2019 B&V Insights June 4, 2019 The Briar Club
Tax Cuts & Jobs Act Updates Presented By Jason Sanders, CPA Briggs & Veselka Co. Tax Shareholder & Department Chair
3 Parking Fringe Benefits • Tax Cut & Jobs Act Amended Code §274 (for-profit) & §512 (non-profit) Provides that no deduction is allowed for the expense of any qualified transportation fringe benefit (QTF) as provided by the taxpayers to their employees. QTFs are defined as transportation in a commuter highway vehicle, any transit pass, and qualified parking . • Qualified Parking--provided to an employee on or near the business premises of the employer or on or near a location from which the employee commutes to work. • QTF can be excluded from employee gross income up to $260/mo. for 2018. • What counts as employee parking expense? Based on Employer Cost; not the FMV of the benefit to employee
4 Parking Fringe Benefits • Excludes Depreciation Amounts paid for items outside of the parking facility • Includes Rent or lease payments Insurance Property Taxes Utilities Repairs & Maintenance, cleaning, removal of snow/leaves/trash Parking lot attendant/security expenses.
IRS Safe Harbor for Calculating 5 Cost of Employer-Paid Qualified Parking (Notice 2018-99) Step 1: Calculate Non-deductible cost for reserved employee spots Until 3/31/19, employers can eliminate these retroactive to 1/1/18 Step 2: Determine primary use of remaining spots If more than 50% available to public, don’t include those costs in calculation If less than 50% available to public, go to Step 3 Step 3: Calculate any reserved nonemployee spots Determine % of such spots vs. the remaining total # of spots Step 4: Determine remaining use and allocable expenses Allocate expenses based on reasonable determination of employee usage of parking during typical business day
6 New Meals & Entertainment Summary Non- 50% 80% 100% Description Deductible Deductible Deductible Deductible X Meals with client X Meals with coworkers X Office Meals X Employer-Provided Snacks and Other Food Products X Subject to Department of Transportation (DOT) "hours limits" Meals while traveling X X Celebratory meals: X Holiday Parties X Birthday and Anniversary Celebrations X Company Picnics X Entertainment: X Sporting events, country clubs, golf and athletic clubs X Hunting, fishing, vacation, similar trips X Membership dues/fees Sponsorship events X FMV of Entertainment (green fees) X FMV of Meals (lunch/drinks) X Remainder Sponsorship (hole sponsorship)
7 Disallowance of Business Interest Deduction • Sec. 163(j) disallows a deduction for business interest for any year to the extent that net business interest expense exceeds the sum of a taxpayer's business interest income, 30% of adjusted taxable income, plus floor plan financing interest. • Business interest expense that is disallowed for a tax year is treated as paid or accrued in the succeeding tax year and may be carried forward indefinitely.
8 Disallowance of Business Interest Deduction • An entity (other than a tax shelter that cannot use the cash method of accounting under Sec. 448(a)(3)) that meets the gross-receipts test of Sec. 448(c) is exempt from the Sec. 163(j) interest limitation. An entity meets the gross-receipts test if its average annual gross receipts for the previous three tax years does not exceed $25 million. • Real property trades or businesses or farming businesses may elect to be exempt from the business interest expense limitation. An electing real property trade or business must use the alternative depreciation system (ADS) for all nonresidential real property, residential rental property, and qualified improvement property, so the property is not eligible for the special allowance for certain property (bonus depreciation).
9 Disallowance of Business Interest Deduction – Syndicates It is important to note that the exemption to the limitation on business interest under Sec. 163(j) does not apply to a tax shelter prohibited from using the cash-receipts-and- disbursements method of accounting under Sec. 448(a)(3). The term “ tax shelter ” includes any syndicate .
10 Disallowance of Business Interest Deduction – Syndicates Syndicates defined: • A syndicate is defined by Sec. 1256(e)(3)(B) as any partnership or other entity (other than a corporation that is not an S corporation) if more than 35% of the losses of the entity during the tax year are allocable to limited partners or limited entrepreneurs . “ Limited entrepreneur " is provided in Sec. 461(k)(4) as a person who has an interest in an enterprise other than as a limited partner and who does not actively participate in the management of that enterprise (e.g. passive LLC members and S Corporation shareholders).
11 Qualified Improvement Property (QIP) • Qualified improvement property (QIP) is an improvement to an interior portion of a building that is nonresidential real property placed in service after the date the building was first placed in service. • QIP does not include the enlargement of the building or improvements to any elevator, escalator, or the internal structural framework of the building. • It appears that QIP acquired and placed in service after 2017 should be depreciated as nonresidential real property. Depreciation as nonresidential real property would require QIP to be depreciated over a 39-year recovery period, and it would not be eligible for bonus depreciation.
12 Qualified Improvement Property (QIP) • Although the TCJA Conference Report described a 15- year recovery period, QIP was not included as 15- year property. As a result, a technical correction will be needed to provide the 15-year recovery period for QIP and for QIP to be included as qualified property under the bonus depreciation rules. • QIP is eligible for Section 179 expensing subject to phase- out limitations.
13 Cash Method of Accounting • The gross receipts test is satisfied for a tax year if a taxpayer's average annual gross receipts for the prior three tax years do not exceed $25 million. • A taxpayer that meets the gross receipts test may use the cash method regardless of whether the purchase, production, or sale of merchandise is an income-producing factor. • A taxpayer not in existence for the entire three-year period applies the test on the basis of the period during which it, or its trade or business, was in existence.
14 Cash Method of Accounting • Gross receipts for a tax year of less than 12 months (e.g., due to a change in accounting period, or for an initial year) are annualized by multiplying the gross receipts for the short period by 12 and dividing the result by the number of months in the short period. • The $25 million amount is adjusted for inflation for tax years beginning after 2018. For tax years beginning during 2019, the gross receipts test is met if the average annual gross receipts do not exceed $26 million.
15 Long-Term Contracts • The gross receipts test is satisfied for a tax year if a taxpayer's average annual gross receipts for the prior three tax years do not exceed $25 million. • Small construction contracts may use a completed- contract method, the exempt-contract percentage-of- completion method, or any other permissible method. A "small construction contract" is expected to be completed within the two-year period beginning on the contract commencement date. • Applied on a “cut - off” method – only applicable for new contracts.
16 Questions
17 Data Protection in a Dangerous Cyber Environment Sheryl Falk Ryan Shinkle Bill Penczak L. Renée Lowe Jeff Eckert Briggs & Veselka Co. Winston & Strawn Insgroup, Inc. Pathway Forensics Harris County LLP Health System
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20 Data Protection in a Dangerous Cyber Environment Sheryl Falk Ryan Shinkle Bill Penczak L. Renée Lowe Jeff Eckert Briggs & Veselka Co. Winston & Strawn Insgroup, Inc. Pathway Forensics Harris County LLP Health System
Houston Economic Outlook Prepared by Josh Pherigo Manager, Research
Payroll Employment 12-Month Running Totals 140 120 100 80 Jobs (000s) 60 40 20 0 -20 '14 Apr Jul Oct '15 Apr Jul Oct '16 Apr Jul Oct '17 Apr Jul Oct '18 Apr July Oct '19 Source: Texas Workforce Commission 22
Houston Job Growth, 000s 117.5 116.7 90.0 82.9 73.3 54.2 50.5 -2.5 -2.4 -110.5 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 Source: U.S. Bureau Labor Statistics 23
Houston Purchasing Managers Index 70 2/13, 64.2 3/19, 64.0 65 60 55 50 45 40 35 30 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 Source: Institute for Supply Management - Houston
What’s driving Houston’s Economy? 25
Energy The ene e energy gy busin iness ess is is pr profit itabl able e ag agai ain. n. 26
Average response = $52.01 27
West Texas Intermediate Crude Spot Price, Weekly Average 120 110 100 April 2019, 61.59 90 $ Per Barrel 80 70 60 50 40 30 20 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18 Jan-19 Source: U.S Energy Information Administration
Financial Performance in Q3/16 Lost st Money Ea Earned ned a Profit 29
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