the tax cuts and jobs act impact on c corps, s corps and
TRANSCRIPT
Slide 1September 13, 2018
Charles J. Garrison, CPA Joseph M. Press, CPA
The Tax Cuts and Jobs Act Impact on C Corps, S Corps
and Individuals
• Tax Rates • Deductions and “Pay-Fors” • Miscellaneous • Qualified Business Income (QBI) Deduction
3
2017 2018 34% Taxable Income <$10MM 21% 35% Taxable Income >$10MM 21%
Tax Rates
4
$2.0MM Qualified assets placed in service $2.5MM $500M Allowable §179 depreciation $1.0MM
Deductions – the good news
Allowable §179 depreciation expense is reduced by the amount of assets purchased over the limit of $2.5MM.
Expensing of real property also has been expanded.
100 bonus depreciation now available for qualified property placed in service after September 27, 2017 and before 2023.
5
Deductions – the good news
Vehicle (Luxury Auto) Depreciation
2017 2018 $1,475 First year expensing $5,760 $2,560 First year total depreciation $10,000 $4,100 Second year total depreciation $16,000
Pickups and large SUVs are still not subject to the luxury auto limits as long as the GVW exceeds 6,000 lbs.
6
Deductions – the good news
2017 2018 $5.0MM $25.0MM
•Allows for indefinite deferral of income tax on excess of receivables over payables.
•Gross receipts still not limited for S Corporations.
•IRS to provide automatic consent.
Average Gross Receipts Limitation
Cash Basis of Accounting
8
Meals & Entertainment, Employee Expenses Changes
2017 2018 50% Tickets to events - 50% Business entertainment (Golf) - 80% Contributions to colleges (seating) - 100% Employee transportation/parking - 100% Employee moving expenses - 100% Employer provided meals 50%
9
Meals & Entertainment, Employee Expenses – No Change
• Employee travel meals 50% • Other travel expenses 50% • Business meals 50% • Meals during entertainment 50% • Employee entertainment (Christmas party) 100% • Employee service awards 100% • Business gifts 100% • Association dues 100%*
* Subject to lobbying exclusion
11
Carryforward to subsequent years’ income
12
Miscellaneous Items
• Alternative Minimum Tax repealed under the TCJA • AMT credit carryforwards can still be used
• AMT for other than corporations NOT repealed
• State and Local Tax (SALT) deduction not limited for other than individuals
13
• Effort to equalize rates between C corporations and pass-through entities
• Provides the potential to deduct up to 20 percent of QBI from S corporations and trusts as well as
other entities
• Possibly the most complex part of the legislation at both the pass-through and individual level
14
• Domestic Income: Earned in the U.S. or Puerto Rico
• QBI: Income from qualified trade or business except excluded items
• Taxable income threshold: $157,000 single, $315,000 MFJ
• Specified Service Trade or Business: not QBI
• Taxable income full phase-out: $207,000 single, $415,000 MFJ
• Reduced Deduction: Wage limitation and non-QBI income will determine the amount of the deduction, if any
• Deduction limited to 20% of QBI
16
• Accounting, Law, Consulting, Actuarial Science
• Health Care, Performing Arts, Athletics
• Investment Management, Brokerage, Securities Dealer
• Financial Services – DOES NOT INCLUDE BANKING
• Investment Management – The performance of services that consist of investing and investment management would include a
trade or business that receives either a commission, a flat fee, or an investment management fee calculated as a percentage of assets
under management.
De Minimis Rule
If gross receipts are <$25MM and SSBT income is <10% of gross receipts
If gross receipts are >$25MM and SSBT income is <5% of gross receipts
18
Reporting
• While the Company must report necessary items to the shareholder/partner, the calculation is made on the individual level
• Items that will likely need to be reported: • Interest, dividends, short and long-term capital gain/loss • Investment income • W-2 wages • Qualified property
• Will require substantial revision to the Form K-1
19
Individual Tax Impact
• Tax Rates • Standard Deduction and Exemptions • State and Local Tax (SALT) Deduction • Mortgage Interest Deduction • Itemized Deductions • Alternative Minimum Tax
20
Then-
21
Now
The difference between death and taxes is death doesn’t get worse every time Congress meets.
Will Rogers
E
Expiring for tax years beginning after December 31, 2025
23
25
The Tax Policy Center estimates the increase in the standard deduction coupled with the elimination of the personal exemption deduction will shrink the number of households itemizing their deductions from about 37 million in 2017 to about 16 million in 2018.
This one change simplifies tax filing for millions.
Standard Deduction and Exemptions
• Aggregate deduction now limited to $10,000 per year.
• Includes income/sales taxes, and real and personal property taxes.
• Does not include taxes incurred in a taxpayer’s trade or business.
28
High
• 4 states have sued IRS/US Treasury
• Some states allowed collection of 2018 property and income taxes in 2017
• States are legislating schemes to convert taxes into deductible charitable contributions.
29
Prior Law-Qualified residence interest is deductible.
Qualified residence interest is acquisition indebtedness with respect to any qualified residence or home equity indebtedness.
Qualified residence is the principal residence of the taxpayer and one other residence.
Aggregate limit for married couples of $1,000,000 plus $100,000 of home equity indebtedness.
31
Home equity indebtedness is any indebtedness (other than acquisition indebtedness) secured by a qualified residence.
Acquisition indebtedness means it was incurred in acquiring, constructing or substantially improving a qualified residence
Acquisition indebtedness can include refinanced debt up to the debt prior to refinancing.
32
• New limit of $750,000 of acquisition indebtedness.
• No deduction if not acquisition indebtedness.
• Acquisition indebtedness incurred before December 15, 2017 continues to enjoy the old $1,000,000
limit.
33
Medical and Dental Expenses • No change - 7.5% AGI threshold through 2018, then 10%.
Contributions • New, higher limitation on aggregate deductible
donations, now 60% AGI vs old 50% AGI. • Eliminate charitable deduction for payments made in
exchange for college athletic event seating rights.
Personal Casualty and Theft Losses • Now only deductible if the loss is attributable to a
disaster declared by the President.
Other Comments on Itemized Deductions
34
All Miscellaneous Itemized Deductions Subject to the Two-Percent AGI Floor are repealed. Non-exhaustive list includes:
Other Comments on Itemized Deductions
Investment fees Union Dues Tax Preparation Fees Job Education Dues to Professional Societies Home office expense
35
Alternative Minimum Tax
Alternative Minimum Tax (AMT) • first passed in 1969 in response to study that showed 155
uber-wealthy taxpayers filed returns that showed a $0 tax liability.
Because the AMT calculation was not indexed for inflation and because of changes in the tax code since then (mainly lower regular tax rates), now millions of taxpayers are paying AMT.
36
Nationally, 4,464,000 taxpayers paid $31,014,000,000 in AMT.
39
Alternative Minimum Tax
The Tax Cuts and Jobs Act dramatically increased the AMT Exemption and Exemption Phaseout Thresholds.
The Tax Policy Center estimates these changes will decrease the number of taxpayers paying AMT by 96% in 2018.
Like so many other of the Act’s tax provisions for individuals, this will sunset after 2025.
40
Questions?
41
The information and materials in this presentation are provided by Fortner, Bayens, Levkulich & Garrison, P.C. (FBLG), for general informational purposes only. These materials do not, and are not intended to, constitute legal or tax advice. Your use of this presentation does not create a client relationship between you and any of the presenters or their company.
The information contained in this presentation is based on sources which we believed reliable but is not guaranteed by us and is not to be considered all inclusive..
This presentation and all the information and material it contains is the property of FBLG and we retain and reserve all rights therein, including all rights under copyright laws, trademark laws, international treaties and conventions and other intellectual property laws.
LEGAL NOTICES AND TERMS
Community Bankers Association of Oklahoma2018 Annual ConventionSeptember 13, 2018
Corporation and S-Corporation Tax Changes
Tax Rates
Slide Number 14
De Minimis Rule
Slide Number 35
Slide Number 36
Slide Number 37
Slide Number 38
Slide Number 39
Slide Number 40
Charles J. Garrison, CPA Joseph M. Press, CPA
The Tax Cuts and Jobs Act Impact on C Corps, S Corps
and Individuals
• Tax Rates • Deductions and “Pay-Fors” • Miscellaneous • Qualified Business Income (QBI) Deduction
3
2017 2018 34% Taxable Income <$10MM 21% 35% Taxable Income >$10MM 21%
Tax Rates
4
$2.0MM Qualified assets placed in service $2.5MM $500M Allowable §179 depreciation $1.0MM
Deductions – the good news
Allowable §179 depreciation expense is reduced by the amount of assets purchased over the limit of $2.5MM.
Expensing of real property also has been expanded.
100 bonus depreciation now available for qualified property placed in service after September 27, 2017 and before 2023.
5
Deductions – the good news
Vehicle (Luxury Auto) Depreciation
2017 2018 $1,475 First year expensing $5,760 $2,560 First year total depreciation $10,000 $4,100 Second year total depreciation $16,000
Pickups and large SUVs are still not subject to the luxury auto limits as long as the GVW exceeds 6,000 lbs.
6
Deductions – the good news
2017 2018 $5.0MM $25.0MM
•Allows for indefinite deferral of income tax on excess of receivables over payables.
•Gross receipts still not limited for S Corporations.
•IRS to provide automatic consent.
Average Gross Receipts Limitation
Cash Basis of Accounting
8
Meals & Entertainment, Employee Expenses Changes
2017 2018 50% Tickets to events - 50% Business entertainment (Golf) - 80% Contributions to colleges (seating) - 100% Employee transportation/parking - 100% Employee moving expenses - 100% Employer provided meals 50%
9
Meals & Entertainment, Employee Expenses – No Change
• Employee travel meals 50% • Other travel expenses 50% • Business meals 50% • Meals during entertainment 50% • Employee entertainment (Christmas party) 100% • Employee service awards 100% • Business gifts 100% • Association dues 100%*
* Subject to lobbying exclusion
11
Carryforward to subsequent years’ income
12
Miscellaneous Items
• Alternative Minimum Tax repealed under the TCJA • AMT credit carryforwards can still be used
• AMT for other than corporations NOT repealed
• State and Local Tax (SALT) deduction not limited for other than individuals
13
• Effort to equalize rates between C corporations and pass-through entities
• Provides the potential to deduct up to 20 percent of QBI from S corporations and trusts as well as
other entities
• Possibly the most complex part of the legislation at both the pass-through and individual level
14
• Domestic Income: Earned in the U.S. or Puerto Rico
• QBI: Income from qualified trade or business except excluded items
• Taxable income threshold: $157,000 single, $315,000 MFJ
• Specified Service Trade or Business: not QBI
• Taxable income full phase-out: $207,000 single, $415,000 MFJ
• Reduced Deduction: Wage limitation and non-QBI income will determine the amount of the deduction, if any
• Deduction limited to 20% of QBI
16
• Accounting, Law, Consulting, Actuarial Science
• Health Care, Performing Arts, Athletics
• Investment Management, Brokerage, Securities Dealer
• Financial Services – DOES NOT INCLUDE BANKING
• Investment Management – The performance of services that consist of investing and investment management would include a
trade or business that receives either a commission, a flat fee, or an investment management fee calculated as a percentage of assets
under management.
De Minimis Rule
If gross receipts are <$25MM and SSBT income is <10% of gross receipts
If gross receipts are >$25MM and SSBT income is <5% of gross receipts
18
Reporting
• While the Company must report necessary items to the shareholder/partner, the calculation is made on the individual level
• Items that will likely need to be reported: • Interest, dividends, short and long-term capital gain/loss • Investment income • W-2 wages • Qualified property
• Will require substantial revision to the Form K-1
19
Individual Tax Impact
• Tax Rates • Standard Deduction and Exemptions • State and Local Tax (SALT) Deduction • Mortgage Interest Deduction • Itemized Deductions • Alternative Minimum Tax
20
Then-
21
Now
The difference between death and taxes is death doesn’t get worse every time Congress meets.
Will Rogers
E
Expiring for tax years beginning after December 31, 2025
23
25
The Tax Policy Center estimates the increase in the standard deduction coupled with the elimination of the personal exemption deduction will shrink the number of households itemizing their deductions from about 37 million in 2017 to about 16 million in 2018.
This one change simplifies tax filing for millions.
Standard Deduction and Exemptions
• Aggregate deduction now limited to $10,000 per year.
• Includes income/sales taxes, and real and personal property taxes.
• Does not include taxes incurred in a taxpayer’s trade or business.
28
High
• 4 states have sued IRS/US Treasury
• Some states allowed collection of 2018 property and income taxes in 2017
• States are legislating schemes to convert taxes into deductible charitable contributions.
29
Prior Law-Qualified residence interest is deductible.
Qualified residence interest is acquisition indebtedness with respect to any qualified residence or home equity indebtedness.
Qualified residence is the principal residence of the taxpayer and one other residence.
Aggregate limit for married couples of $1,000,000 plus $100,000 of home equity indebtedness.
31
Home equity indebtedness is any indebtedness (other than acquisition indebtedness) secured by a qualified residence.
Acquisition indebtedness means it was incurred in acquiring, constructing or substantially improving a qualified residence
Acquisition indebtedness can include refinanced debt up to the debt prior to refinancing.
32
• New limit of $750,000 of acquisition indebtedness.
• No deduction if not acquisition indebtedness.
• Acquisition indebtedness incurred before December 15, 2017 continues to enjoy the old $1,000,000
limit.
33
Medical and Dental Expenses • No change - 7.5% AGI threshold through 2018, then 10%.
Contributions • New, higher limitation on aggregate deductible
donations, now 60% AGI vs old 50% AGI. • Eliminate charitable deduction for payments made in
exchange for college athletic event seating rights.
Personal Casualty and Theft Losses • Now only deductible if the loss is attributable to a
disaster declared by the President.
Other Comments on Itemized Deductions
34
All Miscellaneous Itemized Deductions Subject to the Two-Percent AGI Floor are repealed. Non-exhaustive list includes:
Other Comments on Itemized Deductions
Investment fees Union Dues Tax Preparation Fees Job Education Dues to Professional Societies Home office expense
35
Alternative Minimum Tax
Alternative Minimum Tax (AMT) • first passed in 1969 in response to study that showed 155
uber-wealthy taxpayers filed returns that showed a $0 tax liability.
Because the AMT calculation was not indexed for inflation and because of changes in the tax code since then (mainly lower regular tax rates), now millions of taxpayers are paying AMT.
36
Nationally, 4,464,000 taxpayers paid $31,014,000,000 in AMT.
39
Alternative Minimum Tax
The Tax Cuts and Jobs Act dramatically increased the AMT Exemption and Exemption Phaseout Thresholds.
The Tax Policy Center estimates these changes will decrease the number of taxpayers paying AMT by 96% in 2018.
Like so many other of the Act’s tax provisions for individuals, this will sunset after 2025.
40
Questions?
41
The information and materials in this presentation are provided by Fortner, Bayens, Levkulich & Garrison, P.C. (FBLG), for general informational purposes only. These materials do not, and are not intended to, constitute legal or tax advice. Your use of this presentation does not create a client relationship between you and any of the presenters or their company.
The information contained in this presentation is based on sources which we believed reliable but is not guaranteed by us and is not to be considered all inclusive..
This presentation and all the information and material it contains is the property of FBLG and we retain and reserve all rights therein, including all rights under copyright laws, trademark laws, international treaties and conventions and other intellectual property laws.
LEGAL NOTICES AND TERMS
Community Bankers Association of Oklahoma2018 Annual ConventionSeptember 13, 2018
Corporation and S-Corporation Tax Changes
Tax Rates
Slide Number 14
De Minimis Rule
Slide Number 35
Slide Number 36
Slide Number 37
Slide Number 38
Slide Number 39
Slide Number 40