Trump Tax Plan: Impact and Strategy

Transcription

1 Trump Tax Plan: Impact and Strategy

2 The material appearing in this presentation is for informational purposes only and is not legal or accounting advice. Communication of this information is not intended to create, and receipt does not constitute, a legal relationship, including, but not limited to, an accountant-client relationship. Although these materials may have been prepared by professionals, they should not be used as a substitute for professional services. If legal, accounting, or other professional advice is required, the services of a professional should be sought. 2

3 Agenda Tax reform priorities and outlook Five key areas to watch 2016 Strategy 3

4 Tax Reform Priorities

5 Optimistic outlook on reform Republican controlled presidency and congress Congress began with the largest Republican majority since the 71 st Congress of First GOP Control of all 3 Branches of Government since 2001 Both parties agree that changes are needed to address corporate inversions and US companies parking assets and income overseas (significant focus is lowering corporate tax rates) Most favorable odds for reform than at any other time since the Tax Reform Act of

6 Competing tax reform priorities Stimulate economic growth Simplification Reduced tax burden Foreign rate inequality (Global Tax Controversy) Federal budgetary implications Incent behavior 6

7 Competing tax reform priorities Prioritizing these items and determining the winners and losers will be the crux of the debate and Trump and the House have different priorities Stimulate economic growth Simplification (Trump) Reduced tax burden (Trump) Foreign rate inequality Federal budgetary implications (House) Incent behavior 7

8 5 Key Areas to Watch

9 C Corporation Rate Reduction Priorities of both Trump & House plans 34-35% federal corporate rate (39% 40% including state) Proposal reduced federal rate of 15% or 20% Rate reduction is viewed as a key component to making the US competitive internationally 9

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11 Implications of corporate rate reduction Income deferral and expense acceleration are key Reduce current and short-term taxable income Deferral to lower tax rate years creates permanent savings Financial Statement implications Deferred tax obligations will be adjusted to new tax rates at the date the rates become effective Direct impact to income statement in year of rate change Net deferred tax liabilities = tax benefit Net deferred tax asset = tax expense 11

12 Corporate and Individual Tax Reform are connected Pass-through entities are increasingly common 20.7% of US Business income in % of US Business income in 2011 Pass-through business income is currently taxed at individual income tax rates Highest marginal rate differential 39.6% v. 35% = 4.6% As that rate differential becomes more dramatic, business income could be subject to significantly different tax rates. If business income is taxed at business rates (15%-20%) significant planning may occur Sole proprietors Setting up pass-through labor companies to provide services and take advantage of lower rates 12

13 Select Individual Provisions Reduce tax brackets from 7 to 3 Current: 10% % Proposed: 12% - 33% Standard Deduction Current $12,600 (married) Proposed $30,000 (married) Repeal the AMT (Alternative Minimum Tax) Limits on Itemized Deductions Biggest benefit to High-Income Taxpayers Top 1% (> $465K) to see 13.5% increase in after tax income Eliminate Estate Tax 13

14 Certain Deductions may be at Risk $20 Trillion Estimated Cost over the next 20 years Cost may be offset by eliminating deductions: Depreciation Corporate Interest Expense 14

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16 Depreciation Current statutory regime Bonus Depreciation: 50% bonus depreciation 2017 (remainder 200% declining bal) 40% bonus depreciation % bonus depreciation 2019 Proposals: Trump- Full expensing of capital assets solely for manufacturers House Republicans Full expensing for all industries 16

17 Interest Expense Interest Expense is currently deductible (certain limits on highly leveraged entities particularly with foreign parties) Proposals: Trump- Reasonable Cap on Deductible Interest House Republicans Interest deductible only against interest income 17

18 Border Adjustment Tax Border Adjustment Tax House Republicans Tax imports, but not exports (remove incentive to move jobs overseas solely for tax reasons) Provides offsets for reduction in corporate tax rates May not be approved by the World Trade Organization Opens up the US to suits from other countries Increased costs on imported goods, risk of dollar volatility or significant inflation Imported New Vehicle estimated price increase = $9,000/vehicle 18

19 Carbon Tax Carbon Tax Certain Republicans support Tax on carbon emissions $40/ton assessed when the carbon emission first enters the economy Goal to reduce carbon emissions to encourage energy efficiency 19

20 2016 Strategy

21 Accelerate Deductions & Defer Revenue Corporate rates expected to drop Implement strategies today to reduce tax paid at higher rates & defer deductions to lower future tax years Permanent Savings 21

22 Accelerate Deductions & Defer Revenue Accelerate Deductions: Depreciation Bonus Depreciation (can create an Net operating loss) Section 179 (immediate expensing for small businesses) Cost Segregation Opportunities for buildings Front loads depreciation deductions into early years of ownership Separates the cost components into proper asset classification & shorter lives Prepaid expenses Accounting method changes to accelerate prepaid expenses Review Accruals Pension/retirement plan funding, vacation, bonuses 22

23 Accelerate Deductions & Defer Revenue Revenue Deferral: Installment sale methods Recognized gain of sale of assets over time Like Kind Exchange Deferral of gain on property sale if reinvested in like property Deferred Revenue Planning Grant funding Dark Fiber Leases Cooperative tax strategy Review taxable lines of business for opportunities to operate cooperatively 23

24 Questions?

25 May 12, 2017 Mike Caouette, BerryDunn STATE TAX ISSUES IN TELECOMMUNICATION berrydunn.com GAIN CONTROL

26 STATE TAX TOPICS What is Nexus? Why you should pay attention 2

27 NEXUS WHEN DOES NEXUS EXIST FOR A SERVICE PROVIDER? Physical Presence Economic Nexus Factor Presence 3

28 PHYSICAL PRESENCE STANDARD Generally, temporary or permanent presence of people (employees, service personnel or sales agents) or property (plant and offices) Potential activities triggering physical presence nexus? 4

29 ECONOMIC NEXUS STANDARD Economic Nexus exists when an out-of-state business: Directs economic activity in the state Derives income from a state s local market by making sales to customers in the state Receives income from intangible property 5

30 ECONOMIC NEXUS STANDARD A significant number of states have adopted economic nexus standards, including 42 states at last count. Potential activities triggering economic nexus? 6

31 FACTOR PRESENCE Multistate Tax Commission standard: $50,000 of property $50,000 of payroll $500,000 of sales 25% of total property, total payroll, or total sales 7

32 FACTOR PRESENCE States utilizing factor presence for income taxes assuming P.L does not apply: California Colorado Connecticut 8

33 FACTOR PRESENCE Gross Receipts Taxes: Ohio s Commercial Activity Tax Gross receipts > $150,000 Oklahoma s Business activity Tax Adopted MTC Standards Washington s Business & Occupancy Tax Adopted MTC Standards 9

34 TELECOMMUNICATION NEXUS ISSUES What to watch out for: Web Servers out of state Software as a Service (SaaS) or Cloud Computing Telecommuting Dark Fiber Leasing Holding Spectrum? Business registrations? 10

35 CALCULATING STATE TAXABLE INCOME State tax base Apportionable business income Business income State taxable income 11

36 APPORTIONMENT BASICS Computing the apportionment formula Property factor Payroll factor Sales factor 12

37 STATE SPECIFIC APPORTIONMENT METHODS Three factor, equally weighted Three factor, double weighted sales factor Single sales factor Many states moving to single sales 13

38 SOURCING SALES OF SERVICES Services: Cost of Performance Market Based 14

39 NEXUS ALREADY TRIGGERED Now What? Quantify Exposure Voluntarily Disclose 15

40 QUESTIONS? Mike Caouette, CPA, MST 16