GOTHAM SOUND PRESENTS 2017 TAX UPDATE FEBRUARY 18, 2018 Nancy L. Adams, CPA Deborah Hammett, CPA Sullivan, Field & Smith, LLC Adelman, Katz & Mond, LLP 1468 S. Saint Francis Drive 230 West 41 st Street, 15 th Fl Santa Fe, NM 87505 New York, NY 10036 nadams@sfscpas.com dhammett@akmcpa.com Ph: (505) 982-4901 Ph: (212) 382-0404
Nancy L. Adams recently moved to Santa Fe, NM and is a partner in the firm of Sullivan, Field & Smith, LLC. She has been a CPA for approximately 30 years. She has a Masters in Taxation from Pace University. She is a member of the American Institute of Certified Public Accountants (AICPA) and the New York State Society of CPAs (NYSSCPAs), where she is a member of the Entertainment Committee. She specializes in working with clients in the entertainment industry, including documentary filmmakers, feature filmmakers, talent and other production personnel. Debbie Hammett is a supervisor at Adelman Katz & Mond LLP. She has been a CPA for approximately 15 years. She has a MBA in taxation/international business from Pace University. She is a member of the American Institute of Certified Public Accountants (AICPA), the New York State Society of CPAs (NYSSCPAs), where she is co-chair of the Closely Held and S Corp Committee, NY Tax Study Group, Accountant’s Club of America and the Estate Planning Council of NYC. She works with a number of entertainment entities, including the production companies of a well known entertainment personality.
OBJECTIVES DISCUSS THE BASIS OF TAX DEDUCTIONS ▶ COMPARE RULES IN EFFECTS FOR TAX YEAR 2017 TO 2018 ▶ PLANNING OPPORTUNITIES IN 2018 ▶ The presentation is designed to address tax considerations for entertainment professionals. It is not intended to be a complete recap of the new tax laws.
Tax Deductions – Basics IRC Section 162 allows one engaged in “Trade or Business” to deduct ▶ expenses that are ordinary & necessary Trade or Business is not defined in the Code, but has come to mean an activity ▶ carried on for profit or as one’s livelihood Ordinary and necessary – facts and circumstances test (appropriate and ▶ common to one’s industry)
Where are expenses deductible? Self-employed or employee? ▶ -Employee deducts unreimbursed expenses on Form 2106, as an itemized deduction. -Self employed individual deducts expenses on Schedule C. -If one has both, should allocate expenses between the activities.
Specific Expenses Meals & Entertainment – must meet one of two standards ▶ -Directly Related to active conduct of trade or business -Entertainment associated with conduct of trade or business Telephone – must allocate a portion of cell phone usage to personal use. ▶ Gifts – limited to $25/done. ▶ Education expenses – cost incurred in obtaining basic education for qualification ▶ in a professional are not deductible. Costs used to maintain or enhance skills are deductible. Gym – never deductible. ▶
Specific Expenses (con’t.) Auto expenses ▶ -Must maintain a contemporaneous record of business use. -Can take either: Standard Mileage Rate ($.535/mile in 2017 and $.545/mile in 2018) Actual expenses (business percentage of all related expenses, including gas, repairs, insurance, registration, depreciation, etc.) Local Transportation ▶ -Employee commutation to/from work nondeductible. -Travel between locations, to meetings or safety fares deductible.
Specific Expenses (con’t.) Home Office Deduction ▶ -Normally limited to self-employed individuals. -Must meet one or two standards: 1. Principal place of business, or significant admin activities. 2. Place to meet customers or clients in the ordinary course of business. -Must have a dedicated space. -For an employee, must be for the convenience of the employer.
Specific Expenses (con’t.) Expenses while Temporarily Away From Home on Business ▶ -Expenses deductible when taxpayer away from tax home. -Travel of spouse or dependent not deductible (unless employee). -Types of expenses: meals, lodging, transportation, baggage, tips ,etc. -Temporary vs. Indefinite – is assignment expected to last > 1 year?
Employer Expense Reimbursements Can take one of two forms: Accountable plans – employer requires receipts to reimburse, or pays per ▶ diems (not taxable to employee) Nonaccountable plans – do not require receipts (includible in employee ▶ W-2)
Retirement Plans One of the few deductions that can be funded “after the fact” (i.e., up until the due date of the return, sometimes including extensions). Several types of retirement plans available, depending on whether an employee or self-employed: Traditional or ROTH IRAs ▶ Simplified Employee Pensions (SEP IRAs) ▶ SIMPLE plans ▶ Solo 401(k) plans ▶
COMPARISON OF 2017 AND 2018 2017 2018 Tax Rates – range from 10% - 39.6% Tax Rates – range from 10% - 37% ▶ ▶ Exemptions - $4,050 for taxpayer, Exemptions – eliminated ▶ ▶ spouse and any dependents Standard Deduction ▶ Standard Deduction ▶ Single $ 6,350 Single $12,000 HOH $ 9,350 HOH $18,000 MFJ $12,700 MFJ $24,000
COMPARISON OF 2017 AND 2018 (con’t) 2017 2018 Child tax credit - $1,000/child (limits) Child tax credit - $2,000/child and ▶ ▶ $500/non-child dependents (limits) Itemized Deductions/Taxes – limited to ▶ Itemized Deductions/Taxes - all ▶ $10,000 state/local tax withholdings, plus all real estate taxes Itemized Deductions/Interest – home ▶ Itemized Deductions/Interest – equity debt NOT deductible. New ▶ Deductible on up to $1.1 million of acquisition debt limited on up to indebtness, including home equity $750,000 of debt (existing debt debt grandfathered in)
COMPARISON OF 2017 AND 2018 (con’t) 2017 2018 Itemized Deductions/Personal Itemized Deductions/Personal ▶ ▶ Casualty Losses – allowed subject to Casualty Losses – Eliminated limits. Itemized Deductions/Misc. Itemized ▶ Itemized Deductions/Misc. Itemized ▶ Deductions – unreimbursed employee Deductions – Eliminated expenses, tax preparation fees, and investment expenses allowed. Charity – limited to 60% of AGI. Charity – limited to 50% of AGI. ▶ ▶
COMPARISON OF 2017 AND 2018 (con’t) 2017 2018 Adjustments/Alimony – Deductible for Adjustments/Alimony – Nondeductible ▶ ▶ support awarded by a court. for settlements entered into after 2018. Adjustments/Moving expenses – Cost Adjustments/Moving expenses – ▶ ▶ of travel and transportation of eliminated. household goods deductible if move is in conjunction with change in employment (mileage requirement). Adjustments/Educator Deduction – Adjustments/Educator Deduction – up ▶ ▶ increased to $500/teacher to $250/teacher deductible
COMPARISON OF 2017 AND 2018 (con’t) 2017 2018 Section 199 – Domestic Production Section 199 – Repealed and replaced. ▶ ▶ Activities Deduction (DPAD) is deduction available to manufactures, Section 199A – New Qualified Business producers, growers, extractors, under ▶ Income Deduction for “pass-thru” which film production has fallen been entities allowed a limited deduction. Section 181 – Retained with limitations Section 181 – Film expensing election ▶ ▶ (cannot take deductions until the year retained for 2017 in recently passed the film is released) budget bill
DISCUSSION OF NEW 199A DEDUCTION General rule is that a taxpayer is entitled to a deduction of up to 20% of ▶ the Qualified Business Income from “pass-thru” entities (further income limitation of 20% of net income less net capital gain) What is a pass-thru entity? Sole proprietor (or Single Member LLC) filing a ▶ Schedule C, Partner in a partnership receiving a K-1, or S Corporation Shareholder receiving a K-1. What income qualifies? Only income from the trade or business ▶ (investment income is generally excluded from the calculation)
DISCUSSION OF NEW 199A DEDUCTION How is the deduction calculated? It depends on: ▶ a) Is the person a member of a “Specified Service Trade or Business?” b) What is the person’s income level and marital filing status?
DISCUSSION OF NEW 199A DEDUCTION What is a Specified Service Trade or Business? ▶ Defined as being one of the following businesses or professions: health care, law, accounting, actuarial services, performing arts , consulting, athletics, financial services, brokerage services, any trade or business where the principal asset is the reputation or skill of one or more employees , any trade or business involving investment management, trading, etc.
199A DEDUCTION-SERVICE BUSINESS SINGLE MARRIED FILING JOINTLY Income below $157,500? Entitled to a Income below $315,000? Entitled to a ▶ ▶ deduction with no wage limitation deduction with no wage limitation Income between $157,501 - $207,500? Income between $315,001 - $415,000? ▶ ▶ Subject to a phase in of greater of wage Subject to a phase in of greater of wage limitation (50% of wages paid) OR limitation (50% of wages paid) OR wage/property limitation (25% of wages wage/property limitation (25% of wages and 2.5% of unadjusted qualifying assets) and 2.5% of unadjusted qualifying assets) Income above $207,500? No deduction. Income above $415,000? No deduction. ▶ ▶
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