Welcome Brian B. McCuller is the Tax Practice Leader for LBMC. Brian - - PowerPoint PPT Presentation

Welcome

(615) 690-1971 bmcculler@lbmc.com

• Brian B. McCuller is the Tax Practice Leader for LBMC. Brian is an

attorney and a CPA with over twenty years of experience in the state and local tax field.

• He specializes in multi-state tax planning and controversy services. Brian

has advised Fortune 500 companies, as well as middle-market companies with multi-state and multi-national operations.

• Brian has represented clients on a variety of issues before state tax

departments across the country. Brian is a frequent speaker and author

• n the topic of multi-state taxes.

The industries Brian typically serves include manufacturing, software and information technology,

• nline

retailers, hotel owners/operators, and retail consumer services.

Questions

• Online Audience: email your questions to cpe@tscpa.com
• TSCPA Brentwood: Write your questions on the question sheet provided at registration. Please write the

question under the section title that it relates to.

Resources

• LBMC Federal Tax Reform Resource Center

https://www.lbmc.com/federal-tax-reform-resource-center

• Four summaries – Overall, Individuals, Business, Employers
• “Major Misconceptions About Tax Reform’s Impact on Individual Taxpayers” by Blake

Harrison, Senior Manager, Wealth Advisors

• “Federal Tax Reform Rolls into Tennessee, But Will it Stick? ” by Brian McCuller, Tax Practice

Leader

Agenda

• Individuals
• 199A [20% Deduction for Qualified Business Income of Pass-Through

Entities]

• Estate and Gift
• NOLs and Excess Business Losses
• Depreciation and Interest Limitations
• C-corp tax rates vs. Pass Through tax rates

Individuals

• Blake Harrison is a Senior Manager with LBMC Tax Services. He

has gained expansive experience in tax planning and compliance working with clients in Northeast Ohio, Washington, DC and New York City before settling in Nashville.

• Blake practices in our Wealth Management Services team at LBMC

where he serves the needs high net worth clients and their

• families. He specializes in investment entity taxation as well as

individual, trust, and estate tax planning and compliance. He has worked with clients in various industries including investment managers, entrepreneurs, manufacturers, real estate professionals and university professors.

(615) 309-2620 bharrison@lbmc.com

Tax Brackets, Rates, and Standard Deduction Amounts

Prior Tax Law Rate New Tax Law Rate

Under $9,325 Single Under $18,650 MFJ 10% Under $9,525 Single Under $19,500 MFJ 10% $9,325 - $37,950 Single $18,650 - $75,900 MFJ 15% $9,525 - $38,700 Single $19,500 - $77,400 MFJ 12% $37,950 - $91,900 Single $75,900 - $153,100 MFJ 25% $38,700 - $82,500 Single $77,401 - $165,000 MFJ 22% $91,900 - $191,650 Single $153,100 - $233,350 MFJ 28% $82,500 - $157,500 Single $165,000 - $315,000 MFJ 24% $191,650 - $416,700 Single $233,350 - $416,700 MFJ 33% $157,500 - $200,000 Single $315,0000 - $400,000 MFJ 32% $416,700 - $418,400 Single $416,700 - $470,700 MFJ 35% $200,000 - $500,000 Single $400,000 - $600,000 MFJ 35% Over $418,400 Single Over $470,700 MFJ 39.6% Over $500,000 Single Over $600,000 MFJ 37%

Filing Status Prior Tax Law New Tax Law

Single $6,350 $12,000 HOH $9,350 $18,000 MFJ $12,700 $24,000 Personal Exemption $4,050 per person None

Itemized Deductions

Prior Tax Law New Tax Law

State and Local Taxes Unlimited deduction of eligible state and local sales, income and property taxes. Limited to annual deduction of $10,000 ($5K for Single) Miscellaneous Itemized Deductions Deductible in excess of 2% of Adjusted Gross Income Eliminated Mortgage Interest Limited to interest on $1M of acquisition debt and $100K of Home Equity Line. Limited for NEW mortgages to interest on $750K of acquisition debt ($375K Single). Charitable Contributions Cash contributions deductible up to 50%

• f AGI.

Increase of limitation on cash contributions now up to 60% of AGI.

Payments in exchange for the rights to purchase college athletics tickets

Charitable deduction of 80% of the payment. Not Deductible. PEASE Adjustment Limited overall itemized deductions by 3% of AGI above a certain threshold Eliminated – eligible itemized deductions are no longer limited by a function of AGI.

AMT for Individuals

Prior Tax Law New Tax Law

Minimum Tax Rate 26% up to$186,300 AMTI 28% AMTI > $186,300 Same Exemption $54,300 Single $84,500 MFJ $70,300 Single $109,400 MFJ Phase-Out Thresholds $120,700 Single $150,900 MFJ $500,000 Single $1,000,000 MFJ

Impact Of Individual Tax Changes

Old Law New Law Old Law New Law Old Law New Law Adjusted Gross Income 685,000 685,000 702,000 702,000 4,200,000 4,200,000 State and Local Taxes 57,000 10,000 9,900 9,900 300,000 10,000

• Misc. 2% Itemized

190,000

• 2,000
• 400,000
• Charity, Interest, Other

5,700 5,700 26,000 26,000 947,000 947,000 PEASE Limitation (11,000)

• (11,600)
• (117,000)
• Total Deductions

241,700 24,000 26,300 35,900 1,530,000 957,000 Taxable Income 443,300 661,000 675,700 666,100 2,670,000 3,243,000 Regular tax 61,500 120,000 203,000 177,000 799,000 964,000 AMT 69,000

• 20,000
• Other

16,500 16,500 5,700 5,700 197,000 218,000 Total Tax 147,000 136,500 208,700 182,700 1,016,000 1,182,000 Difference 10,500 26,000 (166,000) Tax Savings Tax Savings Tax Cost Larry Example Steve Example Phil Example

Tax reform timeline

President Trump’s Inauguration Trump administration releases “Unified Framework for Fixing Our Broken Tax Code” Congress agrees

• n a budget

paving path for tax reform legislation “Tax Cuts and Jobs Act” (H.R.1) released by the House Ways and Means Committee House Ways and Means approves H.R.1 as amended. Senate Finance Committee releases “policy highlights”

• utlining their tax reform

goals.

January 20th September 27th October 26th November 2nd November 9th

Tax reform timeline cont’d

House bill Passes Senate Finance Committee approves Senate bill passes Reconciliation process between the two bills begins House and Senate pass revised bill President Trump signs the new tax bill into law

November 16 November 29 December 6 December 19 December 22

199A [20% Deduction for Qualified Business Income of Pass-Through Entities]

• Cindy Anderson is a Senior Manager in the LBMC Tax practice.

She has extensive tax experience in individual, business, estate, trust, and inheritance returns.

• Cindy is a member of the Wealth Management team at LBMC,

where she works with closely-held businesses and their owners on a wide range of tax issues, as well as high wealth individuals and families to maximize their wealth building and protection strategies.

• Cindy has been involved in tax, accounting and consulting

engagements in various industries including real estate and construction, restaurant, wholesale distribution, service

• rganizations, healthcare, retail businesses, and not-for profits. She

enjoys working closely with clients and their staff to take care of their needs, answer questions or provide software assistance.

(615) 690-1935 canderson@lbmc.com

Pass Through Entities – New Special 20% Deduction

Pass-thru entities

• Sole proprietorships (no entity, Schedule C).
• Real estate investors (no entity, Schedule E).
• Disregarded entities (single member LLCs).
• Multi-member LLCs.
• Any entity taxed as an S corporation.
• Trusts and estates, REITs and qualified cooperatives.

Pass Through Entities – New Special 20% Deduction

Section 199A – Broad Strokes

• Individuals, trusts, and estates are eligible for a 20% deduction on

certain income from pass through entities.

• Cap on the amount eligible for the deduction based on W-2 wages,

plus in some cases, the “unadjusted basis” of eligible property at specific income levels.

• Modified taxable income limitation.
• Special limitations apply to “specified service businesses”.
• Below-the-line deduction to taxable income.
• Effective top tax rate of 29.6% (37% x 80%)

Pass Through Entities – New Special 20% Deduction

199A Qualified Business Income pass-through deduction

20% of the taxpayer’s qualified business income

(Before limitations)

Section 199A – Qualified Business Income

QBI – What it Is: Includes the profit from an active trade or business and including rental income as long as you are not operating as a c corporation QBI – What it Is NOT:

• Reasonable compensation paid by the business
• Guaranteed payments
• Investment items, e.g. interest income, not properly allocable to the trade or business

Pass Through Entities – New Special 20% Deduction

Pass Through Entities – New Special 20% Deduction

.

QBI calculation

• Sam is a small business owner with a Schedule C who makes

$100,000 from his business

• Sam’s taxable income is $150,000
• Sam’s §199A deduction is 20% * $100,000 or $20,000

His §199A is not limited

100,000 x 20% = $20,000

Pass Through Entities – New Special 20% Deduction

.

Income Limits

20% taxable income (excluding cap gains) $207.5k Single; $415k MFJ

Limitation phased-in: 157.5K - 207.5K Single 315k - 415k MFJ

Pass Through Entities – New Special 20% Deduction

. QBI deduction

• Sam is a small business owner with a Schedule C who

makes $100,000 from his business

• Sam’s taxable income is $150,000
• Sam’s QBI calculation is 20% * $100,000 or $20,000

His §199A is not limited

$20,000

QBI deduction – taxable income limit

• Sal is a small business owner with a Schedule C who

makes $100,000 from his business

• Sal’s taxable income is $70,000 – no capital gains

included

• Sal’s QBI calculation is 20% * $100,000 or $20,000
• Taxable income limit: 20% * $70,000 or $14,000

His §199A is limited 100,000 x 20% = $20,000 70,000 x 20% = $14,000 $14,000

W-2 Wage & Qualified Property Limitation If Above Threshold

Amount of qualified trade or business income eligible for the 199A deduction is the lesser of: 1. 20% of the QBI or 2. The greater of:

• 50% of W-2 wages or
• 25% of W-2 wages + 2.5% of the unadjusted basis

immediately after acquisition of qualified property.

Taxable Income Threshold: $207.5k Single; $415k MFJ

Limitation phased-in: 157.5K-207.5K Single; 315k-415k MFJ

Pass Through Entities – New Special 20% Deduction

Key Components

1. W-2 Wages - wages subject to wage withholding, elective deferrals, and deferred compensation paid by the qualified trade or business with respect to employment of its employees during the calendar year ending during the taxable year of the taxpayer 2. Unadjusted basis of qualified property – original cost over life of asset or 10 years, whichever is longer

Pass Through Entities – New Special 20% Deduction

Pass Through Entities – New Special 20% Deduction

. Below Threshold

• H and W file a joint return on which they report taxable

income of $310,000.

• H’s income from business A is $200,000.
• H’s allocable share of wages paid by business A is

$60,000. The business has no investment in qualified property.

• Lesser of:
• QBI ($200,000) x 20% = $40,000

Or the Greater of:

• Wages ($60,000) x 50% = $30,000
• Wages x 25% + qualified property ($0 x 2.5%)

$15,000

His §199A is not limited

200,000 x 20% = $40,000 60,000 x 50% = $30,000

Above Threshold

• H and W file a joint return on which they report taxable

income of $435,000.

• H’s income from business A is $200,000.
• H’s allocable share of wages paid by business A is

$60,000. The business has no investment in qualified property.

• Lesser of:
• QBI ($200,000) x 20% = $40,000

Or the Greater of:

• Wages ($60,000) x 50% = $30,000
• Wages x 25% + qualified property ($0 x 2.5%)

$15,000

His §199A is limited

200,000 x 20% = $40,000 60,000 x 50% = $30,000

Pass Through Entities – New Special 20% Deduction

. Below Threshold

• Loretta owns a warehouse she leases to furniture
• distributor. She purchased the building for

$1,000,000 ten years ago.

• Taxable income from this activity: $130,000.
• Single taxpayer with $150,000 taxable income.
• She hires outside contractors for all the labor

needed and therefore has no employees

Her §199A is not limited 130,000 x 20% = $26,000

$0 x 50% = 0

$0x25%+$1,000,000 x 2.5% = $25,000 Unlimited Deduction: $26,000 Above Threshold

• Leon owns a warehouse he leases to furniture
• distributor. He purchased the building for

$1,000,000 ten years ago.

• Taxable income from this activity: $130,000.
• Single taxpayer with $350,000 taxable income.
• He hires outside contractors for all the labor

needed and therefore has no employees

His §199A is limited His §199A is the lessor of:$130,000 x 20% = $26,000 or

$0 x 50% = 0

$0 x 25% + $1,000,000 x 2.5% = $25,000 Limited Deduction: $25,000

Pass Through Entities – New Special 20% Deduction

Special Limitation for Specified Service Businesses

• The deduction does not apply to income from “specified service businesses” unless the

taxpayer’s income is below the thresholds.

• A “specified service businesses” is any trade or business activity involving performing

services in accounting, actuarial services, law, health, financial service, brokerage services, investment management, performing arts, athletics, consulting…

• Engineering and architecture businesses are NOT treated as service business.

Pass Through Entities – New Special 20% Deduction

. Below Threshold

• H and W file a joint return on which they report taxable

income of $235,000

• W’s income from qualified business B, a specified

service business, is $35,000.

• W’s allocable share of wages paid by business B is

$150,000. The business has no investment in qualified property. Her §199A is not limited

35,000 x 20% = $7,000 QBI $35,000 x 20% = $7,000 Wages $150,000 x 50% = $75,000 $150,000 x 25%+$0 x 2.5% = $37,500 Not Needed – Below Threshold

Above Threshold

• H and W file a joint return on which they report taxable

income of $535,000

• W’s income from qualified business B, a specified

service business, is $35,000.

• W’s allocable share of wages paid by business B is

$150,000. The business has no investment in qualified property.

• Taxable income $535,000 – Above Threshold
• STOP

Her §199A is eliminated

$0

(Specified Service Business Limitation)

Pass Through Entities – New Special 20% Deduction

Source: AICPA Tax Reform Overview, Robert S. Keebler, CPA/PFS, MST, AEP

Pass Through Entities – New Special 20% Deduction

. Apartment Building A Acquired by LB LP in 1998 for $3,600,000 Similar building & identical partners $3,600,000 of depreciable assets No debt QBI of approximately $490,000 199A Deduction = lesser of: 20% x $490,000 = $98,000 2.5% x $3,600,000 = $90,000 Apartment Building B Acquired by MC LP in 1998 for $3,600,000 Similar building & identical partners $3,600,000 of depreciable assets Debt of $7,000,000 QBI of approximately $210,000 199A Deduction = lesser of: 20% x $210,000 = $42,000 2.5% x $3,600,000 = $90,000 Total Deduction – 132,000

Planning

Example: Do Nothing

Pass Through Entities – New Special 20% Deduction

. Apartment Building A No debt New Debt $3,500,000 New QBI of approximately $350,000 199A Deduction = lesser of: 20% x $350,000 = $70,000 2.5% x $3,600,000 = $90,000 Apartment Building B

Debt of $7,000,000New Debt $3,500,000

New QBI of approximately $350,000 199A Deduction = lesser of: 20% x $350,000 = $70,000 2.5% x $3,600,000 = $90,000 Total Deduction – 140,000

Planning

Example: Recapitalize

Pass Through Entities – New Special 20% Deduction

.

Considerations

• LLC cannot pay wages to owners
• Guaranteed payments not allowed in

wages limitation calculation

• S Corporations can pay wages to owners

Pass Through Entities – New Special 20% Deduction

.

Considerations

• S Corporations bonus out all earnings to owners

– eliminates any 199A deduction

• S Corporations pay only reasonable compensation to owners

– leaves qualified taxable income in the pass-through entity for deduction

Estate and Gift

• Matt Painter is a Shareholder with LBMC Wealth Advisors. He has
• ver twenty five years of experience providing estate and gift

planning services.

• His previous experience includes practice with Coolidge, Wall,

Womsley & Lombard of Dayton, Ohio and Holton Goodman & Blackstone in Nashville, Tennessee.

(615) 309-2279 mpainter@lbmc.com

And oh yeah – didn’t they do something with the estate tax?

• The New Basic Numbers – We THINK!

Estate, Gift and GST Exemption amount: $11,180,000 For a couple $22,360,000 But recall: A person’s remaining exemption is always reduced by prior taxable gifts.

• Sunset: Unless the law is changed in the meantime, the $11 Million

plus exemption rolls back on January 1, 2026 to a $5 Million base – indexed.

• Annual Exclusion gifts: $15,000 per donee starting January 1, 2018

The “Clawback”

If a taxpayer takes advantage of the increased exemption now and the exemption is rolled back in 2026 – it’s not necessarily a “done deal”. If the taxpayer passes away after the rollback – there is the possibility that the gifts made during this interim period in excess of the rollback exemption may be subject to the estate tax. Currently this is an unknown.

Current Planning Advice:

If you are married – have your Wills and Trusts reviewed – Things just got a lot more complicated and it’s surely not a “one size fits all” world. The big issue: Formula clauses Factors new planning needs to take into account:

• Portability: The ability to move the unused exemption of the first spouse to

die over to the survivor -BUT the GST Exemption is not portable to the survivor

• Potential for Basis “Step Up”
• Making large transfers to take advantage of the increased exemption

Bottom-line: Yes it’s good news on the estate tax front, but it’s also a time to be vigilant in your planning.

Simplified Accounting Methods, Net Operating Loss Changes,& Excess Business Loss Limitations

• Briana Mullenax is a Shareholder with LBMC Wealth Advisors Tax
• Practice. She has more than 15 years of public accounting

experience in all areas of tax compliance and consulting services. She now focuses the majority of her time working with high-wealth individuals and families and their related entities.

• Briana served as the Nashville Chapter President for the Tennessee

Society of Certified Public Accountants (TSCPA) and is on the Board

• f Directors for Safe Haven Family Shelter. She is a 2013 recipient
• f Nashville Business Journals top 40 under 40 award.
• She resides in Brentwood with her 21 month old son, Lincoln,

recovering CPA- Jeremy, & two dogs – Bennie & Olive.

(615) 309-2251 bmullenax@lbmc.com

• Simplified Accounting Methods for Small

Businesses

• Changes Applicable to Net Operating Losses
• New Terminology: Excess Business Loss

Limitation

Simplified Accounting Methods for Small Businesses

Prior Tax Law New Tax Law

Percentage of Completion Method of Accounting

$10,000,000 $25,000,000

UNICAP/263A

$10,000,000 $25,000,000 *expanded to include producers

Cash Method

$1,000,000 $25,000,000 *repealed all prior years requirement

Inventory

$1,000,000/$10,000,000 $25,000,000

Simplified Methods of Accounting for Small Businesses

• WIN for small businesses!
• Change of accounting method needed
• Generally, deduction in year of change

Net Operating Loss: Individuals & Corporations

• Expenses > Revenue = Negative Income or Loss or a Net

Operating Loss (“NOL”)

• Old Law: Carryback 2 years; Forward 20 years
• New Law: Repealed carryback, Carry forward indefinitely
• Old Law: Generally limited to taxable income
• New Law: Limited to lesser of NOL or 80% of income computed before NOL for

losses incurred after December 31, 2017 (NOL’s created prior retain 100%)

Corporate Net Operating Loss

2018 2019 Taxable Income before NOL ($6,000,000) $5,000,000 Net Operating Loss Deduction $0 (4,000,000) Taxable Income $0 $1,000,000 2018 NOL Carryforward $6,000,000 $2,000,000 2018 2019 Taxable Income before NOL ($6,000,000) $9,000,000 Net Operating Loss Deduction $0 (6,000,000) Taxable Income $0 $3,000,000 2018 NOL Carryforward $6,000,000 $0 Limited to lesser of $5,000,000 * .8 = $4,000,000 or NOL $6,000,000 Limited to lesser of $9,000,000 * .8 = $7,200,000 or NOL $6,000,000

Should you create a carryover loss that could be limited to 80% in subsequent year by accelerating deductions or defer the deduction (when possible) to the following year?

Corporate Net Operating Loss Example

Interplay between old rules & new rules

• ABC Corporation has a net operating loss carryforward from

2017 of $9,000,000 and a 2018 NOL of $2,000,000.

• What is the NOL deduction at various

taxable income levels?

Corporate Net Operating Loss

Example 1: $6,000,000 Taxable Income Example 2: 9,000,000 Taxable Income Example 3: $11,000,000 Taxable Income Example 4: $13,000,000 Taxable Income Example 5: $13,750,000 Taxable Income Taxable Income before NOL $6,000,000 $9,000,000 $11,000,000 $13,000,000 $13,750,000 Net Operating Loss Deduction $(6,000,000) (9,000,000) ($9,000,000) ($10,400,000) ($11,000,000) Taxable Income $0 $0 $2,000,000 $2,600,000 $2,750,000 2017 NOL Carryforward $3,000,000 $0 $0 $0 $0 2018 NOL Carryforward $2,000,000 $2,000,000 $2,000,000 $600,000 $0

Changes to NOL’s

• Corporations with Fiscal

Years Ending after December 31, 2017

• Fluctuations in Taxable

Income

• Rate Change
• Historically paid zero tax
• Again, limitation applies to

individuals & corporations

Excess Business Loss Limitation

Basis > At-Risk > Passive > Excess Business Loss Limitation

Is a current passthrough loss deductible by an individual?

• Hurdle 1: Does partner have basis?
• Hurdle 2: Is partner at-risk?
• Hurdle 3: Is the income passive or active?

If passive, limited to passive income OLD LAW: If active net loss, deductible in full

• NEW LAW Hurdle 4: If a net loss, limited to $250,000

single or $500,000 Married Filing Jointly

Excess Business Loss Limitation

Joe is single. He has wages of $400,000 and a passthrough loss of $600,000 from his active trade or business in Year 1. He has investment income from

• utside sources of $700,000. Joe is used to offsetting his

portfolio income with his active trade

• r business loss.

Excess Business Loss Limitation

Prior Tax Law Year 1 New Tax Law Year 1 Wages $400,000 $400,000 Interest & Dividend Income 700,000 700,000 Active Business Passthrough Loss (600,000) (250,000) Net Operating Loss Deduction Adjusted Gross Income $500,000 $850,000 Prior Tax Law Year 2 New Tax Law Year 2 Wages $300,000 $300,000 Interest & Dividend Income 600,000 600,000 Active Business Passthrough Loss (100,000) (100,000) Net Operating Loss Deduction (350,000) Adjusted Gross Income $800,000 $450,000

*lesser of NOL or 80% income before NOL or $800,000 Net Operating Loss carryover $350,000

Excess Business Loss Limitation

Prior Tax Law Year 1 New Tax Law Year 1 Wages $400,000 $400,000 Interest & Dividend Income 700,000 700,000 Active Business Passthrough Loss (600,000) (250,000) Net Operating Loss Deduction Adjusted Gross Income $500,000 $850,000 Prior Tax Law Year 2 New Tax Law Year 2 Wages $200,000 $200,000 Interest & Dividend Income 300,000 300,000 Active Business Passthrough Loss (100,000) (100,000) Net Operating Loss Deduction (320,000) Adjusted Gross Income $400,000 $80,000

*lesser of NOL or 80% income before NOL or $320,000 Remaining $30,000 carries forward Net Operating Loss carryover $350,000

Excess Business Loss Limitation

• W-2 Wages not considered business income (absent clarification or correction)
• You have to fully understand the individual tax situation before creating wage income
• Is it more beneficial to defer the deduction to stay under limit or to create an NOL?

Prior Tax Law – Before Planning Prior Tax Law – After Planning New Tax Law Wages $200,000 $400,000 $400,000 Other Active Business Passthrough Loss (300,000) ($500,000) (250,000) Taxable Income $(100,000) $(100,000) $150,000

Depreciation and Interest Limitations

• Kevin T. Yager is a Senior Manager with the LBMC Tax practice.

He has 30 years of experience providing tax services to a variety

• f closely held businesses and individuals. The industries he has

worked with include distribution, technology, manufacturing, services, construction, real estate, entertainment and other retail and wholesale trades. He holds CPA licenses in Tennessee, California and Florida and has previous experience practicing with local CPA firms in all three states.

(615) 309-2327 kyager@lbmc.com

Depreciation

Depreciation Changes

Enhanced Bonus Depreciation

1) 100% Bonus

Enhanced Bonus Depreciation

1) 100% Bonus 2) Used Property now qualifies

Enhanced Bonus Depreciation

1) 100% Bonus 2) Used Property now qualifies 3) Retroactive to 9/27/17

Enhanced Bonus Depreciation

• No dollar limit
• No “time of year” reduction
• Applies to “most” purchase of fixed

assets other than real estate

• 100% rule in place for next 5 years

and then starts phasing out

• Doesn’t apply if you use Floor plan

Financing

100% Bonus Depreciation

Section 179 Expensing

1) Limitation increased to $1 million 2) Phase out now starts at $2.5 million 3) Expanded to apply to roofs, HVAC property, fire protection, alarm and security systems.

Tax Cuts & Jobs Act Tax Cuts & Jobs Act

Business Interest Limitation

1) Businesses over $25 million average gross receipts (except a few industries who can elect out) 2) Need to aggregate controlled groups 3) Applies regardless of business entity 4) Exclusion for floor plan interest

Real Property Trade or Business Real property development, redevelopment, construction, reconstruction, acquisition, conversion, rental, operation, management, leasing or brokerage trade or business.

Business Interest Expense Limit

1) 30% X Adjusted Taxable income

1) Plus interest income 2) Plus any floor plan interest

Top Effective Tax Rates

Prior Law Current Law C Corp 50.47% 39.8% Owner of Pass-Through: 40.8% 29.6% Difference: 9.67% 10.2%

Top Effective Tax Rates

Prior Law Current Law C Corp 50.47% 39.8%

(35% + (65% x 23.8%)) (21% + (79% x 23.8%))

Owner of Pass-Through: 40.8% 29.6%

(39.6% + 1.2% Pease (37% x 80%)

limitation)

Difference: 9.67% 10.2%

Should I convert to a “C” Corp?

• Possibility that the 21% rate won’t last

long.

• Potential Double tax
• If S election is revoked, cannot re-elect S

status for 5 years

• State tax considerations
• New contracts with venders/customers

may be required due to new entity.

• Possible tax cost to change current entity.

Panel Discussion

Thank you!

Contact: Brian B. McCuller, JD, CPA Shareholder & Practice Leader, Tax Services LBMC 615.690.1971 bmcculler@lbmc.com

Questions? Want more information?

Tax professional Standards Statement

This content supports LBMC’s marketing of professional services and is not written tax advice directed at the particular facts and circumstances of any person. If you are interested in the topics presented herein, we encourage you to contact us or an independent tax professional to discuss their potential application to your particular situation. Nothing herein shall be construed as imposing a limitation on any person from disclosing the tax treatment or tax structure of any matter addressed herein. To the extent this content may be considered to contain written tax advice, any written advice contained in, forwarded with or attached to this content in not intended by LBMC to be used, and cannot be used, by any person for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.