Advisor Webinar Series

Transcription

1 Advisor Webinar Series January 17, 2018 Tax Reform - Helping High Net Worth Families, presented by Robert S. Keebler Webinar Flyer with Log-in Information... 1 For Accountants Seeking CPE Credit: Instructions and Forms... 3 PowerPoint Presentation... 7

2 Webinar for Professional Advisors Tax Reform - Helping High Net Worth Families with CPA Robert Keebler Date: Wednesday, January 17, 2018 Time: 3:00-4:00 p.m. Eastern 2:00-3:00 p.m. Central 1:00-2:00 p.m. Mountain Noon-1:00 p.m. Pacific Presentation topics: The Tax Cuts and Jobs Act is the most significant tax reform in 30 years. This webinar will explore the critical aspects of the Act and provide specific planning ideas. Topics covered will include: 1. Individual taxation - changes to exemptions, deductions, brackets and credits. 2. Business taxation - a new lower corporate rate, special passthrough business rate, and a variety of other important changes. 3. Estate taxation - a doubling of the estate tax exemption. Accountants: If you have a course monitor at your viewing location and you pre-register to attend, you can earn CPE credit for attending this webinar. To pre-register, click the URL on the next page. Once you register, you will be ed the appropriate forms to apply for credit. This course qualifies with NASBA for 1.0 hour of CPE credit in the category Taxes. About the presenter Robert S. Keebler, CPA/PFS, MST, AEP (Distinguished) is a partner with Keebler & Associates, LLP and is a recipient of the prestigious Accredited Estate Planners (Distinguished) award from the National Association of Estate Planners & Councils. He has been named by CPA Magazine as one of the Top 100 Most Influential Practitioners in the United States and one of the Top 40 Tax Advisors to Know During a Recession. His practice includes family wealth transfer and preservation planning, charitable giving, retirement distribution planning, and estate administration. Mr. Keebler frequently represents clients before the National Office of the Internal Revenue Service (IRS) in the private letter ruling process and in estate, gift and income tax examinations and appeals, and he has received more than 250 favorable private letter rulings including several key rulings of first impression. He is the author of over 100 articles and columns and is the editor, author or co-author of many books and treatises on wealth transfer and taxation. Mr. Keebler has been a speaker at national estate planning and tax seminars for over 20 years including the AICPA s: Estate Planning, High Income, Advanced Financial Planning Conferences, ABA Conferences, NAPEC Conferences, The Notre Dame Estate Planning Conference and the Heckerling Estate Planning Institute and is currently the chair of the 2017 AICPA ENGAGE Conference. 1

3 Tax Reform - Helping High Net Worth Families with CPA Robert Keebler Upcoming 2018 Advisor Webinar Series Steven J. Oshins, Esq., AEP (Distinguished) Wednesday, April 18, :00-4:00 pm Eastern James M. Duggan, MBA, J.D. Wednesday, July 18, :00-4:00 pm Eastern Attend the presentation: Click this URL to attend the webinar mej5546/event/registration.html Bryan K. Clontz, CFP, CLU, ChFC, CAP, AEP Wednesday, November 14, :00-4:00 pm Eastern To ensure the best possible webinar experience, we recommend the following: Test your connection: It is critical that you test your connection, click on the link below: Listen via your speakers: Use your computer speakers or headset to listen to the webinar. If needed, you can also listen with your phone by dialing and entering the passcode Technical support: If you experience issues registering or attending, call the Webinar Support Hotline at Mobile access - Adobe Connect runs on tablets and smartphones. Users just need to download the application from the App Store of their choice. For details, go to These presentations are for educational purposes only and are prepared for the general information and education of professional advisors who work with agents of New York Life Insurance Company. They are not intended for use with the general public. The presentations discuss current developments and set forth generally accepted concepts or principles. Program materials may include a discussion of tax-related topics prepared to assist in the promotion or marketing of the transactions or matters addressed. They are not intended (and cannot be used by any taxpayer) for the purpose of avoiding IRS penalties that may be imposed upon the taxpayer. No attempt is made to offer legal, accounting, tax, valuation, financial planning, investment, asset allocation or other professional advice, or to set forth solutions to individual problems. New York Life, its agents or employees may not give accounting, tax, or legal advice. For such advice and specific applications to individual cases, individuals must rely on the advice of their own professional advisors. Robert S. Keebler, Steven J. Oshins, James M. Duggan and Bryan K. Clontz are not affiliated with New York Life and are solely responsible for the content of their respective presentations, which may not necessarily represent the views of New York Life or its affiliates. For CPE recipients: These one (1.0) hour advanced-level (group live) courses are offered for the benefit of practicing accountants with significant exposure to the subject and will focus on the development of in-depth knowledge necessary for proper consulting. These programs will provide the participant with an overview of technical topics related to estate planning. No advanced preparation is necessary. New York Life Insurance Company 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 addressed to the National Registry of CPE Sponsors on its website: For more information regarding registration, refund, complaint and program cancellation, please contact New York Life Insurance Company representative Heather Davis at SMRU ( ) 2017 New York Life Insurance Company. All rights reserved. 2

4 Are you a CPA seeking CPE credit for today s Webinar? If so, you must follow these important steps: 1) You must secure an on-site course monitor at your physical office location who monitors your attendance, completes and returns the STUDENT INFORMATION SHEET to Kaplan. a. A course monitor must be considered a disinterested third-party, defined as an individual who has no financial interest in the student s completion of this course and/or is not related to the student. 2) Once you secure a course monitor, he or she must follow all the instructions outlined on the form COURSE MONITOR GUIDELINES FOR CONTINUING EDUCATION CERTIFICATE PROCESSING. 3

5 COURSE MONITOR GUIDELINES FOR CONTINUING EDUCATION CERTIFICATE PROCESSING The following items have been provided for use in connection with the presentation you are about to deliver. Please review prior to class and contact Kaplan Financial Education with questions. AT THE EVENT: STUDENT INFORMATION SHEET: Each attendee's name, time of arrival, time of departure, and original signatures (both sign-in AND sign-out signatures) must appear on this form. Students must sign in when they arrive at class and sign out at departure. The monitor will sign the form at the completion of the course, verifying that the ID was checked and that the student completed the entire course. Please caution attendees that missing and/or illegible information will delay or prevent the granting of credit and the issuance of a Certificate of Completion. The completed forms must be collected by you and returned to Kaplan Financial Education at the conclusion of the presentation. COURSE EVALUATION FORM: A copy of this form must be presented to each attendee. Completion of this form by the student is optional. CERTIFICATE DELIVERY: Announce that certificates will be delivered via (unless the First- Class mail delivery option is requested). addresses that are not legible or are returned undeliverable will be sent by US mail. ADVISE STUDENTS that they must attend the course in its entirety in order to receive full credit. VERIFY EACH STUDENT S IDENTITY with a valid form of photo identification. Students must sign-in when they arrive at class. The student must print their name legibly, sign, and indicate the time that they sign in. Make sure that each student signs out with their signature and the time that they are signing out. IMMEDIATELY UPON CONCLUSION OF THE PRESENTATION: Collect all Student Information Sheets and Evaluation Forms Sign each Student Information Sheet as Instructor. Make a copy of ALL documents and retain them for your records Return the completed STUDENT INFORMATION SHEETS and COURSE EVALUATION FORMS via to kfs_cehelp@kaplan.com or mail to Kaplan Financial Education, 332 Front Street, Suite 555, La Crosse, WI As instructor, it is your responsibility to make sure that Kaplan Financial Education receives all forms immediately following the conclusion of the presentation. Please direct all questions, class changes or cancellations to the Compliance Department at Kaplan Financial Education by ing kfs_cehelp@kaplan.com or calling

6 STUDENT INFORMATION SHEET Continuing Education Class Date: 1/17/2018 Class Time: 3:00 PM 4:00 PM EST Instructor: Robert Keebler Class Location: The Nautilus Group, Dallas Pkwy, Suite 1050, Addison, TX Course Title: Tax Reform: Helping High Net Worth Familes This course is approved for the following designation: CPE Name (First) (Middle) (Last) Mailing Address City State Zip Phone # Address If you fail to provide ANY required information your completion/credits may be delayed or may not be reported at all. The following must be provided for Kaplan to issue credits: For a Certificate to be delivered by First-Class mail, rather than , this box must be checked. I certify under penalty of perjury that I attended this course in its entirety Student Name: (Please print legibly) Signature In: Signature Out: Time In: Time Out: Students who do not provide the necessary information in class will receive a problem notice from Kaplan indicating the reason(s) your completion/credits have not been reported. You must then respond to the address/phone or fax number that is indicated on the problem notice within 48 hours of receipt and provide the necessary information. If you do not respond timely, Kaplan will not report the completion/credits. Class Monitor Certification: I certify that the identity of the student named above was verified with a photo ID and that this individual attended the class in its entirety. (Print and sign name below) Monitor s Name: Signature: Monitor Phone # Address: **Please send completed form to: kfs_cehelp@kaplan.com, fax to OR mail to Kaplan Financial Education, 332 Front Street, Suite 555, La Crosse, WI 54601** PLEASE SEND WITHIN 48 HOURS OF CLASS COMPLETION*** 5

7 COURSE EVALUATION FORM Student s Name: (Optional) Affiliation: CPE Course: Tax Reform: Helping High Net Worth Families Completion Date: 1/17/2018, 3:00 PM 4:00 PM Company: New York Life Insurance Company EASTERN Delivery Method: Classroom Content/Materials: Low High Orientation was thorough and clear Organization of content Course objectives clearly stated Course objectives clearly met Content was what I expected Program materials relevant Satisfied with my learning experience Were the individual instructors effective? Program met my needs Was the facility appropriate? Please rate the technologies used Were the materials available satisfactory? Were the audio and visual materials effective? Time allotted for the course was appropriate Prerequisite requirements appropriate (if applicable) Instructor: Robert Keebler What suggestions do you have to improve this program? 6

8 Tax Reform Helping High Net Worth Families New York Life Advisor Webinar Featuring Robert S. Keebler, CPA/PFS, MST, AEP Your New York Life host: Heather Davis, JD, CLU, ChFC, AEP, CAP Corporate Vice President High Net Worth Marketing Manager 2 Answering your questions: Eva Stark, JD, LL.M. Senior Associate The Nautilus Group Answering your questions: Matthew Pate, JD, LL.M. Corporate Vice President The Nautilus Group 3 7

9 4 Our guest speaker: Robert S. Keebler, CPA/PFS, MST, AEP Partner Keebler & Associates, LLP Disclaimer This presentation is for educational purposes only and is prepared for the general information and education of professional advisors who work with agents of New York Life Insurance Company (NYLIC). It is not intended for use with the general public. It discusses current developments and sets forth generally accepted concepts or principles. It does not set forth solutions to individual situations. Clients should consult their professional advisors on such matters. NYLIC, its affiliates and agents and employees thereof may not provide tax, legal or accounting advice, and none is intended nor should be inferred from the following comments and observations. This material includes a discussion of tax-related topics prepared to assist in the promotion or marketing of the transactions or matters addressed. It is not intended (and cannot be used by any taxpayer) for the purpose of avoiding IRS penalties that may be imposed upon the taxpayer. Taxpayers should always seek and rely on the advice of their own independent tax professionals. Robert S. Keebler and Keebler & Associates, LLP, are not affiliated with NYLIC or its subsidiaries. Robert S. Keebler is solely responsible for his content and opinions, which may not necessarily represent the opinions of NYLIC. NYLIC makes no warranties or representations as to the accuracy or fitness of any information presented or comments made by Robert S. Keebler. Examples provided are hypothetical and intended for illustrative purposes only and are not indicative of the actual performance of any particular product. The Nautilus Group is a service of NYLIC New York Life Insurance Company. All rights reserved. SMRU (Exp ) 5 Notable Individual Changes Individual provisions sunset December 31,

10 Critical Changes Estate & generation skipping transfer (GST) tax: Doubles the exemption to $11,200,000 in Sunsets December 31, Step-up in basis retained at death. Business: Lowers the corporate rate to 21%. Lowers tax liability for certain pass-through business income. Increased expensing of capital items. 7 Critical Changes Business continued: Business interest deduction limited. Active business losses limited. NOL deduction modified. Like-kind exchanges limited to real property. New markets tax credit retained and opportunity zones added. 20% historic rehabilitation credit now claimed over five years and 10% pre-1936 building rehabilitation credit is repealed. 8 Modifications Discussed, But Not Included: Changes to the exclusion of gain on the sale of a principal residence. Elimination of the specific indemnification method in favor of FIFO basis accounting for marketable securities. Reduction of the capital gain rates or changes to the taxation of interest income. Elimination of the step-up in basis. The five-year rule for inherited IRAs Rothification. 9 9

11 10 Individual Income Taxation Individual Income Tax Rates PAST TOP OF EACH BRACKET S MFJ/QW MFS HOH T&E 10.0% $ 9,325 $ 18,650 $ 9,325 $ 13, % $ 37,950 $ 75,900 $ 37,950 $ 50,800 $ 2, % $ 91,900 $ 153,100 $ 76,550 $ 131,200 $ 6, % $ 191,650 $ 233,350 $ 116,675 $ 212,500 $ 9, % $ 416,700 $ 416,700 $ 208,350 $ 416,700 $ 12, % $ 418,400 $ 470,700 $ 235,350 $ 444, % CAPITAL GAINS 0% 15% 20% 11 Individual Income Tax Rates CURRENT TOP OF EACH BRACKET S MFJ/QW MFS HOH T&E 10% $ 9,525 $ 19,050 $ 9,525 $ 13,600 $ 2,550 12% $ 38,700 $ 77,400 $ 38,700 $ 51,800-22% $ 82,500 $ 165,000 $ 82,500 $ 82,500-24% $ 157,500 $ 315,000 $ 157,500 $ 157,500 $ 9,150 32% $ 200,000 $ 400,000 $ 200,000 $ 200,000-35% $ 500,000 $ 600,000 $ 300,000 $ 500,000 $ 12,500 37% CURRENT TOP OF EACH CAPITAL GAINS BRACKET S MFJ/QW MFS HOH T&E 0% $ 45,000 $ 77,200 $ 38,600 $ 51,700 $ 2,600 15% $ 425,800 $ 479,000 $ 239,500 $ 452,400 $ 12,700 20% Also simplifies the kiddie tax by effectively applying ordinary and capital gains rates applicable to trusts and estates to the net unearned income of a child

12 Married Filing Jointly (MFJ) Tax Rates Comparison Income Range Scheduled 2018 rate TCJA $1 to $19,050 10% 10% $19,051 to $77,400 15% 12% $77,401 to $156,150 25% 22% $156,150 to $165,000 28% 22% $165,001 to $237,950 28% 24% $237,951 to $315,000 33% 24% $315,001 to $400,000 33% 32% $400,001 to $424,950 33% 35% $424,950 to $480,050 35% 35% $480,051 to $600, % 35% Over $600, % 37% 13 Income Tax Rates Married filing jointly $800,000 $700,000 $600,000 $500,000 $400,000 $300,000 $200,000 $100,000 $- 39.6% 35.0% 33.0% 28.0% 25.0% 15.0% 37.0% 35.0% 32.0% 24.0% 22.0% 12.0% 10.0% 10.0% Income Tax Rates Married filing jointly $250,000 Comparison for $250k and below 33.00% $200,000 $150,000 $100, % 25.00% 24.00% 22.00% $50, % 12.00% $ % 10.00%

13 Standard Deduction Exemptions Exemptions are completely repealed at the end of 2017: Consolidated into the standard deduction. Expanded child tax credit and a new family tax credit designed to offset the loss for families. 17 Child and Family Tax Credits Credits after 2017: Child tax credit increased from $1,000 to $2,000. Compare to the value of an exemption: 12% x $4,150 = $498. Additional $500 nonrefundable credit for non-child dependents. Phase-out increased after 2017: Phase-out to increase from $110,000 to $400,000 for joint filers. Compare to the value of an exemption: 32% x $4,150 = $1,

14 Child and Family Tax Credits - Summary All figures for married filing jointly. 19 Education Provisions Section 529 Plans: Distributions of up to $10,000 may be used for qualified expenses for elementary school and high school.* Student loan forgiveness: Starting in 2018, forgiveness of student loan debt will not be taxable income to the student on account of the student s death or total disability. * Consult a properly registered representative for information on 529 Plans. 20 Education Provisions Home school expenses allowed: Books and instructional materials, curriculum and materials, educational therapies for students with disabilities, tuition for tutoring or educational classes outside the home if tutor is unrelated, online educational materials, etc

15 Education Provisions Items retained, but modification discussed: Interest expense on education loans. Exclusion for employer-provided assistance. Exclusion for qualified tuition reduction programs. Exclusion for US savings bonds. Deduction for qualified tuition and related expenses. Lifetime Learning and American Opportunity Tax Credits. 22 ABLE Accounts Increases the contribution limit in certain circumstances. Allows the designated beneficiary of an ABLE account to claim the Saver s Credit for contributions made. Allows rollovers from 529 accounts to ABLE accounts. 23 Simplification of Deductions 24 14

16 Simplification of Deductions SALT Deduction IMPORTANT State, local, and foreign property taxes and state and local sales taxes (SALT) are allowed as a deduction when paid or accrued in carrying on a trade or business, or an activity described in Section 212 (relating to expenses for the production of income). 25 Simplification of Deductions Other changes Wagering losses and expenses limited to wagering winnings after Pease limitation eliminated. 26 Retirement Plans Roth Recharacterization Cannot be used to unwind a Roth conversion after The experts are debating whether 9100 relief may be available to those who miss the deadline. Can still be used to change a Roth contribution to a contribution to a traditional IRA

17 Retirement Plans Extended rollover period for plan loan offset amounts after Currently plan loans must be repaid within 60 days of separating from the employer. The proposal moves the deadline to the due date of the employee s income tax return. 28 Alternative Minimum Tax (AMT) AMT exemption increased: Single or Head of Household $ 54,300 $ 70,300 Married filing jointly $ 84,500 $ 109,400 Phase-out begins, single or HoH $120,700 $ 500,000 Phase-out begins, MFJ $160,900 $1,000, Business Taxation 30 16

18 Business Taxation Main issues: Corporate rate reduction AET & PHC Tax New 199A pass-through deduction Accelerated cost recovery New interest paid deduction limit New loss deduction limits 31 C-Corporation Distributions Earnings & Profits (E&P) (i.e., dividend) Original Basis Capital Gain $ $ $ Tier 1 Tier 2 Tier 3 32 S-Corporation Distributions Corporation Has NO E&P Accumulated Adjustments Account (AAA) Original Basis Capital Gain $ $ $ Tier 1 Tier 2 Tier 3 17

19 S-Corporation Distributions Corporation Has NO E & P AAA E&P (i.e., dividend) Original Basis Capital Gain $ $ $ $ Tier 1 Tier 2 Tier 3 Tier 4 34 Partnership Distributions Partner Generally not taxable except to the extent the amount of the distribution exceeds the partner s basis in his partnership interest (IRC 731(a)). Exception for guaranteed payments and distributions of cash. Partnership Generally no gain recognized. Exception for distribution of unrealized receivables or appreciated inventory (IRC 731). 35 Understanding Double Taxation C-Corporations are in essence taxed twice. Pure S-Corporations are only taxed once. S-Corporations that were former C-Corporations have special concerns. Partnerships are only taxed once. Partnerships can make a 754 election

20 Personal Holding Company (PHC) 20% tax imposed on undistributed personal holding company income. PHC Definition: 60% of adjusted ordinary gross income is personal holding company income. Greater than 50% of the value of outstanding stock is owned directly or indirectly by, or for, not more than 5 individuals. 37 Personal Holding Company (PHC) Cont. Personal holding company income includes: Dividends Rents Royalties Personal service contracts Trust distributions 38 Accumulated Earnings Tax (AET) 20% tax imposed on accumulated E&P beyond the reasonable needs of the business. Reasonable needs of the business (basically) include: The reasonably anticipated needs of the business (subjective test). Expansion, M&A, retire debt, working capital, investments or loans to customers & suppliers. The amount needed for a 303 redemption

21 Accumulated Earnings Tax (AET) Cont. Purposes suggesting unreasonable accumulations: Loans to shareholders or relatives. Expenditures for the personal benefit of shareholders. Investments unrelated to the corporation s business. Retention of amounts to protect against unrealistic risks. Designed to force distributions of amounts not needed to run the business. Doesn t apply in addition to the PHC tax. 40 Corporate Tax Rates Current Taxable Income: 2017 Tax Rate 2018 Flat Rate $0 - $50, Percent 21 Percent $50,001 - $75, Percent 21 Percent $75,001 - $10,000, Percent 21 Percent Over $10,000, Percent 21 Percent 41 Business Pass-through Rate Deduction equal to 20% of domestic qualified business income (QBI) from a pass-through entity. Basically, provides an effective top marginal rate of 29.6%. Applies to trusts & estates

22 Business Pass-through Rate For those with taxable income in excess of $415,000 (MFJ) the deduction is limited to the greater of: 50% of W-2 wages. 25% of W-2 wages plus 2.5% of unadjusted basis. Unavailable to Specified Service Business owner s taxable income in excess of $415,000 (MFJ). Limitations phased-in from $315,000 - $415,000 (MFJ) of taxable income. 43 Business Pass-through Rate Specified Service Business defined in 1202(e)(3)(A): Any trade or business involving the performance of services in the fields of health, law, accounting, actuarial science, performing arts, consulting, athletics, financial services, brokerage services, or any trade or business where the principal asset of such trade or business is the reputation or skill of 1 or more of its employees. The final version includes new statutory language to exclude architects and engineers from the Specified Service Business definition. 44 Business Pass-through Rate The deduction also cannot exceed the lesser of: The Combined QBI Amount, or 20% x (total taxable income capital gain). Combined QBI amount = deduction for each qualified trade or business PLUS 20% of REIT dividends and PTP income. 20% 45 21

23 Section 199 Chart A Is it a Service Business per 1202(e)(3)(A), 475(c)(2), or 475(e)(2)? No Is taxable income over the threshold? 315/157.5 No Deduction = QBI x 20% Yes Is taxable income over the threshold? 315/157.5 Yes No Deduction = QBI x 20% Yes Over full Phase in? Yes No Deduction Reduced Is taxable income over the full phase in? Yes No Deduction Reduced Deduction equals lesser of: QBI x 20% or The greater of: W 2 wages x 50% W 2 wages x 25% + 2.5% of unadjusted basis No Deduction 46 Qualified Business Income Deduction Example #1: Sole Proprietor of operating business (income below phase-out range) Taylor, married and a sole proprietor, has $100,000 net business income from her bagel shop in Taylor and her husband have $34,000 of other income and will take the standard deduction ($24,000) in Qualified Business Income Deduction Example #1 continued: Summary of Taylor's QBI deduction in 2018: Net business income (a) $100,000 Other income 34,000 Adjusted gross income $134,000 Less: Standard deduction - 24,000 Taxable income (b) $110,000 QBI deduction* $20,000 * QBI deduction = Lesser of: (a) 20% of net business income ($100,000 x 20% = $20,000) or (b) 20% of taxable income ($110,000 x 20% = $22,000)

24 Qualified Business Income Deduction Example #2: Sole Proprietor of operating business (income below phase-out range) Jack, married and a sole proprietor, has $1,000,000 net business income from his custom motorcycle shop in Jack and his wife have $50,000 of other income and will have $60,000 of itemized deductions ($10,000 real estate and state income taxes + $50,000 charitable donations) in Additionally, Jack's motorcycle business has $250,000 of W-2 wages and $100,000 of assets (unadjusted cost basis). 49 Qualified Business Income Deduction Example #2 continued: Summary of Jack s QBI deduction in 2018: Net business income (a) $1,000,000 Other income 50,000 Adjusted gross income $1,050,000 Less: Itemized deductions - 90,000 Taxable income (b) $990,000 QBI deduction* $125,000 * QBI Deduction = Lesser of: (a) 20% of net business income ($1,000,000 x 20% = $200,000), (b) 20% of taxable income ($990,000 x 20% = $198,000) or (c) greater of: (i) 50% of W-2 wages ($250,000 x 50% = $125,000) or (ii) 25% of W-2 wages plus 2.5% of unadjusted cost basis of assets ([$250,000 x 25%] + [$100,000 x 2.5%] = $65,000). 50 Qualified Business Income Deduction Example #3: S-Corporation shareholder in a service business (income below phase-out range) Carl, married and a 50% owner in Numbers, Inc. (a bookkeeping firm), has $200,000 of pass-through net business income in Carl and his wife have $10,000 of other income and expect to take the standard deduction ($24,000) in

25 Qualified Business Income Deduction Example #3 continued: -Summary of Carl's QBI deduction in 2018: Net business income (a) $200,000 Other income 10,000 Adjusted gross income $210,000 Less: Itemized deductions - 24,000 Taxable income (b) $186,000 QBI deduction* $37,200 * QBI deduction = Lesser of: (a) 20% of net business income ($200,000 x 20% = $40,000) or (b) 20% of taxable income ($186,000 x 20% = $37,200). 52 Qualified Business Income Deduction Example #4: S-Corporation shareholder in a service business (income above phase-out range) Amy, married and a 33.33% owner in Smiles, Inc. (a dental clinic), has $550,000 of pass-through net business income in Amy and her husband have $50,000 of other income and expect to take the standard deduction ($24,000) in Qualified Business Income Deduction Example #4 continued: - Summary of Amy's QBI deduction in 2018: Net business income (a) $550,000 Other income 50,000 Adjusted gross income $600,000 Less: Itemized deductions - 24,000 Taxable income (b) $576,000 QBI deduction* $0 *QBI deduction is completely phased out because Amy is in a service business and her income is above the phase-out range for married taxpayers

26 Qualified Business Income Deduction Example #5: Partner in a partnership involved in a rental real estate (income below phase-out range) Sara, married and a 25% partner in Blackacre, LLP (a rental real estate partnership), has $250,000 of pass-through net business income in Sara and her husband have $30,000 of other income and expect to take the standard deduction ($24,000) in Qualified Business Income Deduction Example #5 continued: - Summary of Sara s QBI deduction in 2018: Net business income (a) $250,000 Other income 30,000 Adjusted gross income $280,000 Less: Itemized deductions - 24,000 Taxable income (b) $256,000 QBI deduction* $50,000 * QBI deduction = Lesser of: (a) 20% of net business income ($250,000 x 20% = $50,000) or (b) 20% of taxable income ($256,000 x 20% = $51,200). 56 Qualified Business Income Deduction Example #6: Partner in a Partnership Involved in Rental Real Estate (Income Above Phase-Out Range) Paul, married and a 50% partner in Greenacre, LP (a rental real estate partnership), has $750,000 of pass-through net business income in Paul and his wife have $100,000 of other income and will have $50,000 of itemized deductions ($10,000 real estate and state income taxes + $40,000 charitable donations) in Additionally, Greenacres, LP has $120,000 of W-2 wages and $4,000,000 of assets (unadjusted cost basis)

27 Qualified Business Income Deduction Example #6 continued: - Summary of Paul s QBI deduction in 2018: Net business income (a) $750,000 Other income 100,000 Adjusted gross income $850,000 Less: Itemized deductions - 50,000 Taxable income (b) $800,000 QBI deduction* $130,000 * QBI Deduction = Lesser of: (a) 20% of net business income ($750,000 x 20% = $150,000), (b) 20% of taxable income ($800,000 x 20% = $160,000) or (c) greater of: (i) 50% of W-2 wages ($120,000 x 50% = $60,000) or (ii) 25% of W- 2 wages plus 2.5% of unadjusted cost basis of assets ([$120,000 x 25%] + [$4,000,000 x 2.5%] = $130,000). 58 Cost Recovery Bonus Depreciation Expanded to include Used Property. Formally only allowed new property. 59 Cost Recovery IRC 179 Expansion Currently, a taxpayer may expense (under IRC 179) up to $500,000 of property. However, this is phased out if a business places over $2,000,000 of property in service during the tax year. The proposal increases the expensing limit to $1,000,000 and the phase-out to $2,500,000. Note: Section 179 applies to new and used property

28 Cost Recovery IRC 179 Expansion (cont.) Expands the definition of qualified tangible personal property and qualified real property eligible to include: Tangible personal property used predominantly to furnish lodging or in connection with furnishing lodging. Improvements to nonresidential real property placed in service after the date such property was first placed in service: o Roofs; o Heating, ventilation, and air-conditioning; o Fire protection and alarm systems; and o Security systems. 61 Like Kind Exchanges The bill proposes to limit like-kind exchanges to real property. However, the bill would allow transactions open at the end of 2017 to be completed tax-free. 62 Business Interest Deduction Businesses with average gross receipts that do not exceed $25,000,000 are exempt (test on an affiliated basis). The proposal would disallow interest expense in excess of 30% of a business s adjusted taxable income. Adjusted taxable income is computed without regard to deductions allowable for depreciation, amortization, or depletion

29 Business Interest Deduction Any interest disallowed would be carried forward indefinitely. Determined at the tax-filer level (e.g., the partnership not the partners would be subject to testing), but it is determined at the consolidated return level for affiliated corporations. At the taxpayer s election, certain real property and construction businesses and farms are exempt (but must use ADS). 64 Business Interest Deduction Example: John and Mary own a number of nursing homes. All the facilities are owned by a corporation started by Mary s great grandfather. Average gross receipts are about $40,000,000 and adjusted taxable income is about $5,000,000. The business has enormous capital requirements and pays over $2,000,000 of interest annually. The legislation limits the deductible amount to $1,500,000 ($5,000,000 x 30%). The excess can be carried forward. 65 Net Operating Loss (NOL) Deduction Under current law, NOLs can generally be carried forward twenty years and back two years. The legislation limits a NOL carryover deduction to offset 80% of taxable income (90% deduction for AMT). The legislation would also eliminate carrybacks (generally). NOLs to be carried forward indefinitely

30 Loss Rules Amends 461 to add a new subsection (l). Excess business losses disallowed. Must be carried forward. Applies to taxpayers with income exceeding $500,000 (MFJ). Applies at the partner or shareholder level. New fourth tier: Basis limit At-risk limit 465 Passive loss limit 469 Active loss limit Eligible Terminate S-Corporation Currently, an S-corporation with AAA which terminates its S-election cannot make distributions from its AAA account until it entirely distributes its E&P account. The legislation however, proposes to allow an Eligible Terminated S- Corporation to treat distributions as made from its AAA and E&P accounts on a pro-rata basis for 6 years. Eligible Terminated S-Corporation: Is an S-corporation before enactment. Revokes its S-election within 2 years of enactment. Has the same owners in the same proportion at enactment and revocation. 68 Estate Planning 69 29

31 Estate & GST Taxes Doubles the basic exclusion amount and GST exemption in Higher exemption sunsets December 31, Retains the 1014(a) basis adjustment ( step-up ). 70 Estate & GST Taxes 71 Estate & GST Taxes Tax-free gifts (to Dynasty Trusts) to use the higher exemption in anticipation of change. Intentionally defective grantor trust (IDGT) sales. Transfers taking advantage of valuation discounts. GST planning. Shifting growth. Four- to eight-year grantor retained annuity trusts (GRATs) for those in the middle. Force inclusion & obtain a step-up sunset in case of death

32 Estate & GST Taxes GST grandfathered trusts/gst exempt trusts. Portability elections. Springing spousal lifetime access trusts (SLATs; i.e., SLAT with contingent general power of appointment provision). Increased ease of income shifting. Note, it will be difficult to decrease the exemption without creating inequitable results. 73 Basis of Property Acquired from a Decedent Basis is generally full market value on date of decedent s death or, if elected, the alternate valuation date (IRC 1014(a)). Appreciated assets receive a step-up in basis at death. Saves income tax when the property is sold by heirs. Depreciated assets receive a step-down in basis deprives heirs of the income tax benefit of claiming a loss when the property is sold. Less common than stepped-up basis because taxpayers have an incentive to realize losses during life. 74 Questions and Answers Robert S. Keebler, CPA/PFS, MST, AEP Partner Keebler & Associates, LLP 75 31

33 Educational Events for Advisors Save the dates! Advisor Webinars Wednesday, Apr Steve Oshins Wednesday, July 18 - Jim Duggan Wednesday, Nov Bryan Clontz All Advisor Webinars are from 3-4 pm Eastern 2018 Advisor Symposium: Honoring the Legend of Ben Feldman Tuesday, Nov. 6 1:00pm 5:00 pm Eastern NYLAdvisors.com/educationalopportunities 2017 Feldman Forum Featuring Robert Keebler, Michael Broderick, Samuel A. Donaldson, Heather Davis and Greg Holmgren Patricia Annino, JD Estate Planning Strategies for Second (and Third) Marriages Robert S. Keebler, CPA/PFS, MST, AEP (Distinguished), CGMA Mathematics of Estate Planning Previous educational programs reflect tax, legal and regulatory information that was current as of the date of the presentation. Replays are offered for historical reference only and may not reflect current information. 77 Thank you. 32