Transcript of The Tax Cuts and Jobs Act Impact on C Corps, S Corps and ...
Slide 1September 13, 2018
Charles J. Garrison, CPA Joseph M. Press, CPA
The Tax Cuts and Jobs Act Impact on C Corps, S Corps
and Individuals
• Tax Rates • Deductions and “Pay-Fors” • Miscellaneous • Qualified
Business Income (QBI) Deduction
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2017 2018 34% Taxable Income <$10MM 21% 35% Taxable Income
>$10MM 21%
Tax Rates
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$2.0MM Qualified assets placed in service $2.5MM $500M Allowable
§179 depreciation $1.0MM
Deductions – the good news
Allowable §179 depreciation expense is reduced by the amount of
assets purchased over the limit of $2.5MM.
Expensing of real property also has been expanded.
100 bonus depreciation now available for qualified property placed
in service after September 27, 2017 and before 2023.
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Deductions – the good news
Vehicle (Luxury Auto) Depreciation
2017 2018 $1,475 First year expensing $5,760 $2,560 First year
total depreciation $10,000 $4,100 Second year total depreciation
$16,000
Pickups and large SUVs are still not subject to the luxury auto
limits as long as the GVW exceeds 6,000 lbs.
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Deductions – the good news
2017 2018 $5.0MM $25.0MM
•Allows for indefinite deferral of income tax on excess of
receivables over payables.
•Gross receipts still not limited for S Corporations.
•IRS to provide automatic consent.
Average Gross Receipts Limitation
Cash Basis of Accounting
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Meals & Entertainment, Employee Expenses Changes
2017 2018 50% Tickets to events - 50% Business entertainment (Golf)
- 80% Contributions to colleges (seating) - 100% Employee
transportation/parking - 100% Employee moving expenses - 100%
Employer provided meals 50%
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Meals & Entertainment, Employee Expenses – No Change
• Employee travel meals 50% • Other travel expenses 50% • Business
meals 50% • Meals during entertainment 50% • Employee entertainment
(Christmas party) 100% • Employee service awards 100% • Business
gifts 100% • Association dues 100%*
* Subject to lobbying exclusion
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Carryforward to subsequent years’ income
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Miscellaneous Items
• Alternative Minimum Tax repealed under the TCJA • AMT credit
carryforwards can still be used
• AMT for other than corporations NOT repealed
• State and Local Tax (SALT) deduction not limited for other than
individuals
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• Effort to equalize rates between C corporations and pass-through
entities
• Provides the potential to deduct up to 20 percent of QBI from S
corporations and trusts as well as
other entities
• Possibly the most complex part of the legislation at both the
pass-through and individual level
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• Domestic Income: Earned in the U.S. or Puerto Rico
• QBI: Income from qualified trade or business except excluded
items
• Taxable income threshold: $157,000 single, $315,000 MFJ
• Specified Service Trade or Business: not QBI
• Taxable income full phase-out: $207,000 single, $415,000
MFJ
• Reduced Deduction: Wage limitation and non-QBI income will
determine the amount of the deduction, if any
• Deduction limited to 20% of QBI
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• Accounting, Law, Consulting, Actuarial Science
• Health Care, Performing Arts, Athletics
• Investment Management, Brokerage, Securities Dealer
• Financial Services – DOES NOT INCLUDE BANKING
• Investment Management – The performance of services that consist
of investing and investment management would include a
trade or business that receives either a commission, a flat fee, or
an investment management fee calculated as a percentage of
assets
under management.
De Minimis Rule
If gross receipts are <$25MM and SSBT income is <10% of gross
receipts
If gross receipts are >$25MM and SSBT income is <5% of gross
receipts
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Reporting
• While the Company must report necessary items to the
shareholder/partner, the calculation is made on the individual
level
• Items that will likely need to be reported: • Interest,
dividends, short and long-term capital gain/loss • Investment
income • W-2 wages • Qualified property
• Will require substantial revision to the Form K-1
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Individual Tax Impact
• Tax Rates • Standard Deduction and Exemptions • State and Local
Tax (SALT) Deduction • Mortgage Interest Deduction • Itemized
Deductions • Alternative Minimum Tax
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Then-
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Now
The difference between death and taxes is death doesn’t get worse
every time Congress meets.
Will Rogers
E
Expiring for tax years beginning after December 31, 2025
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The Tax Policy Center estimates the increase in the standard
deduction coupled with the elimination of the personal exemption
deduction will shrink the number of households itemizing their
deductions from about 37 million in 2017 to about 16 million in
2018.
This one change simplifies tax filing for millions.
Standard Deduction and Exemptions
• Aggregate deduction now limited to $10,000 per year.
• Includes income/sales taxes, and real and personal property
taxes.
• Does not include taxes incurred in a taxpayer’s trade or
business.
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High
• 4 states have sued IRS/US Treasury
• Some states allowed collection of 2018 property and income taxes
in 2017
• States are legislating schemes to convert taxes into deductible
charitable contributions.
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Prior Law-Qualified residence interest is deductible.
Qualified residence interest is acquisition indebtedness with
respect to any qualified residence or home equity
indebtedness.
Qualified residence is the principal residence of the taxpayer and
one other residence.
Aggregate limit for married couples of $1,000,000 plus $100,000 of
home equity indebtedness.
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Home equity indebtedness is any indebtedness (other than
acquisition indebtedness) secured by a qualified residence.
Acquisition indebtedness means it was incurred in acquiring,
constructing or substantially improving a qualified residence
Acquisition indebtedness can include refinanced debt up to the debt
prior to refinancing.
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• New limit of $750,000 of acquisition indebtedness.
• No deduction if not acquisition indebtedness.
• Acquisition indebtedness incurred before December 15, 2017
continues to enjoy the old $1,000,000
limit.
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Medical and Dental Expenses • No change - 7.5% AGI threshold
through 2018, then 10%.
Contributions • New, higher limitation on aggregate
deductible
donations, now 60% AGI vs old 50% AGI. • Eliminate charitable
deduction for payments made in
exchange for college athletic event seating rights.
Personal Casualty and Theft Losses • Now only deductible if the
loss is attributable to a
disaster declared by the President.
Other Comments on Itemized Deductions
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All Miscellaneous Itemized Deductions Subject to the Two-Percent
AGI Floor are repealed. Non-exhaustive list includes:
Other Comments on Itemized Deductions
Investment fees Union Dues Tax Preparation Fees Job Education Dues
to Professional Societies Home office expense
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Alternative Minimum Tax
Alternative Minimum Tax (AMT) • first passed in 1969 in response to
study that showed 155
uber-wealthy taxpayers filed returns that showed a $0 tax
liability.
Because the AMT calculation was not indexed for inflation and
because of changes in the tax code since then (mainly lower regular
tax rates), now millions of taxpayers are paying AMT.
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Nationally, 4,464,000 taxpayers paid $31,014,000,000 in AMT.
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Alternative Minimum Tax
The Tax Cuts and Jobs Act dramatically increased the AMT Exemption
and Exemption Phaseout Thresholds.
The Tax Policy Center estimates these changes will decrease the
number of taxpayers paying AMT by 96% in 2018.
Like so many other of the Act’s tax provisions for individuals,
this will sunset after 2025.
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Questions?
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LEGAL NOTICES AND TERMS
Community Bankers Association of Oklahoma2018 Annual
ConventionSeptember 13, 2018
Corporation and S-Corporation Tax Changes
Tax Rates
Slide Number 14
De Minimis Rule
Slide Number 35
Slide Number 36
Slide Number 37
Slide Number 38
Slide Number 39
Slide Number 40