TAX CUTS & JOBS ACT DEVELOPMENTS P L A N N I N G F O R B U S - PDF document

12/6/2018 TAX CUTS & JOBS ACT DEVELOPMENTS P L A N N I N G F O R B U S I N E S S E S A N D I N D I V I D U A L S D E C E M B E R 1 2 , 2 0 1 8 THE TAX CUTS & JOBS ACT AT A GLANCE BUSINESS PROVISIONS Created Enhanced Reduced New 20 Limited Capital Tax Rates Percent Deductions Expensing Deduction INDIVIDUAL PROVISIONS Created Increased Limited Doubled Reduced Qualified Standard Itemized lifetime Tax Rates Opportunity Deduction Deductions exemption Zones 1

12/6/2018 THE TAX CUTS & JOBS ACT AT A GLANCE BUSINESS PROVISIONS Created Enhanced Reduced New 20 Limited Capital Percent Tax Rates Deductions Expensing Deduction CORPORATE INCOME TAX RATE Taxable Income Previous TCJA Law $0–$50,000 15% $50,001–$75,000 25% $75,001–$100,000 34% $100,001–$335,000 39% 21% $335,001–$10,000,000 34% $10,000,001–$15,000,000 35% $15,000,001–$18,333,333 38% Over $18,333,333 35% 2

12/6/2018 CORPORATE ALTERNATIVE MINIMUM TAX Permanent Repeal • Effective January 1, 2018 Previous Law TCJA 20% Repealed Remaining AMT credits refundable • 2018-2020 tax years • Reduce regular tax liability by any available AMT credit • 50 percent of any excess AMT credit is refundable • 2021 tax year • Any remaining AMT credit carryforward is refundable THE TAX CUTS & JOBS ACT AT A GLANCE BUSINESS PROVISIONS Created Enhanced New 20 Reduced Limited Capital Tax Rates Percent Deductions Expensing Deduction 3

12/6/2018 QUALIFIED BUSINESS INCOME DEDUCTION Full phaseout = $207,500 (single) | $415,000 (married filing jointly (MFJ)), indexed Click here for PDF & footnotes Threshold = $157,500 (single) | $315,000 (MFJ), indexed SPECIFIED SERVICE TRADE OR BUSINESS Financial Health Accounting Services Actuarial Performing Law Science Arts Brokerage Athletics Consulting Services Principal Asset Investment Trading or Reputation/Skill of Management Dealing Employees/Owners 4

12/6/2018 SPECIFIED SERVICE TRADE OR BUSINESS Good (Not an SSTB) Bad (SSTB) • Health clubs/spas providing • Medical services provided by physical exercise/conditioning to individuals directly to a patient/service their customers recipient, e.g. , physicians, • Payment processing pharmacists, nurses, dentists, • Research, testing & veterinarians, physical therapists & Health manufacture/sales of psychologists pharmaceutical/medical devices SPECIFIED SERVICE TRADE OR BUSINESS Good (Not an SSTB) Bad (SSTB) • Banking • Managing wealth (wealth planners) • Advising clients with respect to finances • Developing retirement plans (retirement advisors) Financial • Developing wealth transition plans Services • Providing advisory & other similar services regarding valuations, mergers, acquisitions, dispositions, restructurings & raising financial capital by underwriting or acting as a client’s agent in the issuance of securities & similar services (investment bankers) 5

12/6/2018 SPECIFIED SERVICE TRADE OR BUSINESS Good (Not an SSTB) Bad (SSTB) • Performance of services other • Providing professional advice & than advice & counsel counsel to clients to assist in achieving • Providing training & educational goals & solving problems (includes courses advocacy with intention of influencing • Performance of consulting decisions made by government or Consulting services embedded in/ancillary to governmental agency) the sale of goods/performance of services on behalf of trade/business that’s not otherwise an SSTB if there’s no separate payment for consulting services SPECIFIED SERVICE TRADE OR BUSINESS Good (Not an SSTB) Bad (SSTB) • You’re not famous! • Receiving income for endorsing products/services • Licensing or receiving income for use of individual’s image, likeness, name, signature, voice, trademark or any Principal other symbols associated with Asset individual’s identity • Receiving fees or income for Reputation appearing at events or on radio, or Skill of television or other media formats Employees Or Owners 6

12/6/2018 ANTI-AVOIDANCE GUIDANCE • Effective for tax years ending after December 22, 2017 • “Crack & Pack” prevented • An SSTB includes any T/Bs with 80 percent or more of its property or services to an SSTB if 50 percent or more common ownership of the T/B’s • Multiple trusts treated as single trust if • Substantially same grantors & beneficiaries • Principal purpose is to avoid federal income tax • Employees can’t be converted to independent contractors • Considered employees for purposes of deduction if they continue to provide substantially same services (unless they can provide evidence to substantiate nonemployee status) THE TAX CUTS & JOBS ACT AT A GLANCE BUSINESS PROVISIONS Created Enhanced Reduced New 20 Limited Capital Tax Rates Percent Deductions Expensing Deduction 7

12/6/2018 COST RECOVERY PROVISIONS Enhanced Bonus Depreciation • Now available for both new & used assets September 28, 2017– 100% December 31, 2022 Click here for an 2023 80% overview of bonus 2024 60% depreciation under 2025 40% the TCJA 2026 20% • Made changes to Qualified Improvement Property (created unintended need for technical correction) • Proposed guidance issued August 3, 2018 COST RECOVERY PROVISIONS Expanded Section 179 • Up to $1 million • Phaseout beginning at $2.5 million of assets placed in service (adjusted for inflation) • Definition of qualified property expanded to include certain improvements to nonresidential real property, including roofs, HVAC systems, fire protection & alarm systems & security systems 8

12/6/2018 COST RECOVERY PROVISIONS Planning Considerations • Monitor developments • Assess interaction with other provisions of the TCJA • Evaluate accounting method changes • Consider cost segregation studies • Review state and local conformity to federal changes THE TAX CUTS & JOBS ACT AT A GLANCE BUSINESS PROVISIONS Created Enhanced Reduced New 20 Limited Capital Tax Rates Percent Deductions Expensing Deduction 9

12/6/2018 NET OPERATING LOSS (NOL) • Deduction limited • 80 percent of taxable income • Applies to losses arising in tax years beginning after December 31, 2017 • No carryback • Applies to losses arising in tax years ending after December 31, 2017 (except property/casualty insurance companies & certain farm losses) • Carried forward indefinitely • Applies to losses arising in tax years ending after December 31, 2017 NET OPERATING LOSS (NOL) 10

12/6/2018 NET OPERATING LOSS (NOL) CHOICE OF ENTITY AFTER THE TCJA • Effective tax rate for corporations & pass-throughs • International provisions • State & local conformity to federal law • Future tax rate changes • Individual provisions sunset December 31, 2025 • “Permanent” corporate/qualified dividend tax can be changed • Accounting methods expanded • Employee benefit & owner compensation options • Ownership & succession considerations 11

12/6/2018 TAX RATES AFTER THE TCJA Corporations Pass-throughs Number of tax brackets One, flat rate Seven brackets for individuals (four for trusts/estates) Top tax rate 21 percent + 23.8 percent on 37 percent + 3.8 percent net qualified dividends investment income tax Alternative minimum tax None 28 percent (exemption $70,300 single/$109,400 MFJ; phaseout $500,000/$1 million MFJ) Other tax • Accumulated earnings tax • Self-employment tax (15.3 (20 percent) percent) • Tax on undistributed • Built-in gains tax personal holding company income (20 percent) Other rate considerations • Full/partial gain exclusion • Pass-through business on qualified small business deduction (20 percent) stock • Limitation on SALT deduction • Limitation on losses TAX RATES AFTER THE TCJA Previous Tax Law New Tax Law Corporation 50.47% 39.8% (35% + .65 * 23.8%) (21% + 0.71 * 23.8%) 0.79 Pass-through 43.4% 40.8% (39.6% + 3.8%) (37% + 3.8%) Effective tax rate case study fact pattern • S corporation • Business income: $1 million • State income tax rate: 6 percent (entity & shareholder) • State does not conform to IRC Section 199A 12