This presentation is intended to provide general education and no tax advice is intended to be given.

Transcription

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2 Disclaimer This presentation is intended to provide general education and no tax advice is intended to be given. Any written tax content and comments contained in this presentation is limited to the matters and topics specifically discussed and set forth herein. Such content and comments may be based on current tax statues, regulations, administrative guidance, and judicial decisions, as well as our interpretations thereof, and we have no obligation to update any content, comments, or interpretations for retroactive or prospective changes to such authorities. All relevant tax authority, applied to your facts and circumstances, should be considered before taking a tax position. Any contents, comments, or interpretations delivered by us orally or through this written presentation should not be solely relied upon when taking any tax position. Should you have any questions about the content of this presentation, please contact the presenters.

3 Tax Legislation Past, Present and Future alliantgroup Vice Chairman; Former IRS Commissioner Served as Commissioner of Internal Revenue from 2003 until 2007 Held Bush administration posts as Deputy Director for Management at the Office of Management and Budget MARK W. EVERSON Served as Controller of the Office of Federal Financial Management Featured in:

4 Our Mission alliantgroup s mission is one of education and awareness we exist to help industry organizations, U.S. businesses and the CPA firms that advise them take full advantage of all federal and state tax credits, incentives and deductions available to them. Our government has legislated these powerful incentive programs to help businesses grow and successfully compete both in the U.S. and abroad. We are proud to have helped over 12,000 businesses claim more than $6 billion in tax incentives! alliantgroup s headquarters is in Houston, Texas, with offices across the country including Chicago, New York, Boston, Orange County, Sacramento, Orlando, Indianapolis and Washington, D.C.

5 Our Services FEDERAL & STATE R&D TAX CREDITS ENERGY INCENTIVES FEDERAL EXPORT INCENTIVES ALLIANTNATIONAL (TAX CONTROVERSY SERVICES)

6 Our Team

7 $6 BILLION OVER 20,000 OVER 3,500 OVER 100,000 IN CREDITS & INCENTIVES FOUND CREDIT & INCENTIVE STUDIES COMPLETED CPA FIRM PARTNERSHIPS JOBS CREATED

8 Tax Legislation Past, Present and Future alliantgroup National Managing Director; Former Senior Counsel to the Senate Finance Committee Co-Leader of Tax Controversy Services at alliantgroup Former Senior Counsel and Tax Counsel to the U.S. Senate Finance Committee DEAN ZERBE Worked closely with then-chairman of the Senate Finance Committee, Senator Charles Grassley, and was involved in all major tax legislation signed into law Featured in:

9 2017 Tax Cuts and Jobs Act

10 Tax Politics 101: Elections matter -- House Republicans: Origination Majority Rules Senate Republicans (52 Votes) Bipartisan 60 Votes Rules (except reconciliation)

11 Tax Politics 101: Two steps: First Need Budget Reconciliation Instructions Reconciled to a Number (10 year window but doesn t have to be 10, and can be per title) $1.5 Trillion over ten Second Tax-writing Committees JCT role

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13 Thank you! Dean Zerbe

14 Tax Changes and Implications of the New Legislation

15 The BlumShapiro Team Moderator Jay Sattler, CPA, MST BlumShapiro Managing Partner Tax Services Corporations & Pass-Throughs International Implications Business Owners & Individuals Gregory Cabral, CPA, MST BlumShapiro Rhode Island Office, Managing Partner Alan Osmolowski, CPA BlumShapiro Partner Timothy P. Barry, CPA/PFS, MST, CFP, CRPC BlumShapiro, Partner

16 Corporations and Pass-Through Entities

17 Flow Through Businesses and C Corporations 20% Pass-through Deduction Corporate Alternative Minimum Tax Other Flow-through Business Items C Corporation Items Accounting Methods Fixed Assets Interest Expense Limitation

18 Qualified Business Income (QBI) Amount AKA 20% pass-through deduction Qualified Business Income QBI New section 199A Rental would qualify? Limited to lower of 20% of QBI or greater of 50% of W-2 wages, or 25% of W-2 wages, plus 2.5% of the unadjusted basis of the LLC s assets Does not include STCG, LTCG interest, dividends Excludes specified service businesses in the fields of health, law, accounting, actuarial science, performing arts, consulting, athletics, financial services and brokerage services

19 Qualified Business Income (QBI) Amount Threshold amount $315,000 of taxable income (MFJ) If meet threshold previous limit based on W-2 wages and type of business rules are not applicable Applied at the shareholder and partner level

20 Qualified Business Income (QBI) Amount Example of 20% Deduction: QBI: $1,000,000 W-2 wages: $800,000 Deduction: $200,000

21 Other Flow Through Business Items S Corporation terminated within two years of enactment Distributions treated as from AAA and E&P Partnership technical termination repealed

22 C Corporation Items AMT repealed for years beginning after 12/31/2017 Prior year minimum tax credit eligible for years beginning after 2017 and before % of amount not used now refundable All corporate tax rates reduced to a flat 21% Reduces Dividends Received Deduction

23 Accounting Methods Taxpayers with average gross receipts less than $25M Average based on prior three years Cash method Exempt for Accounting for Inventory Treat as Materials and Supplies that are not incidental Conform to financial accounting treatment Exempt from UNICAP Completed contract method of long term contracts Changes in accounting method

24 Fixed Assets 100% expensing election Qualified property placed in service after 9/27/2017 and before 1/1/2023 Percentage expensing decreases after 12/31/2022 to zero at 12/31/2026 Can elect 50% in lieu of 100% for qualifying property placed in service in the first tax year ending after 9/27/2017 Luxury auto limits increased Qualified improvements given a 15-year recovery period Section 179 increased to $1.0m and phase out limit $2.5m

25 Interest Expense Limitation Limitation is sum of: Business Interest Income 30% of business s adjusted taxable income Floor plan financing Businesses with less than $25M average receipts - Exempt Amount disallowed is carried forward Adjusted Taxable Income does not include: Net operating losses Section 199A deduction Depreciation, amortization or depletion

26 Other Business Provisions Net Operating Losses Carryback eliminated, Carryforwards unlimited NOL deduction limited to 80% of taxable income DPAD repealed Like-Kind Exchanges of Real Property Only real property eligible

27 Other Business Provisions (cont.) Meals and Entertainment No deduction for entertainment Expands meals for the 50% deduction Self-created property - Not capital asset Patent, Invention, Model, Design, Formula or Process

28 Flow Through Business Example Taxable Income Before Interest Expense $1,000,000 Interest Expense $500,000 W-2 Wages $1,000,000 Depreciation Expense $400,000 Prior Law Tax Reform Act Deductible Interest Expense $500,000 $420,000 QBI Amount $0 $116,000 Taxable Income $500,000 $464,000 Tax $143,231 $111,738 Savings $31,493

29 C Corporation Example Taxable Income Before Interest Expense $1,000,000 Interest Expense $500,000 W-2 Wages $1,000,000 Depreciation Expense $400,000 Prior Law Tax Reform Act Deductible Interest Expense $500,000 $420,000 QBI Amount $0 $0 Taxable Income $500,000 $580,000 Tax $170,000 $121,800 Savings $48,200

30 International Taxation

31 How We Got Here U.S. rates much higher than rest of the world Trillions of dollars kept offshore in low tax jurisdictions Less innovation in U.S. since IP would be taxed at higher rate

32 Change to Territorial Tax System Most other OECD countries use territorial system U.S. regime still has some elements of worldwide system 100-percent DRD for the foreign dividends received by a U.S. corporation DRD does not apply to S corporations

33 Tax on Accumulated Foreign Earnings One-time toll charge on previously untaxed foreign earnings Mandatory repatriation of accumulated earnings going back to 1986 Accumulated losses can be aggregated with accumulated foreign earnings

34 Mandatory Repatriation Tax Reduced tax rate Foreign E&P attributable to cash and other liquid assets taxed at 15.5% Residual foreign E&P taxed at 8% Foreign tax credits can be used to offset the repatriation tax (reduced benefit) State tax?

35 Timeline for Payment of Tax Up to 8-year deferral, graduated payments For 2017 calendar year corporation first payment of repatriation tax is in effect due April 15, 2018 Will need to await guidance from state and local jurisdictions

36 Global Intangible Low-taxed Income Global intangible low-taxed income (GILTI) Subpart F income Carrot and stick approach to taxation of IP and foreign sales Net % minimum tax? Deductions allowed for U.S. income generated from foreign sources (FDII)

37 GILTI or Innocent? Tax imposed on income above a deemed routine return Adjusted tax basis in foreign tangible property X10% is deemed routine return Foreign profits above that base threshold subject to inclusion in U.S. income

38 GILTI Related Deductions 50% of GILTI is allowed as deduction Deduction allowed for 37.5% revenue derived from foreign sources (FDII) Intention was to get closer to 12% rate Foreign tax credit can claim a credit for up to 80% of foreign taxes on inclusion amount GILTI and FDII net ETR %

39 Deductions for Foreign Derived Intangible Income FDII = U.S. income derived from sales or services provided to foreign unrelated entities 37.5% FDII plus 50% GILTI amount allowed as a deduction to U.S. corporations Deductions reduced in 2025 to % FDII and 37.5% GILTI amount

40 Applies to C Corps FDII and GILTI deductions are not available for: Individuals RICs REITs S corporations

41 Effective Tax Rates FTC against GILTI tax limited to 80% IP in U.S., the 37.5% FDII deduction available After FDII effective tax rate of % on U.S. based IP income GILTI effective rate %

42 S Corporations S corporation required to compute its income in the same manner as in the case of an individual GILTI is includible in S Corporation income The FDII and GILTI deductions only available to C Corporations DRD not available to S Corporations

43 We Got the BEAT New base erosion anti-avoidance tax (BEAT) Gross receipts threshold - $500 million Does not apply to S Corporations In general, BEAT reduces the benefit a U.S. corporation receives from taking tax deductions for payments to a foreign affiliate 5% rate now 2026 the BEAT increases to 12.5%

44 What Does This Mean for My Business ASC 740 date of enactment Need for modelling and doing projections C vs. S Repatriation tax due 4/15/2018 E&P analysis for 30 years needed What are the state tax implications of federal income inclusion relative to mandatory repatriation

45 Business Owners and Individuals

46 Questions We re Receiving Are the individual changes permanent? Are itemized deductions dead? We can still deduct charitable contributions, right? What about that pesky AMT? What tax rates will apply to me? What other changes should I be aware of? What are the estate/gift tax changes? Will my taxes go up or down?

47 Are the Individual Changes Permanent? No! Most are effective for 2018 through 2025 Sunset to old rules beginning in 2026

48 Are Itemized Deductions Dead? Doubling of standard deduction Elimination/limit on itemized deductions State & local income and property tax ($10k cap) 2% miscellaneous itemized deductions disallowed Mortgage ($750k) and home equity interest Medical deduction AGI threshold lowered to 7½ percent ( ) Pease phase-out limit eliminated Elimination of personal exemptions

49 We Can Still Deduct Charitable Contributions, Right? Increase in AGI limit for cash gifts (60%) What about everything on the last slide? Bunching contributions Still opportunity for those over 70 ½ with IRAs

50 What About That Pesky AMT? Not repealed Increased exemption ($109,400 MFJ; $70,300 Single) Increased exemption phase-out limits ($1M MFJ; $500k Single) Not as many AMT adjustments Faster use of prior year AMT credits?

51 What Tax Rates Will Apply to Me? Still 7 tax rates (10%, 12%, 22%, 24%, 32%, 35%, 37%) Slightly lower rates and wider brackets Additional marriage penalty relief No change in long-term capital gains and qualified dividend rates Kiddie tax changes Child tax credit increased and expanded Medicare surcharge and Net Investment Income Tax still apply

52 What Other Changes Should I Be Aware Of? 529 plan distribution for K-12 Alimony (2019) Disallowance of excess business losses Elimination of health insurance penalty (2019 +) Elimination of moving expense deduction/exclusion

53 What Other Changes Should I Be Aware Of? Casualty & theft losses Carried interest Roth IRA conversion recharacterizations Qualified equity grants ABLE account changes

54 What Are the Estate/Gift Tax Changes? Doubling of exemptions Estate/Gift GST Basis step up still applies What happens if the exemption decreases in 2026? Good planning dictates flexibility

55 Will My Taxes Go Up or Down? Every situation is different Opposing forces in new tax law Generalizations Most high income taxpayers will see decrease in tax Some in the middle will see tax increase Child tax credit will make the difference for many families

56 Stay Informed Upcoming Webinars: 2/20 11:00 am Tax Reform for Pass-Through Entities 2/22 11:00 am Changes for Corporations 2/26 11:00 am Global Impact of Tax Reform 2/28 11:00 am Individual Impact of Tax Reform Taxreform.blumshapiro.com

57 Panel Discussion / Q & A Mark Everson alliantgroup Dean Zerbe alliantgroup Jay Sattler BlumShapiro Tim Barry BlumShapiro Greg Cabral BlumShapiro Alan Osmolowski BlumShapiro

58 Stay Informed Upcoming Webinars: 2/20 11:00 am Tax Reform for Pass-Through Entities 2/22 11:00 am Changes for Corporations 2/26 11:00 am Global Impact of Tax Reform 2/28 11:00 am Individual Impact of Tax Reform Taxreform.blumshapiro.com