mt year end tax planning seminar 12.04.2018 year end tax... · 12/4/2018 · tax tips and tricks:...

Postlethwaite & Netterville December 4, 2018

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a s s u r a n c e - c o n s u l t i n g - t a x - t e c h n o l o g y - p n c p a . c o m

Postlethwaite & Netterville, A Professional Accounting Corporation

Greg Booth and Stephen Blitz

December 4, 2018

Tax Tips and Tricks: Tax Year End Planning for 2018

Overview

• Tax Reform Changes– Individual Changes

– Business Changes

– Pass-Through Deduction

• Choice of Entity Considerations


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Tax Reform Changes – Individual Changes

Individual Rates - sunset on 12/31/25

Rate Taxable Income

Single Married

10% $0 to $9,525 $0 to $19,050

12% $9,525 to $38,700 $19,051 to $77,400

22% $38,701 to $82,500 $77,401 to $165,000

24% $82,501 to $157,500 $165,001 to $315,000

32% $157,500 to $200,000 $315,001 to $400,000

35% $200,001 to $500,000 $400,001 to $600,000

37% $500,001 or more $600,001 or more

Changed the inflation index for the brackets


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Standard Deduction/Exemption

Itemized Deductions


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Itemized Deductions – Miscellaneous

Itemized Deductions - SALT


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Itemized Deductions - Mortgage

Education Credits

• Modified 529 plan usages to allow for use for K-12

• Louisiana opted to create a new K-12 529 plan. • With the exception of 2018, funds from college 529 plan

cannot be transferred or used for K-12 529 plan.


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Estate Exemption and Annual Gift Exclusion

• Estate and Gift Tax Exemption for 2018: $11.2 Million per person

• Gift Tax Annual Exclusion for 2018: $15,000

Tax Reform Changes – Business Changes


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Corporate Tax Rates

Corporate Net Operating Losses


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Business Expensing/Bonus Depreciation

179 Business Expensing


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Interest Expense

Meals and Entertainment DeductionTreatment Under Old Law Treatment Under New Law

Employee-Related Expenses

Expenses for meals during employee travel 50% 50%

Expenses for food and beverages for employees furnished on the business premises

100%50%

Expenses for recreational, social, or similar activities for the benefit of employees

100% 100%

Expenses directly related to business meetings of his employees, stockholders, agents, or directors

Facility: 100%F&B: 50%

Facility: 100%F&B: 50%

Client Lunches/Dinners

Business Lunches (i.e., business lunch meetings with clients during the workday) 50%

50%; retain detailed itemized billing

Networking events/cocktail parties with clients/referrals50%

50%; retain detailed itemized billing

Entertainment Expenses

Expenses for entertainment without any food/beverage component

50% 0%

Expenses for entertainment with food and beverage component

Entertainment: 50%F&B: 50%

Entertainment: 0%F&B: 50%; retain detailed

itemized billing

Expenses related to tickets for any sports event which is organized for the primary purpose of benefiting certain charities

100% 0%

Other Expenses

Expenses for goods, services, and facilities made available to the general public

100% 100%


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Meals and Entertainment Deduction -Examples

Pass-through – Business Income


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Pass-through Income - Expires 12/31/25

199A Deduction Calculation

STEP 1

Calculate the Deduction Amount

STEP 2

Apply W-2 Wage/Property Limitation to calculate the “Tentative Deduction”

STEP 3

Total each Tentative Deduction to get “Potential QBI”

STEP 4

Apply overall limitation.


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What is QBI: Trade or Business Requirements

Requirements

Must have profit motive

Must be engaged in regularly and

continually

What is QBI? Statute says…


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What is QBI: Trade or Business Requirements

Pass-through Income – Limitations


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Specified Service Trade or Businesses

If your taxable income is less than $315,000 (MFJ)/ $157,500 (All Others)

SSTB income QBI.

If your taxable income is more than $415,000 (MFJ)/ $207,500 (All Others)

SSTB income QBI

If your taxable income is betweenA portion of SSTB income QBI

Specified Service Trade or Businesses


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Specified Service Trade or Businesses -Required Aggregation

Non‐SSTB

80% property or services SSTBRequired

aggregation

50% Common

Ownership

50% Common

Ownership

A non-SSTB that provides 80% or more of its property or services to a SSTB is deemed to be an SSTB (and therefore aggregated with the SSTB) when there is 50% or more common ownership with the SSTB.


Non‐SSTB

Less than 5% gross

Shares expenses SSTBRequired

aggregation

50% Common

Ownership

50% Common

Ownership


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Gross receipts ≤ $25 million and SSTB activity <10% of gross receipts

Gross receipts > $25 million and SSTB activity < 5% of gross receipts


SSTBSSTB

SSTBSSTB

Pass-through Income – Limitations


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Wages/Property Limitation

If your taxable income is less than $315,000 (MFJ)/ $157,500 (All Others)

No limitation

If your taxable income is more than $415,000 (MFJ)/ $207,500 (All Others)

Limitation applies

If your taxable income is between Partial Limitation

Aggregation of Multiple Trades or Businesses


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Aggregation of Multiple Trades or Businesses

Permissive Aggregation

50%+ same person/group ownership

All items attributable to each aggregated trade or business are reported during the same taxable year

No SSTBs

The trade or business meet two of the following

Provide products/ services that are the

same/ offered together

Share facilities/ significant

centralized business elements

Operated in coordination with

one+ of the businesses in the aggregated group

Pass-through Income – Overall Limitation


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Treatment of Losses

($100) QBI

$200 QBI

$200 QBI

Treatment of Losses

($300) QBI

$200 QBI


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Planning for 199A Deduction

Planning for 199A Deduction


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Choice of Entity Considerations

What does all this mean to the classification of my entity?


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When to use a C corp?

Rate Differences

C corporation

Active pass-through Passive pass-through

with 20% deduction

Without 20% deduction

With 20% deduction

Without 20% deduction

Tax rate on undistributed income

21% 29.6% 37% 33.4% 40.8%

All-in rate 39.8% 29.6% 37% 33.4% 40.8%


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C corp v. Pass-through

C corp/Personal Service Corp Pass-through

Income from Trade or Business

$300,000 $300,000

Entity Level Tax $63,000 $0

After Tax Cash Available for Distribution

$237,000 $300,000

Individual Income Tax $23,970 $48,463*

Net Investment Tax $0 $0

Self-Employment Tax $0 $25,071

Total Tax $86,970 $73,534

*assumes taxpayer receives full 20% deduction – tax rate of 19.2%

C corp v. Pass-through (assume non-service business)

C corporation Pass-through


$600,000 $600,000



$474,000 $600,000


Net Investment Tax $8,512 $0


Total Tax $194,032 $165,574

*assumes taxpayer receives full 20% deduction and active – marginal tax rate of 29.6%


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C corp v. Pass-through (assume service business)

C corp/Personal ServiceCorp

Passthrough


$600,000 $600,000



$474,000 $600,000


Net Investment Tax $8,512 $0


Total Tax $194,032 $185,014

*assumes no 20% deduction since over the threshold and service business

When to use a S corporation vs. Partnership/LLC?


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Entity Choice – Below Threshold

Schedule C/SoleProprietorship

S Corp Owned 100%

Partnership –99%/1%

Qualified Business Income 200,000 120,000 120,000

Guaranteed Payment from LLC 0 80,000

Share of W-2 Wages N/A 80,000

Qualified Property 100,000 100,000 100,000

Taxable income on 1040 200,000 200,000 200,000

Initial Deduction 40,000 24,000 24,000

50% Wages N/A N/A N/A

25% Wages/2.5% Property N/A N/A N/A

Tentative Deduction 40,000 24,000 24,000

Entity Choice – Above Threshold

Schedule C/SoleProprietorship

S Corp Owned 100%

Partnership –99%/1%

Qualified Business Income 500,000 375,000 375,000

Guaranteed Payment from LLC 0 125,000

Share of W-2 Wages N/A 125,000

Qualified Property 100,000 100,000 100,000

Taxable income on 1040 500,000 500,000 500,000

Initial Deduction 100,000 75,000 75,000

50% Wages N/A 62,500 0

25% Wages/2.5% Property 2,500 33,750 2,500

Tentative Deduction 2,500 62,500 2,500


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Case Studies

Case Study #1 – New Business Owner


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Case Study #1 – New Business Owner (continued)

Case Study #2 – Specified Service Business Owners


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Case Study #2 – Specified Service Business Owners (continued)

Case Study #3 – Real Estate Rentals


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Case Study #4 – High Net Worth Individual

Conclusions


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Contact Us

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Greg Booth, CPAAssociate Tax Director(504) [email protected]

Stephen Blitz, CPATax Manager(504) [email protected]

A Professional Accounting Corporation

mt year end tax planning seminar 12.04.2018 year end tax... · 12/4/2018 · tax tips and tricks:...

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