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January 23, 2018
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Disclaimer• This presentation is intended to provide general education and no tax
advice is intended to be given.
• Any written tax content and comments contained in this presentation is limited to the matters and topics specifically discussed and set forth herein. Such content and comments may be based on current tax statues, regulations, administrative guidance, and judicial decisions, as well as our interpretations thereof, and we have no obligation to update any content, comments, or interpretations for retroactive or prospective changes to such authorities.
• All relevant tax authority, applied to your facts and circumstances, should be considered before taking a tax position. Any contents, comments, or interpretations delivered by us orally or through this written presentation should not be solely relied upon when taking any tax position.
• Should you have any questions about the content of this presentation, please contact the presenters.
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January 23, 2018
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Jay Sattler, CPA, MST
Managing Partner, Tax Services
BlumShapiro
alliantgroup Vice Chairman; Former IRS Commissioner
Served as Commissioner of Internal Revenue from 2003 until 2007
Held Bush administration posts as Deputy Director for Management
at the Office of Management and Budget
Served as Controller of the Office of Federal Financial Management
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Tax Legislation –Past, Present and Future
MARK W. EVERSON
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January 23, 2018
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DEAN ZERBE
alliantgroup National Managing Director; Former Senior
Counsel to the Senate Finance Committee
Co-Leader of Tax Controversy Services at alliantgroup
Former Senior Counsel and Tax Counsel to the U.S. Senate
Finance Committee
Worked closely with then-Chairman of the Senate Finance
Committee, Senator Charles Grassley, and was involved in all major
tax legislation signed into law
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Tax Legislation –Past, Present and Future
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January 23, 2018
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Tax Changes and Implications of the New Legislation
Jay Sattler, CPA, MST – BlumShapiro
Managing Partner – Tax Services
Gregory Cabral, CPA, MST – BlumShapiro
Rhode Island Office, Managing Partner
Alan Osmolowski, CPA – BlumShapiro
Partner
Lynn O’Marra, Esq. – BlumShapiro
Principal
Moderator
International Implications
Corporations & Pass-Throughs
Business Owners & Individuals
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In Partnership with
Jay Sattler, CPA, MST
Managing Partner, Tax Services
BlumShapiro
Moderator
#PBNTAXREFORMSUMMIT
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Greg Cabral, CPA, MST
Managing Partner, RI Office
BlumShapiro
Corporations & Pass-Throughs
#PBNTAXREFORMSUMMIT
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Alan Osmolowski, CPA
Partner
BlumShapiro
International Implications
#PBNTAXREFORMSUMMIT
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Lynn O’Marra ESQ, MBA
Principal
BlumShapiro
Business Owners &
Individuals
Tax Changes and Implications of the New Legislation
Jay Sattler, CPA, MST – BlumShapiro
Managing Partner – Tax Services
Gregory Cabral, CPA, MST – BlumShapiro
Rhode Island Office, Managing Partner
Alan Osmolowski, CPA – BlumShapiro
Partner
Lynn O’Marra, Esq. – BlumShapiro
Principal
Moderator
International Implications
Corporations & Pass-Throughs
Business Owners & Individuals
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Corporations and
Pass-Through Entities
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Flow Through Businesses and C Corporations
✓20% Pass-through Deduction
✓Corporate Alternative Minimum Tax
✓Other Flow-through Business Items
✓C Corporation Items
✓Accounting Methods
✓Fixed Assets
✓Interest Expense Limitation
Qualified Business Income (QBI) Amount
✓ AKA 20% pass-through deduction
✓ Qualified Business Income “QBI” New section 199A
✓ Rental would qualify?
✓ Limited to lower of 20% of QBI or greater of 50% of W-2 wages, or 25% of W-2 wages,
plus 2.5% of the unadjusted basis of the LLC’s assets
✓ Does not include STCG, LTCG interest, dividends
✓ Excludes specified service businesses in the fields of health, law, accounting, actuarial
science, performing arts, consulting, athletics, financial services and brokerage services
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Qualified Business Income (QBI) Amount
✓Threshold amount $315,000 of taxable income
(MFJ)
✓If meet threshold previous limit based on W-2
wages and type of business rules are not applicable
✓Applied at the shareholder and partner level
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Qualified Business Income (QBI) Amount
✓Example of 20% Deduction:
QBI: $1,000,000
W-2 wages: $800,000
Deduction: $200,000
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Other Flow Through Business Items✓S Corporation terminated within two years of
enactment
✓Distributions treated as from AAA and E&P
✓Partnership technical termination repealed
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C Corporation Items
✓AMT repealed for years beginning after 12/31/2017
✓Prior year minimum tax credit eligible for years beginning after 2017 and before 2022
✓50% of amount not used now refundable
✓All corporate tax rates reduced to a flat 21%
✓Reduces Dividends Received Deduction
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Accounting Methods✓Taxpayers with average gross receipts less than $25m
▪ Average based on prior three years
✓Cash method
✓Exempt for Accounting for Inventory
▪ Treat as Materials and Supplies that are not incidental
▪ Conform to financial accounting treatment
✓Exempt from UNICAP
✓Completed contract method of long term contracts
✓Changes in accounting method
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Fixed Assets✓100% expensing election
▪ Qualified property placed in service after 9/27/2017 and before 1/1/2023
▪ Percentage expensing decreases after 12/31/2022 to zero at 12/31/2026
▪ Can elect 50% in lieu of 100% for qualifying property placed in service in the
first tax year ending after 9/27/2017
✓Luxury auto limits increased
✓Qualified improvements given a 15-year recovery period
✓Section 179 increased to $1.0m and phase out limit $2.5m
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Interest Expense Limitation✓ Limitation is sum of:
▪ Business Interest Income▪ 30% of business’s adjusted taxable income▪ Floor plan financing
✓ Businesses with less than $25m average receipts - Exempt
✓Amount disallowed is carried forward
✓Adjusted Taxable Income does not include:▪ Net operating losses▪ Section 199A deduction▪ Depreciation, amortization or depletion
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Other Business Provisions✓Net Operating Losses
▪ Carryback eliminated, Carryforwards unlimited
▪ NOL deduction limited to 80% of taxable income
✓DPAD repealed
✓Like-Kind Exchanges of Real Property
▪ Only real property eligible
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Other Business Provisions (cont.)
✓Meals and Entertainment
▪ No deduction for entertainment
▪ Expands meals for the 50% deduction
✓Self-created property - Not capital asset
▪ Patent, Invention, Model, Design, Formula or Process
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Flow Through Business ExampleTaxable Income Before Interest
Expense
$1,000,000
Interest Expense $500,000
W-2 Wages $1,000,000
Depreciation Expense $400,000
Prior Law Tax Reform Act
Deductible Interest Expense $500,000 $420,000
QBI Amount $0 $116,000
Taxable Income $500,000 $464,000
Tax $143,231 $111,738
Savings $31,493
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C Corporation ExampleTaxable Income Before Interest
Expense
$1,000,000
Interest Expense $500,000
W-2 Wages $1,000,000
Depreciation Expense $400,000
Prior Law Tax Reform Act
Deductible Interest Expense $500,000 $420,000
QBI Amount $0 $0
Taxable Income $500,000 $580,000
Tax $170,000 $121,800
Savings $48,200
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International Taxation
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How We Got Here
✓U.S. rates much higher than rest of the world
✓Trillions of dollars kept offshore in low tax jurisdictions
✓Less innovation in U.S. since IP would be taxed at higher rate
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Change to Territorial Tax System
✓Most other OECD countries use territorial system
✓US regime still has some elements of worldwide
system
✓100-percent DRD for the foreign dividends received by
a U.S. corporation
✓DRD does not apply to S corporations
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Tax on Accumulated Foreign Earnings✓One-time toll charge on previously untaxed
foreign earnings
✓Mandatory repatriation of accumulated
earnings going back to 1986
✓Accumulated losses can be aggregated with
accumulated foreign earnings
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Mandatory Repatriation Tax ✓Reduced tax rate
✓Foreign E&P attributable to cash and other liquid
assets taxed at 15.5%
✓Residual foreign E&P taxed at 8%
✓Foreign tax credits can be used to offset the
repatriation tax (reduced amount)
✓State tax?
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Timeline for Payment of Tax
✓Up to 8-year deferral, graduated payments
✓For 2017 calendar year corporation first payment of repatriation tax is in effect due April 15, 2018
✓Will need to await guidance from state and local jurisdictions
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Global Intangible Low-taxed Income✓Global intangible low-taxed income (GILTI)
✓Subpart F income
✓Carrot and stick approach to taxation of IP and foreign sales
✓Net 13.125% minimum tax?
✓Deductions allowed for U.S. income generated from foreign sources (FDII)
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GILTI or Innocent?
✓Tax imposed on income above a deemed “routine” return
✓Adjusted tax basis in foreign tangible property X10% is deemed “routine return”
✓Foreign profits above that base threshold subject to inclusion in U.S. income
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GILTI Related Deductions
✓50% of GILTI is allowed as deduction
✓Also deduction allowed for 37.5% revenue derived from foreign sources (FDII)
✓Intention was to get closer to 12% ETR
✓Foreign tax credit – can claim a credit for up to 80% of foreign taxes on inclusion amount
✓GITI and FDII net ETR 13.125%
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Deductions for Foreign Derived Intangible Income✓FDII = U.S. income derived from sales or services
provided to foreign unrelated entities
✓37.5% FDII plus 50% GILTI amount allowed as a
deduction to U.S. corporations
✓Deductions reduced in 2025 to 21.875% FDII and
37.5% GILTI amount
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Applies to C Corps
✓FDII and GILTI deductions are not available for:▪ Individuals
▪ RICs
▪ REITs
▪ S corporations
Effective Tax Rates
✓FTC against GILTI tax limited to 80%
✓IP in U.S., the 37.5% FDII deduction available
✓After FDII - effective tax rate of 13.125% on U.S. based IP income
✓GILTI effective rate 13.125%
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S Corporations
✓S corporation required to compute its income in the same manner as in the case of an individual
✓GILTI is includible in S Corp. income
✓The FDII and GILTI deductions only available to C corporations
✓DRD not available to S Corporations
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We Got the BEAT✓New base erosion anti-avoidance tax (BEAT)
✓Gross receipts threshold - $500 million
✓Does not apply to S corporations
✓In general, BEAT reduces the benefit a U.S. corporation receives from taking tax deductions for payments to a foreign affiliate
✓Current rate 5%
✓2026 the BEAT increases to 12.5%
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What Does This Mean for My Business✓ASC 740 – date of enactment
✓Need for modelling and doing projections
✓C vs. S
✓Repatriation tax due 4/15/2018
✓E&P analysis for 30 years needed
✓What are the state tax implications of federal income inclusion relative to mandatory repatriation
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Business Owners
and Individuals
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Questions We’re Receiving✓Are the individual changes permanent?
✓Are itemized deductions dead?
✓We can still deduct charitable contributions, right?
✓What about that pesky AMT?
✓What tax rates will apply to me?
✓What other changes should I be aware of?
✓What are the estate/gift tax changes?
✓Will my taxes go up or down?
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Are the Individual Changes Permanent?✓No!
✓Most are effective for 2018 through 2025
✓Sunset to old rules beginning in 2026
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Are Itemized Deductions Dead?✓Doubling of standard deduction
✓Elimination/limit on itemized deductions
▪ State & local income and property tax ($10k cap)
▪ 2% miscellaneous itemized deductions disallowed
▪ Mortgage ($750k) and home equity interest
✓Medical deduction AGI threshold lowered to 7½ percent (2017-2018)
✓Pease phase-out limit eliminated
✓Elimination of personal exemptions
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We Can Still Deduct Charitable Contributions, Right?✓Increase in AGI limit for cash gifts (60%)
✓What about everything on the last slide?
✓Bunching contributions
✓Still opportunity for those over 70 ½ with IRAs
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What About That Pesky AMT?
✓Not repealed
✓Increased exemption ($109,400 MFJ; $70,300 Single)
✓Increased exemption phase-out limits ($1M MFJ; $500k Single)
✓Not as many AMT adjustments
✓Faster use of prior year AMT credits?
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What Tax Rates Will Apply to Me?
✓Still 7 tax rates (10%, 12%, 22%, 24%, 32%, 35%, 37%)
▪ Slightly lower rates and wider brackets
✓Additional marriage penalty relief
✓No change in long-term capital gains and qualified dividend rates
✓Kiddie tax changes
✓Child tax credit increased and expanded
✓Medicare surcharge and Net Investment Income Tax still apply
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What Other Changes Should I Be Aware Of?
✓529 plan distribution for K-12
✓Alimony (2019)
✓Disallowance of excess business losses
✓Elimination of health insurance penalty (2019 +)
✓Elimination of moving expense deduction/exclusion
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What Other Changes Should I Be Aware Of?
✓Casualty & theft losses
✓Carried interest
✓Roth IRA conversion recharacterizations
✓Qualified equity grants
✓ABLE account changes
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What Are the Estate/Gift Tax Changes?✓Doubling of exemptions
▪ Estate/Gift
▪ GST
✓Basis step up still applies
✓What happens if the exemption decreases in 2026?
✓Good planning dictates flexibility
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Will My Taxes Go Up or Down?✓Every situation is different
✓Opposing forces in new tax law
✓Generalizations
▪ Most high income taxpayers will see decrease in tax
▪ Some in the middle will see tax increase
▪ Child tax credit will make the difference for many families
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January 23, 2018
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• Upcoming Webinars:
▪ 2/20 | 11:00 am | Tax Reform for Pass-Through Entities
▪ 2/22 | 11:00 am | Changes for Corporations
▪ 2/26 | 11:00 am | Global Impact of Tax Reform
▪ 2/28 | 11:00 am | Individual Impact of Tax Reform
Taxreform.blumshapiro.comRegister @
Stay Informed
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• Greg: [email protected] 401-330-2734
• Jay: [email protected] 860.561.6837
• Lynn : [email protected] 401-330-6358
• Alan: [email protected] 401.330.2756
PANELISTS CONTACT INFO.
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Panel Discussion / Q & A
Mark Everson
alliantgroupDean Zerbe
alliantgroup
Jay Sattler
BlumShapiro
Alan Osmolowski
BlumShapiro
Greg Cabral
BlumShapiroLynn O’Marra
BlumShapiro
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Mark Everson
alliantgroupDean Zerbe
alliantgroup
Jay Sattler
BlumShapiro
Alan Osmolowski
BlumShapiro
Greg Cabral
BlumShapiroLynn O’Marra
BlumShapiro
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PARTNER SPONSOR
January 23, 2018
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