Corporate Effect of Tax Reform

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1 Corporate Effect of Tax Reform FEBRUARY 1, 2018 TO RECEIVE CPE CREDIT Participate in entire webinar Answer polls when they are provided If you are viewing this webinar in a group Complete group attendance form with Your printed name, signature & address All group attendance sheets must be submitted to training@bkd.com within 24 hours of live webinar Answer polls when they are provided If all eligibility requirements are met, each participant will be ed their CPE certificates within 15 business days of live webinar 1

2 INTRODUCTIONS Jesse Palmer Director of Tax Quality Control National Office Damien Martin National Assistant Tax Director National Office WHAT WE LL COVER TODAY 1 Corporate rate reduction & rules for rate changes 2 Closer look at key corporate provisions of the Tax Cuts and Jobs Act 3 ASC740 implications 2

3 Overall permanent rate reduction CORPORATE TAX RATE Effective 01/01/2018 Taxable Income Previous law $0 - $50,000 15% $50,001 - $75,000 25% $75,001 - $100,000 34% $100,001 - $335,000 39% $335,001 - $10,000,000 34% $10,000,001 - $15,000,000 35% $15,000,001 - $18,333,333 38% Over $18,333,333 35% TCJA 21% Blended rate for fiscal filers Special rules apply when law changes are effective as of beginning or end of calendar year Example: Taxable income = $1,000,000 3

4 Dividends Received Deduction DIVIDENDS RECEIVED DEDUCTION Effective 01/01/2018 Ownership Previous Law TCJA < 20% 70% 50% 20% < 80% 80% 65% > 80% 100% 100% Permanent repeal Previous Law TCJA 20% Repealed Remaining AMT credits refundable tax years o Reduce regular tax liability by any available AMT credit carryforward o 50 percent of any excess AMT credit is refundable 2021 tax year o Any remaining AMT credit carryforward is refundable ALTERNATIVE MINIMUM TAX Effective 01/01/2018 4

5 Personal Service Corporations OTHER CORPORATE TAX RATES Effective 01/01/2018 Previous law Personal Holding Company (PHC) Imposed on undistributed PHC income Previous law TCJA Flat 35% Flat 21% TCJA 20% 20% Accumulated Earnings Tax Not self-assessed Previous law TCJA 20% 20% Deduction limited 80 percent of taxable income Applies to losses arising in tax years beginning after December 31, 2017 No carryback Applies to losses arising in tax years ending after December 31, 2017 Except o Property/casualty insurance companies o Certain farm losses Carried forward indefinitely Applies to losses arising in tax years ending after December 31, 2017 NET OPERATING LOSS (NOL) 5

6 Deduction generally limited to sum of Business interest income BUSINESS INTEREST EXPENSE DEDUCTION Floor plan financing interest 30 percent of adjusted taxable income Taxable income +/- Items of income, gain, deduction or loss not properly allocable to trade/business + Business interest expense - Business interest income + Net operating loss + Pass-through business deduction + Depletion, depreciation & amortization (taxable years beginning before January 1, 2022, only) BUSINESS INTEREST EXPENSE DEDUCTION Excess carried forward indefinitely Limit does not apply to Businesses with average annual gross receipts $25 million (affiliated group basis) Regulated public utility business (including electric cooperatives) Following businesses may elect not to be subject to limitation provided they use ADS method for depreciation o Real property businesses o Farming businesses (including agricultural & horticultural cooperatives) 6

7 BUSINESS INTEREST EXPENSE DEDUCTION Example 1 Facts Manufacturer of widgets Gross receipts: $50 million annually Taxable income: $600,000 Depreciation & amortization expense: $400,000 Interest expense: $500,000 annually Previous tax law: $500,000 New tax law: $450,000 Limitation applies, since average gross receipts exceed $25 million Adjusted taxable income = $1.5 million ($600,000 + $400,000 + $500,000) Deductible amount = $450,000 ($1,500,000 x 30%) Excess of $50,000 carried forward BUSINESS INTEREST EXPENSE DEDUCTION Example 2 Facts Owner of commercial rental property Gross receipts: $40 million annually Taxable income: $250,000 Depreciation & amortization expense: $500,000 Interest expense: $2 million annually Previous tax law: $2 million New tax law: $2 million but must use ADS Limitation applies, since average gross receipts exceed $25 million Adjusted taxable income = $2,750,000 ($250,000 + $500,000 + $2,000,000) Deductible amount would be = $825,000 ($2,750,000 x 30%) But certain real property & construction businesses can elect for limitation not to apply; must use longer depreciation lives for property 40-year life for commercial rental building 20-year life for qualified improvement property No 100% bonus depreciation Excess of $0 carried forward 7

8 Applies to amounts paid or incurred after December 31, 2017 Food & beverage expense Deduction for expenses of employer-operated eating facility for convenience of employer provided as de minimis fringe benefit limited to 50 percent until December 31, 2025; nondeductible thereafter Certain expenses still 100 percent deductible, e.g., company holiday party Entertainment, amusement & recreation (includes certain membership dues) Generally nondeductible Certain expenses still 100 percent deductible, e.g., company holiday party DEDUCTION FOR MEALS & ENTERTAINMENT EXPENSE Guidance on withholding rules EMPLOYEE RELATED PROVISIONS Employers must implement new withholding tables by February 15, version of Form W-4 expect after February 15 Withholding rate on supplemental wages lowered from 25 to 22 percent Fringe benefit - changes Qualified transportation fringe benefits not deductible Employee reimbursed moving expenses not excludable from employee income 8

9 EMPLOYEE RELATED PROVISIONS Limitation on executive compensation Compensation to covered employees in excess of $1 million is nondeductible Only applies to publically traded companies Performance-based compensation no longer excluded from $1 million limit COST RECOVERY PROVISIONS Enhanced Bonus Depreciation Now available for both new & used assets September 27, % December 31, % % % % Expanded Section 179 Up to $1 million; phaseout beginning at $2.5 million of assets placed in service Various Other Provisions Modified 9

10 Rate considerations Deferred taxes required to be remeasured at date of enactment (December 22, 2017) Reflected in annual effective tax rate in period that includes enactment date Effects on deferred tax assets/liabilities recorded as current tax expense/benefit from continuing operations International considerations Valuation allowance considerations AMT credits refundable from Indefinite carryforward for NOLs ASC740 IMPLICATIONS More Clarity Ahead 1. Resource Center bkd.com/taxreform 2. Simply Tax Podcast bkd.com/simplytax 3. BKD Thoughtware bkd.com 10

11 Questions? CONTINUING PROFESSIONAL EDUCATION (CPE) CREDITS BKD, LLP is registered with the National Association of State Boards of Accountancy (NASBA) as a sponsor of continuing professional education on the National Registry of CPE Sponsors. State boards of accountancy have final authority on the acceptance of individual courses for CPE credit. Complaints regarding registered sponsors may be submitted to the National Registry of CPE Sponsors through its website: 11

12 CPE CREDIT CPE credit may be awarded upon verification of participant attendance For questions, concerns or comments regarding CPE credit, please the BKD Learning & Development Department at The information contained in these slides is for your information only, based on data available as of the date of the presentation, & is not to be considered as tax or legal advice. Applying specific information to your situation requires careful consideration of facts & circumstances. We are under no obligation to update these slides if changes occur. Consult your BKD advisor before acting on any matters covered 12

13 Thank You! Jesse Palmer Damien Martin ABOUT BKD BKD now has more than 2,600 CPAs, advisors & dedicated staff members working together to serve you. Our expertise goes well beyond the standard accounting services to include risk management, forensic & valuation services, technology & wealth management 13

14 Personalized Service with a Global Reach Our trusted advisors offer solutions for clients in all 50 states & internationally. With 36 offices in 16 states, BKD & its subsidiaries combine the insight & ideas of multiple disciplines to provide solutions in a wide range of industries 14