PowerPoint PresentationDan Fales Shareholder
Tony Schweier Shareholder
Philip Hurak Shareholder
• Be aware of the cash method of accounting opportunities and
use it to maximize QBI deduction.
• You must reinvest capital gains into Opportunity Zone property
by December 31, 2019, to maximize OZ benefits, but lesser
benefit still available until 2026.
• Tax extenders are more uncertain than ever; several expired or
expiring tax provisions widely used may be eliminated in 2020
• We now have safe harbor rules on real estate operations that
qualify as a trade or business for QBI purposes, so make sure
you are aware of the safe harbor provisions.
• Start thinking about your 2020 planning. In one year, we will
have the results of the presidential election, so start planning
your alternatives now.
• QBID/199A Deduction
• 199A deduction can reduce a pass-through owner’s maximum individual effective tax rate from 37% to 29.6%.
• Does your business qualify OR can you isolate eligible activities to benefit from the deduction?
• 163(j) Interest Expense Deduction Limits
• New calculation must be considered annually for businesses that pay or accrue interest on business-related debts.
• Consider how this may impact current/future business financing and contemplate alternatives if limited.
• Bonus Depreciation
• Bonus depreciation allowances increased from 50% to 100% for qualified property acquired and placed in service after
September 27, 2017, and before 2023.
• Interplay with 163(j) – consider a comparison of the cost of the forgone depreciation relative to the marginal benefit for the
additional interest expense that would otherwise be allowed.
Updates on key areas
• Parking Lot Limitations
• More valuable than ever due to permanency, repeal
of corporate AMT and NOL limitations.
• Consider option of immediately deducting R&E
expenditures vs. tax credit for R&D activities prior to
December 31, 2021.
• Capital Gains and Losses
TEMPORARY TAX DEFERRAL
• Capital gains from the sale of assets to an unrelated person can
be deferred until December 31, 2026, or the sale of the new
investment (or other inclusion event), whichever is earlier
STEP-UP IN BASIS
• After a five-year hold, the investor is able to exclude 10% of the
original capital gain
• After a seven-year hold, the investor is able to exclude an
additional 5% to 15% total
PERMANENT GAIN ELIMINATION
• After a ten-year hold of the interest in the QOF, investors can
elect to permanently exclude any gain attributable to
appreciation in the QOF value
OHIO TAX CREDIT
• A nonrefundable tax credit equal to 10% of the taxpayer’s
investment in the fund that the fund invested in the preceding
calendar year. The total credit allowed to any applicant is $1
million per fiscal biennium.
Opportunity Zones
• To obtain the QOZ tax benefits, the capital gain must be invested in a QOF within a 180-day period
• The 180-day period begins at different times depending on the origination of the capital gain
o Capital asset (Code Section 1221)
• Installment sales
o Pass-through entity
Tax Deferral Timeline
• Credit for Construction of New Energy Efficient Homes (section 45L)
• Energy Efficient Commercial Buildings Deduction (section 179D)
• 3 Year Depreciation for Race Horses 2 Years or Younger [section
168(e)(3)(A)(i)]
168(e)(3)(C)(ii)]
• Special Rule for Production Period for Beer, Wine and Distilled Spirits
[section 263A(f)(4)]
• Credit for Health Insurance Costs of Eligible Individuals (section 35)
• New Markets Tax Credit (section 45D)
• Employer Credit for Paid Family and Medical Leave (section 45S)
• Work Opportunity Tax Credit (section 51)
Expired and
Expiring Tax
• S-Corp built-in gain
there are now 59 initiatives
IRS & Regulation Updates
July 19, 2019
or business for 199A purposes.
State and Local Tax Update
Wayfair – 18 Months Out
• Wayfair was decided by the U.S. Supreme Court in June 2018; since that time, nearly all states
have responded, imposing a formal “economic nexus” law change
• Additionally, four states have responded legislatively with an economic nexus test for income tax
(PA, HI, MA, TX – pending)
State and Local Tax Update
Wayfair To Dos and Considerations
• Tax information sharing at state level between taxes is growing (i.e., income tax, sales tax,
payroll tax). Companies should evaluate current filings vs. results of a multi-state “nexus
study” under the “economic nexus” approach.
• Specific to sales/use tax—if your company has no physical presence but meets the threshold
requirements of $100,000 or 200 transactions (or other state requirements), consider
registering and begin collecting sales tax as soon as your system allows.
• Evaluate potential “retroactive risk” as states are increasingly showing a willingness to test
their constitutional authority—California recently announced plans to retroactively go back to
2012 to collect past due tax under “economic nexus.”
• Beware of the historical protection positions under PL 86-272 for state income tax.
• Action at the local level, by both large and small cities, is coming next.
State and Local Tax Update
Ohio Legislative Update
• After a delay into late July, Ohio passed its biennial budget for FY2020-2021
• Highlights include:
• New Opportunity Zone tax credit equal to 10% of an individuals investment in a qualified Ohio
Opportunity Zone investment fund (details to follow)
• New TechCred program providing business with up to $30K of cash grant funding for technology
related training (details to follow)
• Retention of the Ohio Business Income tax deduction at current level of $250K and 3% special rate
for income above
• Reduction of individual income tax rates by 4% across the board
• Adopted “Wayfair” standards for SUT - $100,000 sales/200 transactions
• Expansion of Ohio Job Retention Tax Credit program (details to follow)
State and Local Tax Update
Ohio Credits & Incentives Update
• Ohio Opportunity Zone Tax Credit
• A nonrefundable 10% tax credit of total qualified Opportunity Zone investments in Ohio (all
investment must be done in Ohio to qualify)
• Up to $1 million in credit per individual (total cap of $50 million in credits)
• Applications open during January following the year of investment, first application to open
January 1, 2020
• InvestOhio Program
• A nonrefundable 10% investment tax credit against the personal income tax (PIT) for an
eligible investor who makes a qualifying investment in a small business entity (SBE) that
incurs eligible costs within six months of the investment
• Requirement of assets less than $50 million or annual sales of $10 million or less to qualify
• Eligible expenditures for new equity include building, M&E, new employees
State and Local Tax Update
Ohio Credits & Incentives Update
• Expansion of Ohio Job Retention Tax Credit
• A manufacturing company, no employment requirement and spend requirement of (i) $50
million, or (ii) 5% of the net book value of all tangible property used at the site as of the
last day of the three-year period in which capital investment payments are made.
• If service or HQ, must be located in a foreign trade zone, employ at least 500 full-time
equivalent employees, or have an annual payroll of at least $35 million; and invest $25
million in the aggregate for the capital investment project at the site during a period of
three consecutive calendar years.
• TechCred Program – A cash grant program of up to $30,000 per employer for technology-related
training for employees that receive a technology “credential.” First application cycle closed
October 31, expect a new round to open in early 2020.
State and Local Tax Update
Ohio Credits & Incentives Update
• InvestOhio Program – A nonrefundable 10% investment tax credit against the personal
income tax (PIT) for an eligible investor that makes a qualifying investment in a small
business entity (SBE) that, within six months of the investment, incurs eligible costs
• Requirement of assets less than $50 million or annual sales of $10 million or less
to qualify
• Eligible expenditures for new equity include building, M&E, new employees
State and Local Tax Update
SALT Deduction Cap Update
• In late October, the U.S. Senate rejected a Democratic effort to overturn the IRS
regulations that “blocked” state workarounds to the SALT deduction cap.
• High-tax states have complained that the SALT deduction cap unfairly punishes
their residents
• However, remember that for corporate and flow-through entities that are taxed
at the entity level, there is no SALT deduction cap and these amounts are still
fully deductible
you’ll see
• Potential presidential change in 2020?
• If Republican – how will rising debt be addressed,
what about infrastructure?
• Recent – potential Bloomberg entry into race
Tax Planning: Looking Forward
presidential candidates’ current
But, what’s wealthy?
Tax Planning: Looking Forward
for a 2% tax on net worth above
$50 million, increasing to 6% tax
for net worth above $1 billion.
• Sen. Sanders’ Wealth Tax calls
for a 1% tax on net worth above
$32 million, going to 8% above
$10 billion.
dividends and cap gain rates with
ordinary income.
and capital gains income
• Sen. Sanders – unlimited tax base for FICA
• Sen. Warren – an additional 14.8% payroll tax on wages above $250,000 and on families with net investment income above $400,000
• Sen. Warren – corporations will pay their health insurance to the government
Tax Planning: Looking Forward
marked to market each year
• Sen. Warren to tax companies based on book
income aka “The Real Corporate Profits” tax
• Sen. Sanders’ proposal to tax all carried
interests as ordinary income
• Sen. Warren – eliminate accelerated
financial transactions tax
2020+ Capital Agenda
• Federal tax rates at decades low – with potential to increase
• State taxes at all-time high and growing – businesses paid nearly $800 billion in 2018 in
total state and local tax
• Business models shifting requiring new investment, locations and technologies
• Macroeconomic uncertainty
• Hard capital – Building/M&E
• Technology capital – Investments in technology
• End-of-year planning is the time to share 2020+ capital agenda plan with advisors to help
minimize total tax exposure at federal, state and local levels
• Summary
session