Part 1 Nan Bobbett Today s Topics Trump s Tax Reform FRAMEWORK Update on Professional Employer Organizations Tax Planning 1
Part 2 Wendy Hill Today s Topics Getting Ready for Tax Filing Season Natural Disasters Federal and State Tax Credits 2
Business Tax Reform New maximum C corporation tax rate of 20% New maximum pass-through rate tax of 25% Full expensing of assets (not structures) for 5 years Partial limitation of interest expense by C Corporations Business Tax Reform Several special deductions (such as DPAD) will be repealed Most credits will be repealed Research and Development Credit will STAY Low-Income Housing Credit will STAY 3
One-time repatriation tax to be paid over 5 years Repatriation tax is an unspecified low rate (prob. 10%) 100% exemption for dividends from foreign subs (10%) Anti-erosion rules International Tax Reforms Individual Tax Reforms 3 new tax rates: 12%, 25%, 35% Currently 7 Rates: 10%, 15%, 25%, 28%, 33%, 35%, 39.6% Leaves open the possibility of a 4 th higher rate for highest-income taxpayers 4
5
Individual Tax Reforms Standard Deduction approx. doubled ($12K singles, $24K Married Filing Jointly) No provision for Head of Household Elimination of Personal Exemptions Expanded Child Tax Credit from $1,000 (and increase in phase-out threshold) Individual Tax Reforms Repeal of the AMT (Alternate Minimum Tax) YES!! Itemized Deductions largely eliminated, EXCEPT FOR: Mortgage Interest Charitable Contributions SALT elimination will be a sticking point in high-tax states: NY, NJ, CA 6
Individual Tax Reforms Work, Education, and Retirement Benefits Retained Encouraged to make these benefits simpler and more effective Numerous other deductions, credits, exemptions that riddle the tax code may be repealed ESTATE and Generation Skipping Transfer Taxes Repealed 7
Professional Employer Organizations IRS Certification Program IRS Exam EMPLOYER responsible for payroll liabilities PEO s in Local News 8
Perfect Storm: YEAR-END TAX PLANNING Tax Reform Law and Regulation Change Standard Planning Considerations 9
Planning Considerations Tax Reform Flexibility is KEY due to timing issues Need to monitor details of framework over the next 60 days Larger planning, such as type-of-entity analysis Planning Considerations Law and Regulation Changes Expiring Provisions Extended Provisions Regulatory Resets 10
Standard Planning Considerations Businesses Individuals 11
W-2 and 1099 Update for 2017 Tax Year Filing Requirements for Employers Filing deadline for 2017 W-2s and 1099 forms is January 31, 2018. The IRS is using this earlier deadline to help fight fraud and identity theft and to verify the legitimacy of tax returns The deadline for providing W-2 forms to employees and 1099-MISC forms to other workers for 2017 is also January 31, 2018. To avoid errors in W-2 forms, employers should try to get them to their employees before the end of January to ensure any errors can be corrected before filing with the Social Security Administration 12
W-2 and 1099 Update for 2017 Tax Year Identity Theft and Scams The IRS saw a sharp increase in the number of incidents during the 2017 filing season Business Email Compromise (BEC) is one of the most dangerous phishing emailschemes trending nationwide for tax administrators Cybercriminals posing as company executives are sending emails to the payroll and HR departments soliciting Forms W-2 data containing sensitive employee data such as SSNs W-2 and 1099 Update for 2017 Tax Year Identity Theft and Scams How to report a data loss related to a W-2 scam Employers should email dataloss@irs.gov to notify the IRS of the W-2 data loss with the subject line W2 Data Loss and the following information: Business Name Business EIN associated with the data loss Contact Name Contact Phone Number Summary of how the data loss occurred Volume of employees impacted 13
W-2 and 1099 Update for 2017 Tax Year Identity Theft and Scams How to report the receipt of a W-2 phishing email where no breach occurred If your business received the email but did NOT fall victim to the scam, forward the email to the IRS using the following steps: Email header should be in plain ASCII text format (do not print and scan) Save the phishing email as an email file on your desktop Open your email and attach the phishing email file Send your email to phishing@irs.gov with a subject line of W2 Scam with no sensitive data such as SSNs or W-2s File a complaint with the Internet Crime Complaint Center operated by the FBI New E-filing Requirements for 2017 Tax Year Business Returns In order to file 2017 electronically, the following information will be required to be provided: Name and SSN of the company individual authorized to sign the return Estimated tax payment history Parent Company Information Additional information based on deductions claimed Filing history for the company s other business-related tax forms (Form 940 and 941) The IRS has indicated it will not accept e-filed returns where the taxpayer does not address health coverage requirements of the Affordable Care Act This contrasts with the 2017 filing season when the IRS stated that they would still accept and process tax returns when a taxpayer was silent on coverage 14
IMPROVE Act will provide the largest tax cut in Tennessee history. The state will cut more than $800 million in annual taxes since 2011, including more than $170 million in food tax reductions Tennessee Tax Updates for 2017 Tax Year Tax Decreases Sales Tax on Food Sales tax on food and food ingredients decreased from 5% to 4% beginning July 1, 2017 Hall Income Tax Phase out of tax over the next five years. The applicable tax rate for each year is as follows: 2017 Tax Year: 4% 2018 Tax Year: 3% 2019 Tax Year: 2% 2020 Tax Year: 1% No tax for years 2021 and after Franchise and Excise Tax Tennessee Tax Updates for 2017 Tax Year For tax years beginning on or after January 1, 2017, a qualifying TN manufacturer doing business both in-state and out-of-state may elect to apportion its net earnings and net worth to TN based on a single sales factor Who is a qualifying manufacturer? 50% of a taxpayer s revenue from its activities in Tennessee must be from fabricating or processing tangible personal property for resale and consumption off the premises Once the election has been made, it will remain in effect for a minimum of five years 15
Other Tax and Fee Changes Vehicle Registration Fee The cost to register a vehicle in TN will increase on July 1, 2017 $5 increase for passenger motor vehicles $10 increase for buses and taxis $20 increase for semis and tractor trailers $100 for electric vehicles Gas Tax Will increase by $0.06 over the next three years Diesel Tax Will increase by $0.10 over the next three years Compressed Natural Gas/Liquified Gas Will increase by $0.08 over the next three years 16
Who does it apply to? Businesses and individuals that have suffered a loss due to a federally declared disaster Federal declared disaster area must be declared by the President in order to qualify Lists can be found on: https://www.fema.gov/disasters Types of Tax Relief Extension of deadlines Postpones various tax filings and payment deadlines that occur after the natural disaster 1/31/18 IRS automatically provides filing and penalty relief to any taxpayer with an IRS address of record located in the disaster area Can also apply to taxpayers outside of the disaster area but whose records necessary to meet a deadline occurring during the postponement period are located in the affected areas. These taxpayers need to contract the IRS directly Waives all penalties for late filing & payment 17
Types of Tax Relief Ease of Access to Retirement Funds Allows more availability for hardship withdrawals qualified hurricane distribution from 401(k) or employer sponsored retirement plan which must be taken no later than 1/31/18 Streamline procedures and waives the 59 ½ age requirement and 10% early withdrawal penalty Can spread the income from the distribution over a 3-year period Can also be re-contributed at any time over a 3-year period to recoup any tax paid on the qualified hurricane distribution Increases loan limit from $50,000 to $100,000 Types of Tax Relief Charitable Deduction Limitations on contributions have been suspended on qualified hurricane contributions if made between August 23 and December 31, 2017 to relief efforts Businesses must make election for Act. Sec. 504(a) and Partnerships and S Corporations must make the election separately for each partner/shareholder 18
Types of Tax Relief Employee Retention Tax Credit Eligible Employers affected by Hurricanes Harvey and Maria o Conducted an active trade or business in a disaster area as of the specific dates of which was rendered inoperable as a result of damage sustained by the hurricane o Credit = 40% of up to $6,000 ($2,400) of qualified wages for eligible employee Qualified wages = wages paid or incurred on any day after the specified date and before Jan. 1, 2018 Start date will be the date the employer became inoperable End date is the date business has resumed significant operations at that location Eligible employee = principal place of employment was in the specific disaster zone during this time period Types of Tax Relief Leave-based Donation Programs Allows employees to elect to forgo vacation, sick or personal leave in exchange for their employer to contribute cash to a charitable organization (170(c) organization) for hurricane relief Cash payments will not constitute employee wages if they are paid before 1/1/19 to Section 170(c) organization Employers may deduct cash payments to charity as a business expenses Employees can t donate the value of the donated leave on their returns and well as the employer can t deduct the value of the forgone leave 19
What companies should do when loss occurs? Companies first report a loss for any type of damage related to the disaster Then separately assess whether they have insurance recovery What caused the damage; wind, flood Are these particular items covered by insurance? Maintain adequate documentation of loss including: Type of casualty Date it occurred Proof that loss was a direct result of the casualty Proof of ownership of the property Reimbursement claim, if any Casualty results when a sudden, unexpected or unusual event occurs and may be weather related, fire or theft/vandalism or auto accidents. Uninsured or unreimbursed disaster related losses can be claimed as a casualty loss on either the return for the year the loss occurred or the prior year. Claiming loss on prior year return may result in lower tax for that year and produce a refund Individuals are limited (currently loss less $500) 10% of AGI limit and $100 was removed Reported as Itemized Deduction on Schedule A, Form 4684 For non-itemizers, the net disaster loss increases the standard deduction Businesses (IRS Publication 547) Can take full deduction Must have proof of loss available for review Casualty Claims 20
CAUTION taxable gain may occur if insurance proceeds exceed the tax basis of the damaged or destroyed property Can make special election to defer gain and make sufficient expenditures to repair/replace property of 2 years and gain will only be to the extent the insurance proceeds exceeds what was spent to repair/replace the property Casualty Claims 21
General Business Credit Investment Credit Welfare to Work Credit Credit for Increasing Research Activities Low-Income Housing Credit Disabled Access Credit Renewable Electricity Production Credit Indian Employment Credit Orphan Drug Credit New Markets Credit Credit for Small Employer Pension Plan Startup Costs Credit for Employer-Provided Child Care Facilities and Services Biodiesel and Renewable Diesel Fuels Credit Low Sulfur Diesel Fuel Production Credit Distilled Spirits Credit Nonconventional Source Fuel Credit Energy Efficient Home Credit Alternative Motor Vehicle Credit Alternative Fuel Vehicle Refueling Property Credit Mine Rescue Team Training Credit Agricultural Chemicals Security Credit Employer Wage Credit for Activated Military Reservists Credit for Contributions to Selected Community Development Corporations General Credits from an Electing Large Partnership 22
General Business Credit Carbon Dioxide Sequestration Credit Qualified Plug-in Electric Drive Motor Vehicle Credit Qualified 2 or 3 Wheeled Plug-in Electric Vehicle Credit Advanced Nuclear Power Facilities Production Credit Work Opportunity Credit Credit form Employer Social Security and Medicare Taxes Paid on Employee Tips Empowerment Zone Employment Credit Credit for Alcohol and Cellulosic Bio fuels Renewable Electricity, Refined Coal, and Indian Coal Production Credit Qualified Railroad Track Maintenance Credit Small Employer Health Insurance Credit Employee Retention Credit Work Opportunity Tax Credit What is WOTC? A federal tax credit available for employers who hire and retain veterans and individuals from specific target groups with significant barriers to employment Reduces cost of business No limit on number of hires applicable for the credit Credit is available for both for-profit and not-for-profit organizations FP can use to offset federal income tax liability NFP can use the credit against employer s share of Social Security taxes 23
Veterans Target Group Long Term Temporary Assistance for Needy Families Who is eligible? Supplemental Nutrition Assistance Program Recipient Designated Community Resident Vocational Rehab Referred Individual Ex-Felon Summer Youth Employee Qualified Long-Term Unemployment Recipient Supplemental Security Income Recipient How much is the tax credit? Employers can earn a tax credit of between $1,200 and $9,600 per employee, depending on target group and number of hours worked in the first year Employees must work at least 120 hours in the first year of employment in order to qualify 24
How to Apply? 1. Complete IRS Form 8850, Pre-Screening Notice and Certification Request as follows: a. Page 1 of 8850 by the date the job offer is made b. Page 2 of 8850 after the individual is hired 2. Complete ETA Form 9061/9062 certifying the target group 3. Submit above forms to State Workforce Agency within 28 days of start date either electronically or via mail 4. The SWA will make a final determination as to whether the employee meets the eligibility for one of the WOTC target groups and will send certification 5. Upon receipt of the certification, the tax credit may be claimed on the applicable business tax return for the year of hire 25
Tennessee Tax Credits TN incentives for companies expanding within the state or relocating include: Tax credits Job training reimbursement grants Public infrastructure development Job Tax Credit Before any Tennessee job tax credit can be taken, the Job Tax Credit Business Plan application must be filed and approved. Based on number of new jobs, amount of capital invested, and type of business Offsets franchise and excise tax liability and can be carryforward up to 15 years 26
Types of Job Tax Credits Standard Job Tax Credit $4,500 per job Create at least 25 new full time positions within a 36 month period and invest at least $500,000 in a qualified business enterprise Offsets up to 50% of franchise and excise tax Types of Job Tax Credits Enhanced Job Tax Credit $4,500 per job in addition to the Standard Job Tax Credit for designated Tier 2, Tier 3 and Tier 4 Enhancement counties Tier 2 Three year annual credit at $4,500 per job with no carry forward Same requirements as job tax credit. Tier 3 5 year annual credit at $4,500 per job Must create at least 20 new full time positions within 60 month period, and invest at least $500,000 in qualified business enterprise Tier 4 5 year annual credit at $4,500 per job Create at least 10 new full time positions within 60 month period, and invest at least $500,000 in qualified business enterprise Can offset 100% of F&E liability 27
Types of Job Tax Credits Super Job Tax Credit $5,000 per job tax credit for companies: Making a capital investment of $100 million+ and creating a min. of 100 new jobs paying at least 100% of Tennessee s average occupational wage Companies establishing or expanding a headquarters with a capital investment of $10 million+ and creating 100 headquarter jobs paying at least 150% of Tennessee s average occupational wage Credit reported on Schedule X of the Franchise Excise Tax Return FAE 170 28
Industrial Machinery Tax 1% - 10% for the purchase, third-party installation and repair of qualified industrial machinery. Eligible: Headquarters, call centers: computers, networks, and software purchased in making required capital investment for credit Manufacturing, data centers: machinery, apparatus, equipment with parts, accessories, repair parts, and labor. Warehousing/distribution: material handling equipment and racking systems with a minimum $10 million capital investment within 36 months. State sales tax exemption for industrial machinery and reduced state sales tax rate for utilities at qualified manufacturing facilities Credit is reported on Schedule of the Franchise Excise Tax Return FAE 170 29