HFMA Annual AccounTing and AudiTing UpdaTe Tax UpdaTe Presented by: Jeffrey J. Petrell, JD, CPA, CGMA Partner Health Care Tax Services Kelly A. Brocious, CPA Senior Manager Health Care Tax Services 97
Agenda Tax Cuts and Jobs Act Tax Exempt/Nonprofit Tax Changes Pennsylvania Bureau of Charitable Organization (BCO 10) Changes Tax Cuts and Jobs Act Corporate & Passthrough Tax Changes Tax Cuts and Jobs Act Individual Tax Changes 98 98
NonprofiT Tax Changes Excise tax on executive compensation 21% excise tax on compensation (from organization & related organizations) of any covered employee in excess of $1 million. Covered employee is defined as an employee (including former employees) One of the 5 highest compensated employees Covered employee of the organization (or any predecessor) for any preceding taxable years beginning after December 31, 2017 Certain medical professionals are excluded from the definition of a covered employee Compensation paid to a licensed medical professional (including veterinarian) which is for performance of medical or veterinary services Payments to a 457(b) plan are excluded from compensation Payments to a 457(f) plan are included in compensation 99 99
990 T NonprofiT Tax Changes Unrelated Business Income (UBI) losses from one line of business may not be used to offset income from another line of business Does not apply to NOLs that were generated before December 31, 2017 Excise tax on private colleges Excise tax equal to 1.4% is imposed on net investment income Only applies to private colleges and universities with at least 500 students, more than 50% of the students must be located in the U.S., and assets (other than those used directly in carrying out the college s exempt purpose) of at least $500,000 per student. 100 100
NonprofiT Tax Changes Repeal of advance refunding bonds The exclusion from gross income for interest on a bond issued to advance refund another bond is repealed. A bond is classified as an advance refunding if it is issued more than 90 days before the redemption of the refunded bond. Proceeds of advance refunding bonds are generally invested in an escrow account and held until a future date when the refunded bonds may be redeemed. Applies to bonds issued after December 31, 2017. 101 101
IRS SecTion 501(r) AudiTs The IRS has already started auditing hospitals for compliance with Section 501(r). IRS revoked the tax exempt status of a hospital for noncompliance with Section 501(r). Failed to complete a CHNA, adopt an implementation plan, and make it widely available Ensure hospital is in compliance with Section 501(r) Financial Assistance Policy (FAP), FAP application, FAP Plain Language Summary, CHNA, and CHNA implementation plan must be available on the hospital s website From our discussions and experience with the IRS, they are looking at websites Update list of providers at least quarterly 102 102
CHNA Community Health Needs Assessment (CHNA) is required to be completed once every 3 years. 6/30/2013 9/30/2013 12/31/2013 6/30/2016 9/30/2016 12/31/2016 6/30/2019 9/30/2019 12/31/2019 103 103
PA BCO-10 New thresholds for financial statement attachment Also clarified that any state registration form filed for charitable purposes will be timely filed if postmarked before the due date Both measures go into effect on February 20, 2018 Type of Financial Statements Required Old Law Gross Contributions June 30, 2018, and December 31, 2018, year ends New Law Gross Contributions Internally Prepared < $50,000 < $100,000 Compilation $50,000 $100,000 $100,000 $250,000 Reviewed Financials $100,000 $300,000 $250,000 $750,000 Audited Financials > $300,000 > $750,000 104 104
CorporaTion Tax Changes New rates are effective for tax years beginning after December 31, 2017 New Corporate rate applies to 990 T Taxable Income New Rate Old Rate $0 $50,000 21% 15% $50,001 $75,000 21% 25% $75,001 $10,000,000 21% 34% Over $10,000,000 21% 35% Personal Service Corp. 21% 35% 105 105
CorporaTion Tax Changes Repealed Corporate Alternative Minimum Tax (AMT) Current AMT credits can be used as follows: 50% of credits can be used each year until 2020 and the remaining credit in 2021 Dividends received deduction percentages reduced Corporations that receive dividends from other corporations are entitled to a deduction for dividends received. Old Law: At least 20% of stock owned 80% dividends received deduction Less than 20% stock owned 70% dividends received deduction New Law: At least 20% of stock owned 65% dividends received deduction Less than 20% stock owned 50% dividends received deduction 106 106
DepreciaTion Bonus depreciation Increased from 50% to 100% 100% for assets placed in service after September 27, 2017 through year 2022 Decreases to 80% for 2023, 60% for 2024, 40% for 2025, 20% for 2026 New or used assets Section 179 Doubled from $500k to $1M for qualified property Phase out begins at $2.5M Qualified property includes roofs, heating, ventilation, air conditioning, fire protection, and alarm systems 107 107
DepreciaTion Luxury automobile depreciation limits increased 1 st year 2 nd year 3 rd year 4 th &later years Old Law $3,160 $5,100 $3,050 $1,845 New Law $10,000 $16,000 $9,600 $5,760 Computers are no longer listed property Like Kind Exchange Not available except for real property 108 108
DepreciaTion Recovery period for real property shortened Qualified leasehold improvement, qualified restaurant, and qualified retail improvement property are eliminated. Qualified improvement property is generally depreciable over 15 years using straight line with half year convention. Property no longer needs to be leased Property placed in service more than 3 years after the date the building was placed in service Depreciable over 20 years if Alternative Depreciation System (ADS) elected ADS recovery period for residential property is shortened from 40 years to 30 years. 109 109
NeT OperaTing Losses (NOL) NOL deduction limited to 80% of taxable income No carryback Previous law allowed a 2 year carryback Carryforward indefinitely Previous law was limited to 20 year carryforward For financial statement purposes, will need to calculate impact on tax provision/deferred taxes and liabilities 110 110
LimiTs on deduction of business interest Interest expense limited to 30% of adjusted taxable income (ATI) For tax years after December 31, 2017, and before January 1, 2022, depreciation, amortization, and depletion are added back to calculate ATI Tax years after January 1, 2022 no addbacks Exclusions from limitations: Small business $25 million gross receipts (average for past 3 years) Real property trade or business (can elect out only if using ADS to depreciate real property) Farming businesses (can elect out only if using ADS to depreciate real property) 111 111
Meals and entertainment Eliminates employer deductions for: Entertainment activities Membership dues for clubs organized for business, pleasure, recreation, or other social purposes Transportation or commuting expenses of employees (including parking) Exclusion from income for such benefits by an employee is retained Meals and beverages would continue to be deductible at 50% Meals and beverages offered for convenience of the employer would be limited to 50% through 2025. Starting in 2026, convenience meals are not deductible. 112 112
CrediT provisions Family and Medical Leave Act (FMLA) Credit Employers that pay wages to employees on medical leave General business credit equal to 12.5% of wages if rate of pay is 50% of normal wages Credit increases by.25 percentage points (not above 25%) for each percentage point by which the rate of payment exceeds 50% Must allow at least 2 weeks Must provide to full time and part time employees Credit will expire on December 31, 2019 Work Opportunity Tax Credit retained 113 113
Pass-Through income 20% deduction for Qualified Business Income (QBI) through 2025 for Partnerships, S Corporations, and Sole Proprietors 20% deduction is limited to greater of: 50% of W 2 wages 25% of W 2 wages + 2.5% of tangible property capital assets No limit for taxable income < $315,000 MFJ or $157,500 single/mfs Can reduce effective rate of tax from 37% to 29.5% Allowed as adjustment before taxable income Not allowed in computing adjusted gross income (AGI) 114 114
Pass-Through income QBI definition: Net amount of qualified items of income, gain, deduction, and loss from a trade or business within the U.S. Must be included or allowed in determining taxable income for the year QBI does not include: Reasonable compensation paid to the taxpayer from S Corp Any guaranteed payment to a partner for services Amounts allocated to partners acting other than capacity of partner 115 115
Pass-Through income Special limitations for service businesses Deduction not available to specified service businesses Fields of health, law, accounting, actuarial sciences, performing arts, consulting, athletics, financial services, brokerage services, investment management, trading, dealing in securities, or any trade or business where the principal asset of such trade or business is the reputation or skill of one or more of its owners or employees. Available to taxpayers below $415,000 MFJ or $207,500 single/mfs Phased out between $315,000 MFJ or $157,500 single/mfs 116 116
AccounTing methods Cash Basis Expanded to allow for business with $25 million of Gross Receipts up from $5 million Gross receipts are based on a 3 year average No requirement to meet limits in all prior years Available even if maintain inventories Requirement for accrual basis taxpayers to recognize income subject to the all events test no later than taxable year in which the income is taken into account on the taxpayer s financial statements. 117 117
2018 Individual Tax rates Rate Individuals Married Filing Jointly Head of Household 10% Up to $9,525 Up to $19,050 Up to $13,600 12% $9,526 to $38,700 $19,051 to $77,400 $13,601 to $51,800 22% $38,701 to $82,500 $77,401 to $165,000 $51,801 to $82,500 24% $82,501 to $157,500 $165,001 to $315,000 $82,501 to $157,500 32% $157,501 to $200,000 $315,001 to $400,000 $157,501 to $ $200,000 35% $200,001 to $500,000 $400,001 to $600,000 $200,001 to $500,000 37% Over $500,000 Over $600,000 Over $500,000 Old rates 15, 25, 28, 33, 35, 39.6% 118 118
Individual Tax Provisions Capital gains and dividends rates remain same Standard Deductions of $12,000/$24,000 Personal Exemptions repealed 119 119
Individual provisions State and local taxes deduction modified Only $10,000 of state sales or income taxes and real estate property taxes allowed ACA shared responsibility payment repealed beginning in 2019 Removes penalty for individuals who do not obtain health insurance at least a minimum essential coverage 120 120
Individual AMT Alternate Minimum Tax (AMT) retained for individuals Exemption amount increased $84,500 to $109,400 Joint $54,300 to $70,300 Single Phaseouts higher at $1 million joint and $500,000 single 121 121
Child Tax credit Increased Child Tax Credit from $1,000 to $2,000 Phase out increased to $200,000 single and $400,000 MFJ 122 122
ITemized deductions Home mortgage deduction limited to $750,000 of indebtedness Second home still qualifies No deduction related to home equity lines of credit State and local taxes $10,000 limit Charitable deductions 60% AGI limit for public charities and certain private foundations Increased from 50% AGI limit Medical expenses floor reduced to 7.5% from 10% 123 123
ITemized deductions All itemized deductions subject to 2% floor are eliminated Tax prep, investment management, home office deductions, license and regulatory fees, professional dues Moving expense deduction eliminated 124 124
Alimony deduction Alimony and separate maintenance payments were deductible by the payor spouse and included in income by recipient spouse For any divorce or separation agreement executed after December 31, 2018, or executed before that date but modified after it (if the modification expressly provides that the new amendments apply) Alimony and separate maintenance payments are not deductible by the payor and not taxable to payee spouse 125 125
Moving expense reimbursements Qualified moving expense reimbursements are no longer exempt from gross income and wages through 2025. Exception member of the armed forces on active duty who moves pursuant to a military order 126 126
College athletic seating rights Under the prior tax law, special rules applied to certain payments to institutions of higher education in exchange for rights to purchase tickets or seating at an athletic event. 80% of the payment could be treated as a charitable contribution if: The amount was paid to or for the benefit of an institution of higher education Such amount would be allowable as a charitable deduction if no rights to purchase tickets were given Under the new law, no charitable deduction is allowed 127 127
EsTaTe and GifT Tax provisions Estate and gift tax exemption increases from $5 million to $10 million 128 128
2018 WiThholding Tables and W- 4 2018 withholding tables were released in IRS Notice 1036 on January 11, 2018. Employers should begin using the new rates as soon as possible, but not later than February 15, 2018. 2018 Forms W 4 are not finalized yet, employers should continue to use the 2017 Form W 4. Employees will begin to see increases in their paychecks to reflect the new law in February 2018. 129 129
QUESTIONS? Jeffrey J. Petrell, JD, CPA, CGMA Arnett Carbis Toothman LLP Partner Health Care Tax Services voice: 412.635.6270 e mail: jeffrey.petrell@actcpas.com Kelly A. Brocious, CPA Arnett Carbis Toothman LLP Senior Manager Health Care Tax Services voice: 814.336.2133 e mail: kelly.brocious@actcpas.com 130 130
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