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C E N T R A L P E N N B U S I N E S S J O U R N A L W E B I N A R
REAL ANSWERS ONTAX REFORM
Presented by Eric Wenger & Jonathan Clark
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CPA, MSTERIC R. WENGERPartner, Tax Services Group
FIRM POSITIONEric is a Partner in RKL’s Tax Services Group and serves as the Managing Partner of the Lancaster Office. He primarily advises closely held and family owned companies regarding tax and general business matters, including succession planning. Eric leads RKL’s tax outsourcing practice, where he deals with issues including consolidated tax returns, multistate taxation and accounting for income taxes. Eric received a Bachelors in Accounting from Messiah College and a Masters in Taxation from Villanova University.
CONTACT 717.399.1605 | [email protected] | rklcpa.com/TaxReform
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CPA, MSTJONATHAN M. CLARKPartner, Tax Services Group
FIRM POSITIONJonathan is a Partner in RKL’s Tax Services Group. He provides strategic tax planning and compliance solutions to privately held businesses and their owners, including family owned, management owned and private equity owned enterprises. Jonathan applies his specialized tax expertise to develop strategies for minimizing tax liabilities, evaluating tax consequences of alternative business decisions and frequently consults with businesses undergoing structural changes or complex transactions like mergers, acquisitions and sales. Jonathan received a Bachelors in Accounting from Liberty University and a Masters in Taxation from Villanova University.
CONTACT 610.376.1595 | [email protected] | rklcpa.com/TaxReform
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WHAT CAN YOU EXPECT?REAL ANSWERS!
• Individual• Business: Corporate and Pass-through• Estate/Wealth• Credits• What to do immediately and in the next 12 months
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INDIVIDUAL PLANNING• Brackets & rates
• AMT
• Personal exemptions
• Standard deduction
• Mortgage interest
• State/local tax deductions
• Medical expenses
• Charitable contributions
• Misc. itemized deductions
• 529 Plans/IRAs
• Net operating losses
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REAL ANSWERS ON TAX REFORM
Individual ChangesTHE BIG PICTUREDon’t file 2017 individual orbusiness returns without thinking about whether there is an opportunity to defer income to 2018 or accelerate deductions to 2017. Lower tax rates in 2018 mean tax deductions are worth more in 2017 than 2018.
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REAL ANSWERS ON TAX REFORM
Individual ChangesDEPENDENTSClaim the new, higher child tax credit.
Phase out doesn’t start until joint income exceeds $400,000.
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REAL ANSWERS ON TAX REFORM
Individual Changes
KIDDIE TAX Follow the Trust tax brackets for kids’ unearned income.
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REAL ANSWERS ON TAX REFORM
Individual Changes
RETIREMENTA Roth IRA/401(k) contribution may be a better alternative to making a traditional/deductible contribution.
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REAL ANSWERS ON TAX REFORM
Individual Changes
RETIREMENTConsider converting some portion of Traditional IRAs to Roth IRAs while tax rates are lower (or to maximize tax benefit of having a lower income year).
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REAL ANSWERS ON TAX REFORM
Individual ChangesEDUCATION SAVINGSFund a 529 account and obtain PA tax deductions, avoid taxes on gains in the accounts.
Now you can also use $10,000/year for private elementary and secondary
schooling, too.
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REAL ANSWERS ON TAX REFORM
Individual Changes
DIVORCEThe timing of divorce decrees in 2018 versus 2019 could have significant impact on both spouses’ tax situations.
PLAN ACCORDINGLY!
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REAL ANSWERS ON TAX REFORM
Itemized Deductions
MEDICAL Medical expenses are more likely tax-deductible in 2017 or 2018 than in future years.
Are there expenses that can be incurred sooner rather than later?
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REAL ANSWERS ON TAX REFORM
Itemized Deductions
STATE & LOCAL TAX DEDUCTIONWorried about the $10,000 limitation?
Is the property used for rental, investment, or self-employment/business purposes?
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REAL ANSWERS ON TAX REFORM
Itemized DeductionsSTATE & LOCAL TAXESOwners of PA pass-through businesses, who itemize their deductions and have exceeded the $10,000 cap on state and local taxes:
Make contributions to PA’s EITC or OSTC programs.
Beware of May 15th or July 1st application deadline.
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REAL ANSWERS ON TAX REFORM
Itemized Deductions
CHARITABLE CONTRIBUTIONSContribute to a Donor Advised Fundto “bunch” your itemized deductions.
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REAL ANSWERS ON TAX REFORM
Itemized Deductions
CHARITABLE CONTRIBUTIONSTaxpayers over age 70½ who must receive Required Minimum Distributions from retirement accounts, should consider donating those amounts directly to charity for additional tax savings.
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REAL ANSWERS ON TAX REFORM
Itemized Deductions
INTEREST DEDUCTIONSHome mortgage and home equity loans
Trace the use of loan proceeds to maximize potential tax deductibility.
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REAL ANSWERS ON TAX REFORM
Itemized Deductions
MISC. ITEMIZED DEDUCTIONS Might the employer be willing to cover some or all employee’s out-of-pocket job expenses since those are no longer deductible for the employee?
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REAL ANSWERS ON TAX REFORM
Itemized Deductions
MISC. ITEMIZED DEDUCTIONSCan individual tax preparation fees be allocated to your business or rental activities?
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REAL ANSWERS ON TAX REFORM
Itemized Deductions
MISC. ITEMIZED DEDUCTIONS Casualty and theft losses are no longer deductible…unless it’s a Federally-declared disaster area.
“ ”Something no one
will hope for.
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REAL ANSWERS ON TAX REFORM
2018 Estimated Taxes
IS SAFE HARBOR THE RIGHT ANSWER?Evaluate projected 2018 tax liabilities, instead of simply using prior year safe harbor methodology.
State tax answers could differ significantly due to lack of conformity with Federal rules.
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BUSINESS PLANNING• Corporate rate
• §199A
• Bonus depreciation
• AMT repealed
• Interest limitations
• NOL changes
• Business loss limitations
• Small business exemptions
• Tax Credits
• DPAD repeal
• Foreign
• Estates
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REAL ANSWERS ON TAX REFORM
C Corporations
TAX RATES Remember to revalue deferred tax assets and liabilities using the new 21% Federal rate.
Fiscal filers have a blended rate.
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REAL ANSWERS ON TAX REFORM
C CorporationsC CORPS WITH PROFITABLE FOREIGN SUBSIDIARIES:
Must include in 2017 U.S. taxable income, the total amount of unremitted foreign earnings that were never repatriated back to the U.S.
Should we elect to pay this additional tax liability over an 8 year period
instead of all at once?
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REAL ANSWERS ON TAX REFORM
Business Changes
LAST CHANCE TO DO AN NOL CARRYBACK!
NOL’s arising from a tax year ending after 12/31/17 are not eligible for the two year NOL carryback.
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#S E C T I O N 1 9 9 A
PASS-THROUGHDEDUCTION
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REAL ANSWERS ON TAX REFORM
§199AEntity structure?Industry?Wages?Depreciable assets?Taxable income level?
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REAL ANSWERS ON TAX REFORM
§199A
How can you best avoid being caught in the qualified service provider definition?
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REAL ANSWERS ON TAX REFORM
§199A
Make self-employed retirement plan contributions to further reduce taxable income and potentially increase 199A deduction.
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REAL ANSWERS ON TAX REFORM
Consider bunching itemized deductions to maximize the potential benefit of Section 199A.
§199A
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REAL ANSWERS ON TAX REFORM
§199A
Are your wages from a business you own, set at the proper level to maximize the Section 199A deduction?
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REAL ANSWERS ON TAX REFORM
§199A
Don’t tell the IRS you’re operating a qualified service provider business if you’re not!
WATCH OUT for NAICS code disclosures on 2017 and 2018 returns.
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REAL ANSWERS ON TAX REFORM
§199A
I’LL CREATE MY OWN LLC!Don’t be quick to assume contractor status is preferable to employee.
Weigh the facts and trade-offs.
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REAL ANSWERS ON TAX REFORM
§199A
REAL ESTATE FOLKSRemember that you could have NO payroll expense but still benefit from 199A.
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REAL ANSWERS ON TAX REFORM
Choice of EntitySHOULD I SWITCH TOA C-CORP?• Annual distributions to owners?• Succession/exit strategy?• Double layer of tax• State considerations• §1202 gain exclusion potential
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REAL ANSWERS ON TAX REFORM
Depreciation• 100% Bonus Depreciation • Expanded Section 179
Given immediate tax depreciation deductions, coupled with labor
shortages, is it time for your business to further explore robotics and
automation?
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REAL ANSWERS ON TAX REFORM
DepreciationAre there prior cost segregation studies that were never done?
It’s never too late to do a look back cost segregation study and claim 2017 deductions at higher tax rates!
Form 3115 needs to be filed by extended due date of 2017 return.
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REAL ANSWERS ON TAX REFORM
Depreciation
100% bonus depreciation opportunity applies for new andused assets placed in service after 9/27/17. So, consider taking advantage of this on 2017 tax returns.
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REAL ANSWERS ON TAX REFORM
Depreciation
MERGERS & ACQUISITIONS:Consider impact of being able to deduct 100% bonus depreciation on personal property; even greater incentive for Buyers to want an asset deal.
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REAL ANSWERS ON TAX REFORM
Depreciation
MULTI-YEAR PLANNING:In future years, if 100% bonus is going to go away (assuming it’s not extended), it might be worth electing OUT of bonus in those years. Stay tuned!
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REAL ANSWERS ON TAX REFORM
Interest Limitation
Should I accelerate the pay-down of high cost borrowing to avoid limitations on annual interest expense deductions?
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REAL ANSWERS ON TAX REFORM
Interest Limitation
Consider changing your capital structure to avoid the interest expense limitations.
Perhaps preferred equity may be a better solution to debt, despite
different legal rights?
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REAL ANSWERS ON TAX REFORM
Interest Limitation
Certain businesses can elect out of the limitation…
The tradeoff is deferring some depreciation benefits (ADS depreciable
lives must be used).
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REAL ANSWERS ON TAX REFORM
Accounting Methods
SMALL BUSINESS ALERT:Consider accounting method changes that defer income or accelerate deductions. Possibilities include the expanded use of cash method, UNICAP exception, percentage of completion exception, and requirement to keep inventory.
Automatic changes can be made through extended due date of 2018 return.
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REAL ANSWERS ON TAX REFORM
CreditsR&D, TIP, WOTC:These credits survived. Can you take advantage of them?
Lower tax rates make deductions worth less and credits worth (proportionately speaking).
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REAL ANSWERS ON TAX REFORM
What Should I Do NOW?
• Maximize 2017 deductions• Last year for NOL carrybacks• Electing to change entity
classification for the 2018 tax year? • Depreciation “catch-up” for 2017• Accounting method changes• 2018 Estimated tax planning
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#
QUESTIONS?
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#F O L L O W- U P O P T I O N S
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