tonneson + co Certified Public Accountants & Consultants December, 2017 Dear Valued Client:

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1 Dear Valued Client: We are pleased to provide you with this year-end letter outlining important guidelines for the compliance with federal and state rules of taxation and reporting requirements. The letter contains useful information regarding 2017 and 2018 payroll tax requirements, employee benefits reporting, informational return filing requirements, and other information for tax planning. A copy of this letter can be found on our website, as well as other helpful tools such as financial calculators, calendars of important dates, and links to state taxing authorities. Official federal and state forms, publications, and other information can be obtained from the specific agencies websites. Please note that this letter is designed to provide an overview of selected tax rules that we believe to be of interest to our clients. Tax rules are very complex and can be subject to interpretation; therefore, there are many special rules and exceptions that have not been addressed in this letter. In addition, the contents of this letter are subject to change as new tax laws and legislation pass. In particular, the Tax Cuts and Jobs Act is in final conference discussions as of the date of this letter. We will do our very best to keep you updated as this pending tax reform bill progresses. tonneson + co Certified Public Accountants & Consultants 401 Edgewater Place, Suite 300, Wakefield, MA t f

2 Page 2 The following tables highlight Retirement Plan and IRA Limits, Social Security, and Self-Employment Tax Information and Automobile Limitations. Table 1 Retirement Plan and IRA Limits Description Code Section Maximum benefit for defined benefit plan 415(b)(1)(A) $215,000 $220,000 Maximum contribution for defined 415(c)(1)(A) $54,000 $55,000 contribution plan Maximum contribution for IRAs 219(b)(5)(A) $5,500 $5,500 Catch-up contributions for age 50 or older 219(b)(5)(B) $1,000 $1,000 for IRAs Limitation on exclusion for elective 402(g)(1) $18,500 $18,000 deferrals Elective deferral catch-up contributions to 414(v)(2)(B)(i) an applicable employer plan for age 50 or $6,000 $6,000 older Highly compensated employee limit 414(q)(1)(B) $120,000 $120,000 Annual compensation limit 401(a)(17) $270,000 $275,000 Grandfather rule for Government plans 401(a)(17) $400,000 $405,000 Minimum compensation for SEPs 408(k)(2)(C) $600 $600 Compensation limit for SEPs 408(k)(3)(C) $270,000 $275,000 SIMPLE plan deferral limit 408(p)(2)(E) $12,500 $12,500 Catch-up contributions for age 50 or older for SIMPLE plans Deferral limits for deferred compensation plans of state and local governments and tax exempt organizations 414(v)(2)(B)(ii) $3,000 $3, (e)(15) $18,000 $18,500

3 Page 3 Table 2 Social Security and Self-Employment Tax Information Description Social Security Component: Maximum Earnings $127,200 $128,400 OASDI Tax Rate 6.2% 6.2% Self-employment Tax Rate 12.4% 12.4% Medicare Component: Maximum Earnings Unlimited Unlimited Medicare Tax Rate 1.45% $1.45% Self-employment Tax Rate has two tiers: Tier one on the first $200,000 of Self-Employment Income for single taxpayer Tier two on Self-Employment income in excess of $200,000 for single taxpayer Earnings Ceiling for Social Security: Before Full Retirement Age (66 yrs. & 2 mths. for 2017 and 66 yrs. & 4 mths. for 2018) After Full Retirement Age (66 yrs. & 2 mths. for 2017 and 66 yrs. & 4 mths. for 2018) 2.9% 2.9% % 2.9%+0.9 $16,920 $17,040 $44,880 $45,360

4 Page 4 Table 3 Automobile Limitations Description Automobile Standard Mileage Allowances Business 53.5 * Charity - General 14 * Medical/Moving 17 * Luxury (Non-electric) Auto Depreciation Limits- Autos First Year $3,160 * Second Year $5,100 * Third Year $3,050 * Fourth Year and Thereafter $1,875 * Luxury (Non-Electric) Auto Depreciation Limits - Trucks/Vans First Year $3,560 * Second Year $5,700 * Third Year $3,450 * Fourth Year and Thereafter $2,075 * * At the time of publication of this letter, IRS has not yet released the standard mileage rates for The luxury car limits are based on 100% business use. If business use is less than 100%, the limits must be reduced to reflect the actual business use percentage. The term luxury is not defined in the Internal Revenue Code and there is no rule expressed in terms of luxury. Thus, the depreciation limits as stated above apply to all business autos, with the following exceptions: Vehicles with gross vehicle weight ratings (GVWRs) of more than 6,000 pounds do not constitute a passenger vehicle for purposes of being limited to the luxury automobile depreciation limits. We advise you to examine the manufacturer s sticker or the sticker on the inside of the driver s side car door for the vehicle s exact GVWR. The maximum allowed Section 179 deduction on these vehicles is $25,000. Amounts in excess of that limit can be depreciated over 5 years starting with the year the asset was placed in service. Trucks and vans, which are not qualified for personal use, are not subject to annual depreciation limits. Not qualified for personal use means the vehicle is designed in such a way that it is not likely to be used for more than a de minimis amount for personal purposes.

5 Page 5 PERSONAL USE OF COMPANY OWNED/LEASED VEHICLES Whether your company supplies business autos to employees as perks or as necessary tools to complete their work, their personal use of the vehicle has tax implications. An employee s personal use of a company auto generally must be treated as a non-cash, taxable fringe benefit that is also subject to social security taxes. Fortunately, the tax rules give you some flexibility in valuing personal usage of a company car. You can choose from among four valuation methods: The general fair market value method, which is based on what a person would pay locally to buy or lease a comparable auto for the same period of time the employee has use of the car; The lease value method, which assigns an IRS-determined annual lease value to the auto depending on its value when first provided for the employee s personal use; The mileage rate method, which values each personal-use mile at the standard business mileage rate designated by the IRS; or The $1.50 per one-way commute method. The first two methods can be used for any auto and employee. The mileage-rate method can only be used if the fair market value for a car first provided in 2017 does not exceed $15,900 ( the truck and van limits for vehicles first provided in 2017 is $17,800). The vehicle must be regularly used in your business or driven at least 10,000 miles during the year and used primarily by employees. The $1.50 commute method applies only to autos owned or leased by the company and used in your company s business. This method may only be used for vehicles covered by a written policy, which allows for commuting, but no other personal use. The commuting method does not apply if the employee is highly paid, a company officer, director, or a more than 1% company owner. Please refer to exhibit D for the commuting method calculator and further details. Which of the first three methods results in the lowest personal use valuation and the lowest tax bill for employees? The answer will depend on factors such as the annual number of personal miles, value of the car, and the ratio of personal miles to total miles. For your convenience we have included worksheets in Exhibits A, B, C and D to assist you in calculating the personal use amounts. We can help you through the maze of these rules and show you which of them will cause the least amount of paperwork. Please do not hesitate to call us for an evaluation.

6 Page 6 YEAR END REPORTING TO THE INTERNAL REVENUE SERVICE Employees vs. Independent Contractors - The tax form employers use to report compensation paid depends on whether the payee is an employee or an independent contractor. The determination of status rests on the degree of control the party paying the compensation has over the person performing the work. As a general rule, you have the right to control, or direct only the result of the work done by an independent contractor, and not the means and method of accomplishing the result. Under certain circumstances you can ask the IRS on Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding to rule whether a worker is an independent contractor or an employee. Erroneously classifying an employee as an independent contractor can cause the employer, or the employer's representative, to be liable for the employee's payroll taxes and subject the employer to significant penalties and interest. Reporting Compensation and Other Wage Payments Made in the Course of Business - Wages and benefits to employees are reported on Form W-2, Wage and Tax Statement. Form W-2 must be given to employees by January 31, 2018 and submitted to the Internal Revenue Service along with Form W-3, Transmittal of Wage and Tax Statements by January 31, The filing deadline for BOTH electronic and paper forms is January 31, For information and online filing options, visit or call (800) A business paying at least $600 during the calendar year to a non-employee, a partnership, or a trust for services or rents, must report these payments to the Internal Revenue Service and to the recipient on a Form The filing of Form 1099-Misc, Miscellaneous Income, is also required for payments of $600 or more made by a trade or business in 2017 to attorneys and law firms, physicians, and members of other professions. If you are reporting nonemployee compensation payments in box 7, you are required to file Form 1099-Misc on or before January 31, 2018, using either paper or electronic filing procedures. For all other reported payments, file Form 1099-Misc by February 28, 2018, if you file on paper, or April 2, 2018, if you file electronically. PAYROLL WITHHOLDING REQUIREMENTS Employers may report personal use of a company vehicle as fringe benefit income on a regular pay period, quarterly, semi-annually, or any other reasonable basis so long as it is at least annually. Employers need not use the same period or method for all employees and may change their reporting period at any time. The Internal Revenue Service does not require a formal election.

7 Page 7 Reasonable estimates should be used for the valuation of fringe benefits for withholding and deposits; however, the actual value must be determined by January 31, 2018 for all 2017 fringe benefits. Federal withholding on the value of the fringe benefit may be computed either with the regular wages for the elected pay period or, if treated as supplemental wages, withheld at a flat rate of 25% for 2017 (39.6% if supplemental payments exceed $1,000,000). An employer can elect not to withhold income taxes on the value of employees personal use of company vehicles provided it tells its employees, in writing, by January 31 st of the year for which it elects not to withhold. Either way, the FICA, OASDI and Medicare taxes associated with the value must be withheld and matched by the employer. In addition to withholding Medicare tax at 1.45%, you must withhold a 0.9% Additional Medicare Tax from wages you pay to an employee in excess of $200,000 in a calendar year. You are required to begin withholding additional Medicare tax in the pay period in which you pay wages in excess of $200,000 to an employee and continue to withhold it each pay period, until the end of the calendar year. Additional Medicare tax is only imposed on the employee; there is no employer share. The actual value of the fringe benefits must be determined in time to include the amount in the Form 941, Employer s Quarterly Federal Tax Return filed for the fourth quarter of the year. To help make a timely determination, an employer can elect to treat personal employee use of a company car during November and December as incurred in the following calendar year. With an employee s consent, you may be eligible to provide copies of their Form W-2 to them electronically, however, the option of paper W-2's must still be provided and certain special disclosures need to be made. In order to shift the record-keeping burden from the employer to the employee, a special rule is available when using the lease value rule. Instead of calculating the value of personal use of a vehicle, the employer can include 100% of its annual lease value in the employee s wages. The employee may then calculate a business use deduction on Form 2106, Employee Business Expenses. Employees using non-company owned vehicles for business purposes may also use Form 2106 to deduct the higher of (1) the mileage rate per mile multiplied by the total business mileage plus parking and tolls, or (2) actual expenses attributable to business use. Actual expenses include gasoline, oil, tires, repairs, insurance, depreciation, parking fees and tolls, and garage rent. An employee's unreimbursed expenses can be deducted only as an itemized deduction subject to the 2% of adjusted gross income floor.

8 Page 8 W-2 REPORTING OF BENEFITS FOR S-CORPORATION SHAREHOLDERS There are special rules for certain fringe benefits received by S corporation shareholders who own more than 2% of the outstanding stock. Amounts paid by the corporation for certain benefits, such as health, disability and accident insurance, all group term life insurance (including the first $50,000 of coverage), and reimbursed medical expenses must be treated as compensation to the shareholder and be reported on Form W-2, Wage and Tax Statement. A more than 2% shareholder may be able to deduct 100% of the amount paid for medical insurance for themselves, their spouse, and dependents on their individual return. Please note that health insurance is not subject to Social Security and Medicare taxes. GROUP TERM LIFE INSURANCE The cost of group term life insurance in excess of $50,000 of coverage provided to an employee is included as compensation and is subject to FICA and Medicare taxes. Exhibit E can be used to gather the information needed for the calculation. The cost is based on the employee s age as of December 31 st, and is determined by the following table: Table 5 Cost per $1,000 of Protection for One Month Age Bracket Cost Under 25.. $ to to to to to to to to to and over EXAMPLE: Tom s employer provides him with group-term life insurance coverage of $200,000. Tom is 45 years old, is not a key employee, and pays $100 per year toward the cost of the insurance. Tom's employer must include $170 in his wages. The $200,000 of insurance coverage is reduced by $50,000. The yearly cost of $150,000 of coverage is $270 ($.15 x 150 x 12), and is reduced by the $100 Tom pays for the insurance. The employer includes $170 in boxes 1, 3, and 5 of Tom's Form W-2. The employer also enters $170 in box 12 with code C.

9 Page 9 PER DIEM TRAVEL EXPENSES Companies are allowed to deduct the amount of ordinary and necessary business expenses incurred by employees while traveling away from home. Necessary business expenses include lodging, transportation, meals, and other incidental expenses. The employer has two options of reporting these expenses. The first option, an accountable plan, requires the employee to provide an expense report with receipts for expenses he/she incurred while traveling. These reimbursements are not includable in adjusted gross income. The second option of reporting these expenses is under a non-accountable plan. The amount of money the employee received for travel expenses would be added to his compensation and subject to payroll taxes. The employee would then have the burden of deducting these expenses on Form 2106 of his individual return. These expenses would be limited to 2% of his adjusted gross income. You could also provide the same Per Diem amounts to your employee that applies to federal government employees. The expenses deemed substantiated are the lesser of the per diem allowance the business actually pays or the amount computed at the federal per diem rate for the locality of travel. The federal per diem rate tables may be found at REPORTING FOREIGN FINANCIAL ACCOUNTS Any United States person, who has a financial interest in, or signature authority over, a foreign financial account, and if at any point during the year the aggregate value of all their foreign accounts exceeds $10,000, must report each account on FinCEN Report 114, Report of Foreign Bank and Financial Accounts. Reporting is required whether or not the account generates income. A financial account includes, but is not limited to, a securities, brokerage, savings, demand, checking, deposit, time deposit, or other account maintained with a financial institution. The form is filed separately from the federal return and is due by April 15, 2018 for the 2017 calendar year. The due date can be extended for an additional six months up to October 15, 2018 and, effective as of 2013, the form must be filed electronically. Failure to file may result in civil and criminal penalties. If you should have filed in previous years and did not do so, please consult your tax advisor.

10 Page 10 DEPRECIATION Currently, Section 179 provides a first-year expense deduction for certain qualifying property placed in service during the tax year at an annual limit of $510,000. This expense is reduced dollar for dollar by the amount that the total cost of qualifying property placed in service exceeds $2,030,000. In addition, bonus depreciation of 50% can be taken after the Section 179 Spending Cap is reached. Bonus depreciation is available for new equipment only. Massachusetts currently follows Section 179, which allows for certain depreciable business assets to be treated as capital expenditures within their first year. Please consult your tax advisor to confirm treatment of these provisions by other states. TAX CUTS AND JOBS ACT - PENDING TAX REFORM As of the date of this letter, the Senate and the House have each passed their own version of the Tax Cuts and Jobs Act and the committee is in conference to hammer out the details. A final version of the conference committee report is being drafted and may be issued as early as December 15 th. The chambers are due to vote on the bill in the next two weeks and the new tax reform legislation may be enacted before Christmas. To date, the two versions of the bill have included many similar provisions, but there are also a number of differences that remain to be reconciled before the final version is passed. We will keep you updated as the committee continues its discussions. Some of the provisions common to both versions include: Repeal of the deduction for personal exemptions; Repeal of the deduction for non-business taxes with a $10,000 exception for individual real estate taxes; Increase in the charitable contribution percentage limit from 50% to 60%; Some of the key differences pertaining to individuals: The Senate bill has seven tax brackets with rates ranging from 10% to 38.5%. The House bill has four tax brackets ranging from 12% to 39.6%; The House bill repeals individual AMT. The Senate bill retains AMT; The Senate would retain the deduction for acquisition indebtedness interest but would suspend the deduction for home equity interest. The House would allow the deduction for acquisition indebtedness interest, but would reduce the current limitation;

11 Page 11 The House would repeal deductions for medical expenses, while the Senate would temporarily reduce the floor from 10% to 7.5%; Both bills provide for a non-child dependent credit, although it would be $500 under the Senate bill and $300 under the House. Some of the key differences pertaining to businesses: While both chambers would now would reduce the corporate tax rate to 21%, they propose different effective dates; The House bill would repeal the corporate AMT, while the Senate would retain the corporate AMT at its current 20% rate; Both chambers propose an increase to the expensing cap and phase-out under Code Section 179, although the Senate would increase the cap to $1 million, while the House would increase the cap to $5 million; The Senate would allow a taxpayer with pass-through income from a business to claim a deduction equal to 23% of such income, with the House would provide for a new maximum rate of 25% on the 'business income' of individuals. We will follow this bill closely in order to keep you abreast of changes to the tax laws that may affect you or your businesses. THE AMERICAN TAXPAYER RELIEF ACT OF 2012 Since the American Taxpayer Relief Act of 2012 (ATRA) was signed into law in 2013, significant individual income tax increases have been in effect, including the following provisions currently effective for 2017 tax filings: Additional Medicare Tax on High Earners: 0.9% additional Medicare tax has been imposed under the Patient Protection and Affordable Care Act (PPACA) on wages, compensation, and self-employment income for the tax year beginning in 2013 in excess of the following threshold amounts: o $250,000 for married taxpayers filing jointly and surviving spouses o $125,000 for married taxpayers filing separately o $200,000 for all others This has caused large changes in wage withholding for taxpayers with earned income above the listed income thresholds. According to the IRS, employers are required to withhold this additional Medicare tax in the pay period in which it pays wages in excess of $200,000 to an employee. There is no requirement to consider their spouse s wages or wages earned at a second job.

12 Page 12 Net Investment Income Tax or NIIT: Internal Revenue Code (IRC) Section 1411 imposes a 3.8% NIIT on certain passive investment income of individuals, trusts, and estates above certain threshold amounts. For individuals, the amount subject to NIIT is the lesser of an individual s net investment income for the tax year or the excess (if any) of the individual s modified adjusted gross income for the tax year over the applicable threshold amounts varying based on filing status (please refer to threshold amounts listed under Additional Medicare Tax on High Earners). For trusts and estates, the amount subject to the tax is the lesser of undistributed net investment income, or the excess of AGI over $12,500 for the 2017 tax year at which the top income tax bracket begins. Net investment income includes dividends, rents, interest, passive activity income, capital gains, annuity income, and royalties after reduction for allocable deductions. It does not include self-employment income, income from an active trade or business, gain on the sale of an active interest in a partnership or S corporation, and IRA or qualified plan distributions. Individual Income Tax Rates Jump: Beginning in 2013 and after, there will be seven tax brackets: 10%, 15%, 25%, 28%, 33%, 35% and 39.6%. In 2017, the highest individual income tax rate of 39.6% will apply to taxpayers with the following taxable income: o $418,400+ for single taxpayer o $444,500+ for taxpayer filing as head of household o $470,700+ for married taxpayers filing jointly and surviving spouses o $235,350+ for married taxpayers filing separately Higher Long-Term Capital Gains and Dividends Tax Rate: The highest income tax rate on long-term capital gains and dividends increased from 15% to 20% for tax years beginning in 2013 and has remained the same for taxpayers whose ordinary taxable income is above the applicable threshold amount (please refer to threshold amount listed under Individual Income Tax Rates Jump). Adjusted net capital gain does not include unrecaptured Code Sec gain (25%), collectibles gain (28%), or gain from qualified small business stock (varying rates). In light of the above, keep in mind that when the NIIT is added to the top income tax brackets, the tax rates could be as high as 43.4% (39.6% + 3.8%) for ordinary income and short-term capital gains and 23.8% (20% + 3.8%) for long-term capital gains. Please see Exhibit F for a chart summarizing some of the changes for tax years beginning in 2013.

13 Page 13 THE PROTECTING AMERICANS FROM TAX HIKES (PATH) ACT OF 2015 On December 18, 2015, the PATH Act was passed into law. The Act addressed over 50 key tax provisions, extending and enhancing provisions that affect both business and individual tax payers. Highlights of some of these provisions known collectively as Tax Extenders are listed below: Extended Business Tax Provisions: Code Sec. 179 Expensing: The Act set the Code Sec. 179 expensing limit at $500,000 with a $2 million overall investment limit before phase out. The Sec. 179 cap is indexed to inflation in $10,000 increments in future years. For 2017, the Code Sec. 179 expensing limit is $510,000. The Path Act also made permanent the expensing for qualified real property and removed the $250,000 cap related to this category beginning in The Act also made permanent the special rule of treating off-the-shelf computer software to be treated as Code Sec. 179 property and the ability of the taxpayer to revoke a Code Sec. 179 election without the IRS s consent. Research Tax Credit: The research and development (R&D) tax credit is available to taxpayers with specified increases in business related qualified research expenditures and for increases in payments to universities and other qualified organizations for basic research. The PATH Act permanently extended this credit and modified it to enable certain businesses and small businesses to offset it against alternative minimum tax and payroll taxes respectively. 100% Gain Exclusion on Qualified Small Business Stock (QSBS): QSBS acquired by non-corporate taxpayers after September 27, 2010 qualifies for 100% gain exclusion when sold, if the holding period is met. Trading such stock for other similar stock is a useful tax planning option to defer gain, if the initial stock is not held for the required holding period. Reduced Recognition Period for S-Corporation Built-In Gains Tax: The PATH Act made permanent the five-year recognition period of built-in gains following conversion from a C to an S corporation. The built-in gains tax is imposed at the highest corporate rate (currently 35 percent) on an S corporation s net recognized built-in gain that arose prior to the conversion of the C corporation to an S corporation and is recognized by the S corporation during the recognition period.

14 Page 14 Other Business Extenders: The PATH Act also extended or in some cases modified the following tax provisions: 15-year straight-line cost recovery for qualified leasehold improvements, restaurant property, and retail improvements Employer wage credit for employees who are active duty members of the uniformed services Treatment of certain dividends of regulated investment companies (RICs) The subpart F exception for active financing income Charitable deductions for the contribution of food inventory Tax treatment of certain payments to controlling exempt organizations Basis adjustment in stock when an S corporation makes charitable contributions of property Minimum low-income housing tax credit for non-federally subsidized buildings Military housing allowance exclusion in determining a low-income tenant RIC qualified investment entity treatment under FIRPTA Limited-Period Extended Business Tax Provisions: Bonus Depreciation: The PATH Act extended bonus depreciation (additional first-year depreciation on new property) under a phase-down schedule through 2019: 50 percent for percent in percent in 2019 The PATH Act modified bonus depreciation to include qualified improvement property, and certain trees, vines, and plants bearing fruits or nuts to be eligible for bonus depreciation when planted or grafted. The Act also provides that certain longer-lived and transportation property may qualify for an additional one-year placed in service date. For passenger autos to which the bonus depreciation applies, first-year depreciation is increased to $11,160. Work Opportunity Tax Credit (WOTC): The PATH Act extended through 2019 the WOTC credit and also enhanced the credit for employers that hire certain long-term unemployed individuals. New Markets Tax Credit: The PATH Act authorized the allocation of $3.5 billion of new markets tax credits for each year through 2019.

15 Page 15 Look-Thru Treatment for CFC s: The look-through treatment for payments of dividends, interest, rents, and royalties between controlled foreign corporations under the foreign personal holding company rules have been extended through Other Business Tax Provisions: The PATH Act also extended, and in some cases modified, other business tax provisions, some for two years through 2017 including the deduction for energyefficient commercial buildings, credit for 2-wheel plug-in electric vehicles, and credit for energy-efficient new homes. The Act also extended the solar investment tax credit and the credit for qualified residential solar property, though the credit is phased down starting in 2020 before dropping permanently to 10% for commercial projects and 0% for residential projects after Extended Individual Tax Provisions: State and Local Sales Tax Deduction: The election to claim an itemized deduction for state and local general sales taxes, in lieu of deducting state and local income taxes, was made permanent by the PATH Act. This provision is particularly valuable to taxpayers in states without an income tax and to some taxpayers who make big ticket purchases, such as a motor vehicle. American Opportunity Tax Credit (AOTC): The PATH Act made permanent the AOTC (an enhanced version of the Hope education credit). This credit has been available at an increased level of $2,500, with adjusted gross income (AGI) phase-out amounts of $80,000 (single) and $160,000 (married filing jointly). The Act also enacted new compliance rules requiring educational institutions to report only the amounts paid for education, not the amounts billed. An individual must possess a valid Form 1098-T to claim the AOTC. Code Sec. 529 Plans: The PATH Act characterized the purchase of computer equipment and technology products as a qualified expense for Code Sec. 529 plans beginning with the 2015 tax year. The Act allows taxpayers the option to redeposit 529 funds without penalty in certain circumstances when tuition is refunded Charitable Distributions from IRA s: The PATH Act extended the provision for individuals age 70 ½ and older to make tax-free distributions from individual retirement accounts (IRAs) to charitable organizations. The treatment is capped at a maximum of $100,000 per taxpayer each year.

16 Page 16 Qualified Conservation Contributions: The Act extended the special rule that allows contributions of capital gain real property for conservation purposes, with the contribution to be taken up to 50 percent of adjusted gross income. Teachers Classroom Expense Deduction: The PATH Act extended the above-the-line deduction for elementary and secondary-school teachers classroom expenses and modified the deduction by indexing the $250 ceiling amount to inflation beginning in 2017 (at the time of publication of this letter, the index amount is undetermined). The deduction now also includes professional development expenses within its scope. Transit Benefits Parity: The PATH Act extended the parity among transit benefits to include van pool benefits, transit passes, and qualified parking. For tax years beginning in 2017, the inflation-adjusted monthly exclusion for transit passes and van pool benefits will be $255. Other Individual Tax Provisions: Individual tax provisions extended through 2017 include the above-the-line deduction for qualified tuition and fees for postsecondary education, excludes from income the cancellation of mortgage debt on a principal residence of up to $2 million for a joint return, eligibility to deduct mortgage insurance premiums as deductible interest subject to adjusted gross income phase-out, and residential energy property credit of up to 10 percent of qualifying expenses, capped at $500. SOME CHANGES FOR 2017 Although there has been no major new tax legislation yet passed in 2017 at the time of publication of this letter, there are a couple of changes that are worth noting: Traditional and Roth IRA phase-outs limits have increased by $1,000 to $62,000 - $72,000 for single tax payers, and $99,000 - $119,000 for married couples filing jointly for traditional IRAs, and increased by $1,000 to $118,000 - $133,000 for single tax payers and $186,000 - $196,000 for married couples filing jointly for Roth IRAs; Taxpayers 65 and older are now required to meet 10% of AGI before being able to itemize medical expenses; The penalty for not having health insurance continues in The penalty is 2.5% of your 2017 household income or $695 per adult, whichever is higher, and $ per child, limited to a family maximum of $2,085.

17 Page 17 TAX RETURN FILING DATES Partnership Returns and S Corporations C Corporations Partnership Filing Form 1065 Organizations exempt from income tax filing Form 990 FinCEN Report 114 March 15 of following calendar year or 15 th day of third month following taxable year of a fiscal year entity. April 15 of following calendar year or 15 day of fourth month following taxable year of a fiscal year entity. Maximum extension for returns shall be a 6 th month period ending on September 15. Maximum extension shall be an automatic six-month period ending November 15 th for calendar year filers. Due April 15 th with maximum extension for a six-month period ending October TAX RETURN FILING DATES For calendar year tax returns reporting 2017 information, the following are the actual due dates, based on the 2018 calendar: Tax returns Initial Return Due Date Extended Due Date Partnership Returns(Form 1065) and S Corporations(Form 1120S) March 15 th 2018 September 17 th 2018 C Corporations (Form 1120), Individuals( Form 1040) and Fin CEN Report 114 April 17 th 2018 October 15 th 2018 Trust and Estates(Form 1041) April 17 th 2018 October 1 st 2018 Tax Exempt (Form 990 Series) May 15 th 2018 November 15 th 2018

18 Page 18 PENALTIES Please note that there are significant penalties for failure to properly report, file, and pay all types of business and employment taxes. Some of the more common federal tax penalties: Failure to File Return 15% of unpaid tax per month Fraud (maximum 75%) Failure to File Return 5% of unpaid tax per month Reasonable cause (maximum 25%) Failure to Pay Tax 0.5% per month (Maximum 25%) Substantial Understatement 20% of the underpayment Failure to Make Timely Deposits Ranges from 2% to 15% depending on the length of time elapsed There are also significant penalties for failure to file Form 5500 (Annual Return/Report of Employee Benefit Plan) for employee benefit plans and for failure to file information returns, or failure to include correct information on an information return. MASSACHUSETTS HIGHLIGHTS: Renters and Homeowners Circuit Breaker Credit: A Massachusetts taxpayer age 65 or older who owns or rents his or her principal place of residence may qualify for a credit. For tax year 2017, the taxpayer s total income cannot exceed $57,000 for a single individual who is not the head-of-household, $72,000 for a head-ofhousehold, and $86,000 for married couples filing jointly. For tax year 2017, the assessed valuation (before residential exemptions but after abatements) of the homeowner s principal residence may not exceed $747,000. The maximum credit amount for both renters and homeowners is $1,080. Simplified Extension process for Individuals, Fiduciaries, Partnership and Estates: As of December 5, 2016, all personal income taxpayers and filers of estate tax returns will be automatically granted an extension of time (currently six months) to file their tax returns as long as they have paid at least 80% of the total amount of tax ultimately due on or before the date prescribed for payment of the tax. The extension will be considered void, however, if 80% of the total tax liability is not paid on or before the original due date of the return, and interest and penalties for late filing and late payment will apply.

19 Page 19 Code Sec. 529 tax deduction: Beginning January 1, 2017 through 2021 tax year, Massachusetts residents will be able to deduct up to $1,000 in contributions to Massachusetts Education Financing Authority (MEFA) U. Fund from their state income tax (up to $2,000 for married couples filing jointly). Angel Investor Tax Credit: Beginning in 2017, investors will be able to receive an income tax credit of 20 percent of their investment in qualifying Massachusetts businesses that have no more than 20 full-time employees and $500,000 in revenues. Investments in qualifying businesses in gateway municipalities cities where educational attainment and median income are below the state s average - would qualify for a credit of 30 percent. Since this is an entirely new program, the Massachusetts Life Sciences Center has not yet promulgated the regulations that will govern the program as of the date of release of this letter. MASSACHUSETTS ON-LINE The Massachusetts Corporate Division has changed their website, which allows you to perform many different tasks through the ease of the Internet. MassTaxConnect will now be used instead of WebFile to organize many types of business entities on-line as well as pay your taxes. We recommend that all businesses file their annual reports on-line. To do so, visit All login, account information, and third party access for the website will be the same as used in previous years.

20 Page 20 In this letter, we have discussed information that may be applicable to the preparation and submission of your 2017 informational returns and to the computation of taxable employee benefits. We have also highlighted some important planning considerations as we move into the 2017 filing season and we will continue to monitor current changes that may affect our clients filing responsibilities. Please do not hesitate to contact us if you have any questions regarding this information or if we can be of additional service. Very truly yours, Tonneson & Company, PC enclosures

21 EXHIBIT A 2017 Annual Lease Value Table Annual Automobile fair market value Lease Value $ 0 to $ 600 1,000 to 1, ,000 to 2, ,100 3,000 to 3, ,350 4,000 to 4, ,600 5,000 to 5, ,850 6,000 to 6, ,100 7,000 to 7, ,350 8,000 to 8, ,600 9,000 to 9, ,850 10,000 to 10, ,100 11,000 to 11, ,350 12,000 to 12, ,600 13,000 to 13, ,850 14,000 to 14, ,100 15,000 to 15, ,350 16,000 to 16, ,600 17,000 to 17, ,850 18,000 to 18, ,100 19,000 to 19, ,350 20,000 to 20, ,600 21,000 to 21, ,850 22,000 to 22, ,100 23,000 to 23, ,350 24,000 to 24, ,600 25,000 to 25, ,850 26,000 to 27, ,250 28,000 to 29, ,750 30,000 to 31, ,250 32,000 to 33, ,750 34,000 to 35, ,250 36,000 to 37, ,750 38,000 to 39, ,250 40,000 to 41, ,750 42,000 to 43, ,250 44,000 to 45, ,750 46,000 to 47, ,250 48,000 to 49, ,750 50,000 to 51, ,250 52,000 to 53, ,750 54,000 to 55, ,250 56,000 to 57, ,750 58,000 to 59, ,250 For vehicles having a fair market value in excess of $59,999, the annual lease value is equal to: (.25 x the fair market value of the car) + $500.

22 EXHIBIT B 2017 AUTOMOBILE USAGE REPORT (To be completed by All Employees using Company Owned or Leased Vehicle(s)) Employee Name The personal use of company owned or leased vehicles are a taxable fringe benefit. The amount of the benefit must be computed each year in accordance with Internal Revenue Service Regulations. The value of the fringe benefit will be included as additional compensation on your 2017 Form W-2, Wage and Tax Statement. To assist in complying with this law, the following information for 2017 usage must be documented. Your response should be returned as soon as possible. 1. The number of business miles driven (your business miles do not include commuting to and from work). 2. The number of commuting miles driven. 3. The number of personal (other than commuting) miles driven. 4. The total number of personal miles (sum of lines 2 and 3). 5. The total number of miles you drove the company car during the year (sum of lines 1 and 4). 6. Did you have a second personally owned vehicle available for personal use? Yes No 7. Did you maintain written records to document your business and personal use? Yes No 8. Do you wish to have federal and state income taxes withheld from your pay based on the taxable fringe benefit amount? Yes No (Signature) (Date) FOR COMPANY USE ONLY Period Car Used by Employee during Year from: To: Type of Vehicle (Year/Make/Model) Date Vehicle Purchased by the Company Original Cost: Gasoline Paid by Employer: Yes No

23 EXHIBIT C WORKSHEET TO CALCULATE INCOME FROM PERSONAL USE OF COMPANY VEHICLE EMPLOYER S WORKSHEET TO CALCULATE EMPLOYEE S TAXABLE INCOME RESULTING FROM EMPLOYER-PROVIDED VEHICLE FOR CALENDAR YEAR 2017 Employee: Description of Vehicle: Date Vehicle First Made Available To Any Employee: Date Vehicle First Made Available To This Employee: Select One Method (Note Limitations on Methods II and III) Usage Period: (Check One) 11/1/16 To 10/31/17 Or Calendar 2017 METHOD I Annual Lease Value Method (For Autos Available 30 Days or More) Step 1 Fair market value of vehicle (predetermined at the beginning of the first year and every 4th year thereafter) $ 2 Annual lease value, per attached chart $ 3 Enter number of days during the year that the x vehicle was available (See Note 1) 4 Divide step 3 by number of days in tax year (365). Place result in the space provided. 5 Prorated annual lease value (multiply Step 2 by Step 4) 6 Personal use % (personal/total miles, per x % statement from employee Exhibit B divides line 4 by line 5) 7 Personal annual lease value (Step 5 x Step 6) $ 8 If fuel is provided by employer: multiply personal miles by 5.5 cents (See Note 2) Personal use taxable income (Step 7 + Step 8) $

24 EXHIBIT C (continued) AUTO LEASE FOOTNOTES (1) For autos available less than 30 days, please multiply the number of days the auto is available by 4, and place that result in the space provided. -or- For autos available 30 days or more, enter the days available in the space provided. Please note that if by treating all periods as 30 days or more results in a lower valuation, then an election can be made to do so for ALL periods. (2) If fuel is provided in kind, the fair market value may be determined based on all facts and circumstances or, alternatively, 5.5 cents per mile, if auto usage is within U.S., Canada and Mexico. Generally, where fuel is purchased and charged to the employer, the actual cost or reimbursement should be used. If employers with a fleet of 20 or more vehicles reimburse or allow employees to charge fuel cost, the fleetaverage cents per mile may be used. If the fleet employer determines that actual cost or fleet average methods are unreasonable administrative burdens, the 5.5 cents per mile may be used.

25 EXHIBIT D WORKSHEET TO CALCULATE INCOME FROM PERSONAL USE OF COMPANY VEHICLE EMPLOYER S WORKSHEET TO CALCULATE EMPLOYEE S TAXABLE INCOME RESULTING FROM EMPLOYER-PROVIDED VEHICLE FOR CALENDAR YEAR 2017 METHOD II STANDARD MILEAGE RATE METHOD Generally, in order to qualify to use the cents-per-mile method, the vehicle must: (1) be expected to be regularly used in the employer s business throughout the calendar year, (2) be driven at least 10,000 miles per year, and (3) have a fair market value of $15,900 or less ($17,800 or less for trucks or vans). Once this method is adopted for a particular vehicle, it must be continued until the vehicle no longer qualifies. Enter personal miles x $0.535 for period 1/1/17 through 12/31/17 = $ Deduct: If fuel is NOT provided by the Employer enter personal miles x $0.055 = ( ) Personal use taxable income $ METHOD III SPECIAL COMMUTING METHOD This method may only be used for vehicles covered by a written policy that allows commuting but no other personal use. DO NOT USE if employee is a 1% or more owner, an officer or board member with compensation equaling or exceeding $105,000 for 2017, an individual with compensation equaling or exceeding $215,000 for 2017, or who is a director. Number of commuting round trips made Value per round trip x $3.00 Personal use taxable income $

26 EXHIBIT E GROUP TERM LIFE INSURANCE (To be Completed by Employers) Please complete the following for all employees with Group Term Life Insurance coverage in excess of $50,000. Employee Name Insurance Company Policy Number Amount of Coverage Policy Beneficiary Policy Premium Period Covered Employee's Age Completed By: Name and Title Date

27 EXHIBIT F The following chart summarizes some of the big changes under the 2012 Tax Act and After Top Ordinary Income Tax Rate 39.6% Short-Term Capital Gain Rate 39.6% Long-Term Capital Gain And Qualified Dividend Tax Rate (for taxpayers with taxable income below applicable threshold amount) Long-Term Capital Gain And Qualified Dividend Tax Rate (for taxpayers with taxable income over applicable threshold amount) 15% 20% Additional Medicare Tax Or Wage Surtax 0.9% Net Investment Income Tax Rate (for taxpayers with investment income over applicable threshold amount) 3.8% Limitation On Itemized Deductions (for taxpayers with AGI above $261,500/$313,800) Limitation On Personal And Dependency Exemptions (for taxpayers with AGI above $261,500/313,800) Yes Yes