speakers David Sites Partner Grant Thornton LLP Dustin Stamper Legislative Director Grant Thornton LLP Joe Hagedorn Business Entities Editor Bloomberg Tax Dixie Pond U.S. Income Editor Bloomberg Tax Miriam Song U.S. International Editor Bloomberg Tax Grant Thornton LLP. All rights reserved. 5

6 Learning objectives 1 Analyze the new proposed tax reform legislation 2 Identify the immediate opportunities and considerations for businesses Grant Thornton LLP. All rights reserved. 6

7 Rates under the framework Issue Ryan/Brady Framework Top individual rate 33% 35% OR HIGHER! Top capital gains and dividend rate 16.5%? Top corporate rate 20% 20% Top pass-through rate 25% 25% Grant Thornton LLP. All rights reserved. 7

8 Key considerations for rates Top rate could remain 39.6%, possibly kicking in at a higher level Don't expect big cuts on investment income What to do about pass-throughs? Grant Thornton LLP. All rights reserved. 8

9 Key considerations for pass-through rate How to distinguish business income from compensation? Leading proposal is 70/30 safe harbor with option to use 9% rate of return on tax basis (plus long-term Fed rate) Service business can't use safe harbor, but would be allowed rate of return if calculation results in at least 30% of income share Other options? Reasonable compensation? With certification? Wage ratio Retained earnings? Passive shareholder treatment still under discussion Grant Thornton LLP. All rights reserved. 9

10 Business provisions Issue Ryan/Brady Framework Depreciation Full expensing for everything but land Full expensing for 'depreciable' assets for at least 5 years (structures excluded & retroactive date) Interest expense limitation Revenue raisers Retained incentives No net interest deduction except for banks Most benefits repealed (No info) R&D credit LIFO method of inventory Partial loss of interest deductions Most benefits repealed (Specifically SALT deduction) R&D credit Tax-exempt bonds Low-income housing credit Grant Thornton LLP. All rights reserved. 10

11 Key considerations for depreciation and interest Top options for interest deduction: Limit deduction for net interest to 30% of taxable income/ebitda/ebit Is expensing for five years worth it? Trade a timing benefit for a permanent disallowance: Looks bad on a financial statement What about constituencies that don't benefit from expensing? Small businesses that already have Section 179 Real estate: Land and structures not covered Grant Thornton LLP. All rights reserved. 11

12 Key considerations for revenue raisers State and local tax deduction repeal is $1.3 trillion revenue raiser to replace BAT What happens to rates when it survives? Like to keep it "if we can" ~ Hatch "Not a red line" ~ Cohn SALT options: Cap? Choose between deductions? Carried interest: "President remains committed to ending the carried interest deduction" ~ Cohn "No decision yet" ~ Brady Grant Thornton LLP. All rights reserved. 12

13 International provisions Issue Ryan/Brady Framework International tax system Territorial 100% DRD Territorial 100% DRD One-time tax on unrepatriated earnings 8.75% cash 3.5% other Unspecified rates but with same two-rate structure Grant Thornton LLP. All rights reserved. 13

14 Key considerations for international changes Framework appears to suggest a global minimum tax as part of its base erosion principles Break from what was expected: Staff had been leaning toward a reduced rate for intellectual property staying in the U.S. Pharma and other constituencies already lining up to fight When will one-time tax be effective? Grant Thornton LLP. All rights reserved. 14

15 Planning considerations? Use deductions now against higher rates, defer income into future years when rates might be lower: Bonuses, benefits, and other compensation Accounting methods Fixed assets Defer earnings in CFCs? Repatriate earnings early? What about effective date? Grant Thornton LLP. All rights reserved. 15

16 Questions? Grant Thornton LLP. All rights reserved. 16

17 Speakers David Sites Partner Grant Thornton LLP Dustin Stamper Legislative Director Grant Thornton LLP Joe Hagedorn Business Entities Editor Bloomberg Tax Dixie Pond U.S. Income Editor Bloomberg Tax Miriam Song U.S. International Editor Bloomberg Tax Grant Thornton LLP. All rights reserved. 17

18 Disclaimer This Grant Thornton LLP presentation is not a comprehensive analysis of the subject matters covered and may include proposed guidance that is subject to change before it is issued in final form. All relevant facts and circumstances, including the pertinent authoritative literature, need to be considered to arrive at conclusions that comply with matters addressed in this presentation. The views and interpretations expressed in the presentation are those of the presenters and the presentation is not intended to provide accounting or other advice or guidance with respect to the matters covered For additional information on matters covered in this presentation, contact your Grant Thornton LLP adviser

19 Disclaimer * * * * * * * * * * * * * * * * * * * * * * IRS Circular 230 disclosure: To ensure compliance with requirements imposed by the U.S. Internal Revenue Service, we inform you that any U.S. federal tax advice contained in this PowerPoint is not intended or written to be used, and cannot be used, for the purpose of (a) avoiding penalties under the U.S. Internal Revenue Code or (b) promoting, marketing or recommending to another party any transaction or matter addressed herein. * * * * * * * * * * * * * * * * * * * * * The foregoing slides and any materials accompanying them are educational materials prepared by Grant Thornton LLP and are not intended as advice directed at any particular party or to a client-specific fact pattern. The information contained in this presentation provides background information about certain legal and accounting issues and should not be regarded as rendering legal or accounting advice to any person or entity. As such, the information is not privileged and does not create an attorney-client relationship or accountant-client relationship with you. You should not act, or refrain from acting, based upon any information so provided. In addition, the information contained in this presentation is not specific to any particular case or situation and may not reflect the most current legal developments, verdicts or settlements. You may contact us or an independent tax advisor to discuss the potential application of these issues to your particular situation. In the event that you have questions about and want to seek legal or professional advice concerning your particular situation in light of the matters discussed in the presentation, please contact us so that we can discuss the necessary steps to form a professional-client relationship if that is warranted. Nothing herein shall be construed as imposing a limitation on any person from disclosing the tax treatment or tax structure of any matter addressed herein Grant Thornton LLP, the U.S. member firm of Grant Thornton International Ltd. All rights reserved. Printed in the U.S. This material is the work of Grant Thornton LLP, the U.S. member firm of Grant Thornton International Ltd.

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