Tax Reform Proposals and Year-End Planning Strategies

Transcription

1 Tax Reform Proposals and Year-End Planning Strategies December 8, 2017 Troy D. Hogan, CPA The information presented herein is general in nature and should not be acted upon without the advice of a professional KSM Business Services, Inc.

2 KSM Firm Overview At a Glance: Founded: 1942 Partners: 42 Employees: 350+ Offices: 4 Formed ESOP: January 1, 2001 Services Provided: Assurance, Tax, and Consulting Industries Served: Alternative Investments Construction Dealerships/BHPH Emerging Business ESOPs Financial Services Government Healthcare High Net Worth and Family Services Hospitality Insurance Life Science Manufacturing and Distribution Not-for-Profit Real Estate Technology Transportation Veterinary 2 ksmcpa.com

3 KSM s Transportation Services Group KSM has 120-plus trucking and logistics clients located throughout North America Our Services Include: Operational and Consulting: Benchmarking/performance measurement Operations review Equipment services Lease vs. buy analysis Utilization analysis Maintenance programs Lease and financing negotiations Freight network assessments Business technology services Strategic planning Tax and Accounting: Federal and state income tax preparation and analysis, planning and structuring State income tax nexus analysis Financial statement audit, review and compilations Business valuations Estate succession planning Due diligence, including quality of earnings reporting Assistance with financial projections, and state and local tax incentives 3 ksmcpa.com

4 Today s Agenda Background and Reform Goals Tax Reform Proposals Individual Provisions Tax Reform Proposals Business Provisions Tax Reform Proposals Pass-Through Provisions Tax Planning Opportunities for ksmcpa.com

5 Background and Reform Goals The information presented herein is general in nature and should not be acted upon without the advice of a professional KSM Business Services, Inc.

6 Status of the Reform Bills House Bill 11/2 Chairman s Mark Released 11/9 Bill Passed Out of Ways & Means Committee 11/16 Bill Passed the House, Senate Bill 11/9 Finance Committee Bill Released 11/16 Bill Passed Out of Finance Committee 12/2 Bill Passed the Senate, ksmcpa.com

7 Administration s Goals Lower Corporate Taxes 20% Tax Rate Increase U.S. Competitive Position Preferential Tax Rate on Repatriation Tax Cut for the Middle Class Simplification of the Tax Code 7 ksmcpa.com

8 Disclaimer Tax Reform will affect different business differently! Both Bills are Complex, Overly Long, and Detailed! Everything up to this point is subject to change! Not Every Change is covered in this presentation! 8 ksmcpa.com

9 Tax Reform Proposals Individual Provisions The information presented herein is general in nature and should not be acted upon without the advice of a professional KSM Business Services, Inc.

10 Proposed Tax Brackets AMT is Repealed 10 ksmcpa.com

11 Changes in Deductions House Senate State/Local Income & Sales Tax Repealed Repealed Tax Preparation Repealed Repealed Medical Expense Repealed Preserved Alimony Repealed Preserved Moving Expense Repealed Repealed Unreimbursed Employee Expense Repealed Repealed Student Loan Interest Repealed Preserved Itemized Deduction Limitation Repealed Repealed Personal Casualty Loss Deduction Repealed Repealed 11 ksmcpa.com

12 Changes in Deductions House Senate Mortgage Interest -only for primary residence -capped at $500,000 -debt incurred before effective date is grandfathered -preserves $1M cap -eliminates the $100,000 home equity line interest -preserves 2nd home State/Local Real Property Tax Capped at $10,000 Repealed Charitable Contributions -Increase from 50 to 60 percent AGI limitation -Repeals deduction for college athletic seating rights -Increase from 50 to 60 percent AGI limitation -Repeals deduction for college athletic seating rights 12 ksmcpa.com

13 Example House Plan Taxpayer Info W-2 Wages: 250,000 Itemized Deductions: SALT: 11,250 Property Tax: 5,000 Mortgage Interest: 15,000 Charitable: 1,500 32,750 Dependents: 2 Filing Status: Married Filing Joint Total Tax Current Code Tax: 43,180 House Plan Tax: 44,800 Tax Increase: 1,620 Why? Prior Itemized: 32,750 Personal Exempt: 16,200 Reductions Prior : 48,950 Reductions Now: 24,400 *Decrease in rates insufficient to cover loss of itemized deductions. 13 ksmcpa.com

14 Example House Plan Taxpayer Info W-2 Wages: 250,000 Itemized Deductions: SALT: 11,250 Property Tax: 3,000 Mortgage Interest: 8,000 Charitable: 1,500 $23,750 Dependents: 2 Filing Status: Married Filing Joint Total Tax Current Code: 45,700 Proposed Plan: 44,800 Tax Decrease: 900 Why? Prior Itemized: 23,750 Personal Exempt: 16,200 Reductions Prior : 39,950 Reductions Now: 24,400 *Decrease in rates sufficient to cover loss of itemized deductions. 14 ksmcpa.com

15 Family and Child Provisions Tax Credits Child Tax Credit Increase from $1,000 to $1,600 [House] $2,000 [Senate] credit for each qualifying child under 17 [House] 18 [Senate] New $300 [House] $500 [Senate] credit for non-children dependents Family Flexibility Tax Credit $300 credit for each non-dependent tax filer [$600 for MFJ] [House only] Increased phase-out beginning at $230,000 MFJ [House] $500,000 MFJ [Senate] Earned Income Tax Credit Preserved [House] and [Senate] 15 ksmcpa.com

16 Example House Plan Taxpayer Info W-2 Wages: $100,000 Standard Deduction Current Code: $12,600 Proposed Plan: $24,400 Dependents: 2 Filing Status: Married Filing Joint Total Tax Current Code: $9,747 Proposed Plan: $9,072 Tax Decrease: $675 Increase in credits Child Tax Credit: $1,000 $1,600 Family Flexibility Credit: $600 Net Tax Decrease: $2, ksmcpa.com

17 Example House Plan Single Taxpayer Info W-2 Wages: $400,000 Itemized Deductions: SALT: $18,000 Property Tax: $6,000 Mortgage Interest: $18,000 Charitable: $2,000 $44,000 Dependents: 0 Filing Status: Single Total Tax Current Code: $100,879 Proposed Plan: $105,050 Tax Increase: $4, ksmcpa.com

18 Changes in Income Exclusions Sale of Principal Residence Current Law: Exclude up to $500,000 of gain for MFJ if the house sold had been the principal residence for two out last five years Proposed Law: Exclude up to $500,000 of gain for MFJ, but house must have been principal residence for five out of last eight years [Same House and Senate] Dollar-for-dollar phase-out of exclusion if AGI over $500,000 [House only] Employee Achievement Awards To be treated as income [House] excludable [Senate]. Moving Expense Reimbursement To be treated as income [Same House and Senate] Adoption Assistance Payments To be treated as income [House] excludable [Senate]. 18 ksmcpa.com

19 Education Provisions [House Only] American Opportunity Tax Credit (AOTC), Hope Scholarship Credit (HSC), Lifetime Learning Credit (LLC) Repeal of HSC and LLC AOTC would remain the same with an added 5th year of credit available, but limited to $2,000 ($500 refundable) Education Savings Plans Elimination of Coverdell plans with tax-free rollovers into 529s Unborn children can be named beneficiaries of 529s Elementary and High School expenses become qualified 529 expenses 19 ksmcpa.com

20 Education Provisions [House Only] Tuition Reductions The exclusion will be repealed Tuition reductions given to students who are employees or the spouse or dependent of an employee will be income to the student who receives the tuition reduction Employer-Provided Education Assistance The exclusion will be repealed Tuition paid by an employer will be includible as income to the employee 20 ksmcpa.com

21 Estate, Generation Skipping, and Gift Tax Provisions Estate Tax Lifetime Exclusion increased to $10 million (indexed for inflation) Repeal of the Estate and Generation Skipping Tax effective beginning 2024 [House only] Gift Tax Top rate lowered to 35 percent [House only] Lifetime exclusion increased to $10 million 21 ksmcpa.com

22 Miscellaneous Electric vehicle tax credit Repealed [House] Preserved [Senate] Deduction for teacher purchases Repealed [House] Preserved [Senate] Simplified tax return (Form 1040SR) for taxpayers age 65 or older [Senate] 22 ksmcpa.com

23 Tax Reform Proposals Business Provisions The information presented herein is general in nature and should not be acted upon without the advice of a professional KSM Business Services, Inc.

24 Reduction in Corporate Tax Rate Current (excluding surtax to limit lower brackets availability) Taxable Income: Tax Rate: $0-$50, percent $50,001-$75, percent $75,001-$10,000, percent Over $10,000, percent Personal service corporations flat 35 percent tax rate Proposed Corporate tax flat 20 percent tax rate [2018 House] [2019 Senate] Personal service corporations flat 25 percent tax rate [House] 24 ksmcpa.com

25 Increased Expensing Current special/bonus depreciation percent 40 percent 30 percent Original use of property must begin with the taxpayer Proposed special/bonus depreciation 100 percent of qualified property acquired and placed in service after Sept. 27, 2017 and before Jan. 1, 2023 Must be taxpayer s first use [House] Not applicable to any property used in a real estate trade or business [House] 25 ksmcpa.com

26 179 Expansion Current Expense up to $500,000 of section 179 property placed in service each year Reduced by amount of 179 property placed in service in excess of $2 million - Both amounts to be indexed for inflation Proposed Expense up to $5 million [House] $1 million [Senate] of section 179 property placed in service each year Reduced by amount of 179 property placed in service in excess of $20 million [House] $2.5 million [Senate] - Both amounts to be indexed for inflation - Effective for tax years beginning after 2017 [House] 2018 [Senate] Qualified energy efficient heating and air-conditioning property permanently included (effective after Nov. 2, 2017) 26 ksmcpa.com

27 Small Business Accounting Method Reform and Simplification Cash method of accounting Current Corporations and partnerships with a corporate partner may only use cash method of accounting if average gross receipts do not exceed $5 million for all prior years Proposed - $25 million [House] $15 million [Senate] and would not need to satisfy this level for all prior years Accounting for inventories Current Businesses required to use an inventory method must use accrual method of accounting - Exception from accrual method for some small businesses with average gross receipts of not more than $1 million and 2nd exception for businesses in certain industries whose annual gross receipts do not exceed $10 million Proposed - $25 million [House] $15 million [Senate] 27 ksmcpa.com

28 Small Business Accounting Method Reform and Simplification Capitalization Current UNICAP requires capitalization of certain direct and indirect costs associated with property manufactured and/or purchased for resale into the basis of such property - Exception businesses with $10 million or less in average annual gross receipts who acquire property for resale (not manufacturers) Proposed - Businesses with average gross receipts of $25 million [House] $15 million [Senate] or less would be fully exempt from UNICAP rules - This exemption would apply to manufacturers 28 ksmcpa.com

29 Business Interest Current Generally deductible Proposed Disallowance of a deduction for net interest expense in excess of 30 percent of the business s adjusted taxable income Adjusted taxable income - Taxable income without regard to interest expense, interest income, net operating losses, and depreciation, amortization, and depletion. Determined at tax filer level (i.e., partnership level versus partner level) Disallowed amounts would be carried forward five years [House] indefinitely [Senate] as an attribute of the business. 29 ksmcpa.com

30 Business Interest Continued Exceptions Businesses with average gross receipts of $25 million or less [House] $15 million or less [Senate] Real property trades or businesses 30 ksmcpa.com

31 Like-Kind Exchanges Would be modified to allow for like-kind exchanges only with respect to real property Provision would provide a transition rule to allow exchanges at a certain stage prior to the cutoff 31 ksmcpa.com

32 Revision of Treatment of Contributions to Capital Current The gross income of a corporation generally does not include contributions to its capital In addition, a corporation does not recognize gain or loss on the receipt of money or property in exchange for stock of the corporation 118 Proposed Money and FMV of property contributed to corporations in excess of the FMV of stock received would be includible in the corporation s gross income 32 ksmcpa.com

33 Modification of Net Operating Loss Deductions Current Net operating loss (NOL) may be carried back two years and carried forward 20 years Alternative minimum tax (AMT) rules provide that an NOL deduction may not reduce the taxpayer s AMT income by more than 90 percent Proposal Carrybacks would generally be repealed aside from special oneyear carrybacks for small businesses and farms in the case of certain casualty and disaster losses NOLs would be carried forward indefinitely Taxpayers would be able to deduct an NOL only to the extent of 90 percent of the taxpayer s taxable income 33 ksmcpa.com

34 Repeal of Certain Deductions Local lobbying expenses Domestic production activity deduction (DPAD) Entertainment expenses Business meals would still be at 50 percent deductibility Fringe benefits that are personal in nature to the extent not treated as taxable compensation Transportation, on-premise gyms, or other athletic facilities, and other items provided to an employee that are primarily personal in nature and that involve property or services not directly related to the employer s trade or business Tax-exempt entities would be taxed on the values of providing employees with these fringe benefits 34 ksmcpa.com

35 Technical Terminations Current Partnership is deemed to have terminated if, within a 12- month period, there is a sale or exchange of 50 percent or more of the total interests in partnership capital and profits - For tax purposes, treated as if a new partnership has formed depreciation restarts at net book value, elect into new accounting methods, etc. Proposed Technical termination rule would be repealed 35 ksmcpa.com

36 Reform of Business Credits Repeal of credit for clinical testing expenses for certain drugs for rare diseases or conditions [House] Repeal of employer-provided child care credit [House] Repeal of rehabilitation credit [House] There would be a transition period for projects at certain stages Repeal of work opportunity tax credit [House] Termination of new markets tax credit [House] 36 ksmcpa.com

37 Reform of Business Credits Repeal of deduction for certain unused business credits Repeal of credit for expenditures to provide access to disabled individuals [House] Modification of credit for portion of employer social security taxes paid with respect to employee tips Updated to reflect current minimum wage 37 ksmcpa.com

38 Compensation Deferred compensation Current - Qualified defined benefit or defined contribution pension plan - Employee does not pick up income until a distribution from the plan occurs - Employer generally may take the deduction in the year the compensation is earned - Non-qualified deferred compensation - Employee does not pick up income until the year received - Employer s deduction is postponed until the year employee receives 38 ksmcpa.com

39 Compensation Proposed - Employee would be taxed on compensation as soon as there is no substantial risk of forfeiture with regard to that compensation (i.e., receipt of the compensation is not subject to future performance of substantial services) - Following do not constitute substantial risk of forfeiture» Presence of a covenant not to compete» A condition that relates (nominally or otherwise) to a purpose of the compensation other than the future performance of service - Effective for amounts attributable to services performed after Current laws would continue to apply to existing non-qualified deferred compensation arrangements until the last tax years beginning before ksmcpa.com

40 Amendments to the Amendment Qualified equity grants Lessens impact of new deferred compensation rules for stock options and restricted stock units of private companies if employee makes an election - Qualified employees can defer income up to five years after such employee exercises a vested option or a restricted stock unit becomes vested - Employees excluded - Anyone who has owned one percent or more in the past 10 years - CEO, CFO - Anyone who has been one of the four highest compensated officers for any of the past 10 years - Income deferral period would end upon certain events - Stock becoming readily tradeable on established securities market - First date the stock becomes transferable (including to employer) - Presumably upon a merger with a public company - Employee revoking the election - Employee becomes an excludable employee - Corporation must have written plan under which not less than 80 percent of all employees who provide services to such corporation in the U.S. are granted stock options or restricted stock units (RSU) with the same rights and privileges to receive qualified stock 40 ksmcpa.com

41 Tax Reform Proposals Pass-Through Provisions The information presented herein is general in nature and should not be acted upon without the advice of a professional KSM Business Services, Inc.

42 Tax to Individuals on Pass-Through Entities Current Law: Pass-through entities are taxed at the owner level. Income is reported at the pass-through owner s individual tax rates. Code section 469 prevents losses for passive activities being taken against income from active activities. 42 ksmcpa.com

43 Qualified Business Income House Plan Qualified Business Income includes: All income earned from passive activities, and The capital percentage of income from activities the taxpayer materially participates in. Qualified Business Income is reduced by: All passive losses incurred in the tax year, 30 percent of the losses incurred from active business activity, and The carryover of any business losses for the preceding tax year. 43 ksmcpa.com

44 Exceptions to Qualified Business Income Qualified business income would not include wages, guaranteed payments, director s fees, or Investment income. Investment income includes short-term and long-term capital gains and losses, dividends, and interest not earned in the trade or business. 44 ksmcpa.com

45 Business Income Tax Rate Total Tax Computation Ordinary tax computation LESS: 10 percent reduction amount (10 percent x [the lower of (a) or (b)]) LESS: 4.6 percent reduction amount (4.6 percent x [the lower of (c) or (d)]) New tax amount Calculation of (a) through (e) (a) Qualified business income (b) Taxable income minus the amount taxable in the 25 percent bracket (c) Qualified business income minus (e) (d) The amount calculated in (b) minus (e) (e) The amount taxed at 35 percent less the amount taxed at 25 percent 45 ksmcpa.com

46 Business Income Tax Rate: Example 1 A taxpayer is married filing jointly. They have $200,000 of passive pass-through income. All of this will be qualified business income. They have $50,000 of W-2 income. All other income and deductions net to $0. Their ordinary tax computation would be: $ 90, percent $10,800 $160, percent $40,000 $250, percent $50, ksmcpa.com

47 Business Income Tax Rate: Example 1 Calculation of (a) through (e) (a) $200,000 (b) $250,000 - $170,000 = $80,000 (c) $200,000 - $570,000 = $0 (d) $80,000 - $570,000 = $0 (e) $740,000 - $170,000 = $570,000 Total Tax Computation $50,800 LESS: $ 8,000 LESS: $ 0 $42,800 Reduction Computation 10 Percent Reduction 10 percent x $80,000 = $8, Percent Reduction 4.6 percent x $0 = $0 Comparison Old Tax: $50,800 Old Tax Rate: 20.3 percent New Tax: $42,800 New Tax Rate: 17.1 percent 47 ksmcpa.com

48 Business Income Tax Rate: Example 2 A taxpayer is married filing jointly. They have $50,000 of passive pass-through income. All of this will be qualified business income. They have $200,000 of W-2 income. All other income and deductions net to $0. Their ordinary tax computation would be: $ 90, percent $10,800 $160, percent $40,000 $250, percent $50, ksmcpa.com

49 Business Income Tax Rate: Example 2 Calculation of (a) through (e) (a) $50,000 (b) $250,000 - $170,000 = $80,000 (c) $50,000 - $570,000 = $0 (d) $80,000 - $570,000 = $0 (e) $740,000 - $170,000 = $570,000 Total Tax Computation $50,800 LESS: $ 5,000 LESS: $ 0 $45,800 Reduction Computation 10 Percent Reduction 10 percent x $50,000 = $5, Percent Reduction 4.6 percent x $0 = $0 Comparison Old Tax: $50,800 Old Tax Rate: 20.3 percent New Tax: $45,800 New Tax Rate: 18.3 percent 49 ksmcpa.com

50 Business Income Tax Rate: Example 3 A taxpayer is married filing jointly. They have $5,000,000 of passive pass-through income. All of this will be qualified business income. They have no other net taxable income. Disregarding the 12 percent phase out for high-income taxpayers. Their ordinary tax computation would be: $ 90, percent $10,800 $170, percent $42,500 $740, percent $259,000 $4,000, percent $1,584,000 $5,000, percent $1,896, ksmcpa.com

51 Business Income Tax Rate: Example 3 Calculation of (a) through (e) (a) $5,000,000 (b) $5,000,000 - $170,000 = $4,830,000 (c) $5,000,000 - $570,000 = $4,430,000 (d) $4,830,000 - $570,000 = $4,260,000 (e) $740,000 - $170,000 = $570,000 Total Tax Computation $1,896,300 LESS: $ 483,000 LESS: $ 195,000 $1,217,340 Reduction Computation 10 Percent Reduction 10 percent x $4,830,000 = $483, Percent Reduction 4.6 percent x $4,260,000 = $195,960 Comparison Old Tax: $1,896,300 Old Tax Rate: 37.9 percent New Tax: $1,217,340 New Tax Rate: 24.3 percent 51 ksmcpa.com

52 Capital Percentage The capital percentage is the percentage of income from active pass-through activities that will be considered qualified business income. Option 1: The default position is that the capital percentage is 30 percent The remaining 70 percent would be subject to ordinary income tax rates. Option 2: The taxpayer may elect to use an alternative calculation to determine their capital percentage. If a taxpayer elects to use the alternative calculation it is irrevocable for a five year period. 52 ksmcpa.com

53 Capital Percentage For personal service businesses the default capital percentage is zero percent. A partner in a personal service business is allowed to elect to apply the alternative calculation to determine their capital percentage. The capital percentage under the alternative calculation must be at least 10 percent for the election to apply. 53 ksmcpa.com

54 Elected Calculation for Capital Percentage Abbreviations for calculations: SPC: Specified return on capital for the active activities during the year NBI: Net business income from the active activities during the year DRR: Deemed rate of return for the active activities for the year AB: Asset balance of the activities for the year - This is the taxpayer s basis of property used in connection with the active activities DI: Deductible interest paid or accrued from active activities for the year FST: Federal short-term rate for the month the tax year ends - For December 2017 this interest rate was 0.74 percent 54 ksmcpa.com

55 Elected Calculation for Capital Percentage Deemed Rate of Return DRR = FST + 7 percent Specified Return on Capital SRC = (DRR x AB) - DI Capital Percentage (capped at 100 percent) Capital Percentage = SPC NBI 55 ksmcpa.com

56 Capital Percentage: Example 1 Assume a taxpayer participates in one active pass-through activity. The taxpayer s basis in the pass-through assets is $15,000,000 The taxpayer s portion of interest paid by the pass-through on those assets is $100,000 The taxpayer s portion of income from the pass-through is $3,000, ksmcpa.com

57 Capital Percentage: Example 1 Deemed Rate of Return DRR = 0.74 percent + 7 percent = 7.74 percent Specified Return on Capital SRC = (7.74 percent x 15,000,000) 100,000 = 1,061,000 Capital Percentage (capped at 100 percent) Capital Percentage = 1,061,000 = 3,000, percent 57 ksmcpa.com

58 Capital Percentage: Example 2 Assume a taxpayer participates in one active pass-through activity. The taxpayer s basis in the pass-through assets is $10,000,000 The taxpayer s portion of interest paid by the pass-through on those assets is $100,000 The taxpayer s portion of income from the pass-through is $3,000, ksmcpa.com

59 Capital Percentage: Example 2 Deemed Rate of Return DRR = 0.74 percent + 7 percent = 7.74 percent Specified Return on Capital SRC = (7.74 percent x 10,000,000) 100,000 = 674,000 Capital Percentage (capped at 100 percent) Capital Percentage = 674,000 3,000,000 = percent 59 ksmcpa.com

60 Capital Percentage: Example 3 Assume a taxpayer participates in one active pass-through activity. The taxpayer s basis in the pass-through assets is $15,000,000 The taxpayer s portion of interest paid by the pass-through on those assets is $100,000 The taxpayer s portion of income from the pass-through is $1,000, ksmcpa.com

61 Capital Percentage: Example 3 Deemed Rate of Return DRR = 0.74 percent + 7 percent = 7.74 percent Specified Return on Capital SRC = (7.74 percent x 15,000,000) 100,000 = 1,061,000 Capital Percentage (capped at 100 percent) Capital Percentage = 1,061,000 1,000,000 = 100 percent 61 ksmcpa.com

62 House Amendment and Senate Bill Keeps the rules previously discussed with some alterations. There will be a nine percent tax rate for the first $75,000 of net business taxable income of an active owner earning less than $150,000 if taxable income from a pass-through entity. As taxable income increases over $150,000 the nine percent tax rate benefit is reduced, and is phased out completely at $225,000 if taxable income percent deduction for domestic qualified business income. [Senate] 62 ksmcpa.com

63 Self-Employment Tax Current law defines net earnings from self-employment as: Gross income from any trade or business carried on by the taxpayer LESS: The allowable deductions attributable to the trade or business PLUS: The taxpayer s distributing share of income or loss from any partnership in which the taxpayer is a member 63 ksmcpa.com

64 Self-Employment Tax The proposed legislation Limits the amount of gross income, allowable deductions, and distributive share of income to the labor percentage of those amounts. Adds the labor percentage of any pro rata share of income or loss from any S Corps. Labor Percentage The labor percentage is equal to one minus the capital percentage. This is the amount of active pass-through income taxed at ordinary rate. 64 ksmcpa.com

65 Self-Employment Tax Current law: Rentals from real estate is excluded from the distributive share of partnership income subject to SE tax. The distributive share from partnerships, in which the taxpayer is a limited partner, is excluded from SE tax. Proposed legislation: Eliminates both of these provisions 65 ksmcpa.com

66 Tax Planning Opportunities for 2017 The information presented herein is general in nature and should not be acted upon without the advice of a professional KSM Business Services, Inc.

67 Bonus Depreciation and Sec. 179 Bonus Depreciation limits: 50% bonus first-year depreciation for eligible property placed in service in % in 2018; 30% in 2019; 0% after 2020 Section 179 limits: 2017: Eligible property purchases not exceeding $2,030,000; up to $510,000 can be expensed 67 ksmcpa.com

68 Entity Restructuring Consider forming a Holding Company to consolidate tax reporting entities Allows income and losses between the entities to be netted Simplifies federal tax compliance and saves professional fees May create additional state tax filling obligations or complexities 68 ksmcpa.com

69 Income Deferral and Expense Acceleration Consider making election to expense prepaid expenses in the year paid: Insurance, plates, etc. Consider making election to use the cash method of accounting for income tax purposes: Automatic change for transportation companies less than $50 million in sales Transportation companies greater than $50 million in sales can request permission 69 ksmcpa.com

70 Fuel Tax Credits Credit for the off-highway business use of diesel fuel and gasoline Not technically a credit, but a refund of excise taxes APU s, Espar Heaters, Refer Units, DPF s $.243/Gallon generally claimed on Form 4136 Expired: $.50/Gallon credit for Propane used in Forklifts File Form 637 to be registered as an Alternative Fueler 70 ksmcpa.com

71 Other Year-end Considerations Implementing a per-diem program State nexus review Cash method taxpayers should make prepayments before year-end Revisit Buy/Sell Agreements, Insurance policies, Wills, etc. Review expense accounts for profit improvement opportunities 71 ksmcpa.com

72 Troy D. Hogan, CPA (317) ksmcpa.com