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A g e n d a Business Provisions Individual Provisions Other - PDF document

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The Aerospace & Defense Forum San Fernando Valley Chapter February 20, 2018 T a x R e f o r m : W h a t A & D C o m p a n i e s N e e d t o K n o w J o s h u a Y e a r g i n , C P A P a r t n e r J o s h u a . Y e a r g i n @ C

  1. The Aerospace & Defense Forum San Fernando Valley Chapter February 20, 2018 T a x R e f o r m : W h a t A & D C o m p a n i e s N e e d t o K n o w J o s h u a Y e a r g i n , C P A P a r t n e r J o s h u a . Y e a r g i n @ C o h n R e z n i c k . c o m ( 3 1 0 ) 6 2 2 - 4 3 3 1 A g e n d a • Business Provisions • Individual Provisions • Other Provisions February 22, 2018 1 1

  2. The Aerospace & Defense Forum San Fernando Valley Chapter February 20, 2018 B u s i n e s s P r o v i s i o n s Tax Cuts and Jobs Act Prior Law Corporate Rate Flat 21% rate Maximum 35% rate Corporate AMT Eliminated 20% rate Pass-Through Income is passed through but up to 20% Income is passed through to deduction for “qualified business the owners and taxed at the Entities owned by Individuals income” individual level Section 179 Limitation of $1 million and phase out at Limitation of $500,000 and Limitation $2.5 million phase out at $2 million Cost Recovery 100% expensing for new and used 50% bonus depreciation of property placed in service Sept. 27, 2017 qualified property placed in and Jan. 1, 2023. Five-year phase down service before Jan. 1, 2020 starts in 2023 Excess Business Aggerate business losses in excess of No limitation on use of losses $500k (married filing joint) are disallowed Loss Limitation from offsetting other income. Excess losses are carried forward. 2 February 22, 2018 B u s i n e s s P r o v i s i o n s ( c o n t ’ d ) Tax Cuts and Jobs Act Prior Law Business Interest Limited to the sum of business interest Deductible with no limitation plus 30% of adjusted taxable income Expense Carryback is repealed Carried back 2 years and Net Operating • Losses • Indefinite carryforward carried forward 20 years Limited to 80% of income for losses • beginning after Dec. 31, 2017 Domestic Repeal Section 199 for DPAD Deduction up to 9% of Production qualified income R&D / R&E Starting in 2022, “Specified R&E Either currently deduct R&E expenses” must be capitalized and expenses or capitalize and amortized over 5 years (15 years outside amortize over the useful life of the US) for amounts paid or incurred the research after Dec. 31, 2021 Cash Method of Cash method of accounting allowed for Cash method of accounting Accounting C corporations and companies with disallowed for C Corporations inventory with up to $25 million in gross and companies with receipts inventory (except for small businesses) February 22, 2018 3 2

  3. The Aerospace & Defense Forum San Fernando Valley Chapter February 20, 2018 D e d u c t i o n f o r P a s s - T h r o u g h B u s i n e s s e s • 20% Deduction - Non-corporate owners of pass-through businesses are allowed a 20% deduction of qualified business income (QBI) with respect to a qualified trade or business in the United States • Excluded Income - Investment income (such as interest, dividends, and capital gains) and Specified Service Trades or Businesses (SSTB) are excluded from QBI and generally not eligible for the 20% deduction • Limitation - The 20% deduction is limited to the greater of 50% of business’s W-2 wages or 25% of business’s W-2 wages plus 2.5% of qualified property. Also limited to overall QBI and taxable income. • Threshold - The SSTB limitation and W-2 wages limitation do not apply to individuals whose taxable income does not exceed $315,000 (MFJ). 4 February 22, 2018 B u s i n e s s I n t e r e s t E x p e n s e L i m i t a t i o n • Limitation (2018 – 2021) - Net business interest expense deduction is limited to 30% of Adjusted Taxable Income (Taxable income with add backs for interest, taxes, depreciation and amortization (EBITDA)). • Limitation (2022 – Forward) - Net business interest expense deduction is limited to 30% of Adjusted Taxable Income that does not take into account depreciation and amortization addback when calculating 30% limitation (EBIT). • Carryforward – Disallowed interest expense is carried forward indefinitely • Exception - Interest expense limitations do not apply to taxpayers under $25 million gross receipts. February 22, 2018 5 3

  4. The Aerospace & Defense Forum San Fernando Valley Chapter February 20, 2018 N e t O p e r a t i n g L o s s / E x c e s s B u s i n e s s L o s s • NOL carryback – NOL carryback is repealed and NOL can be carried forward indefinitely • Limitation - NOL usage will be limited to 80% of taxable income • Net Excess business losses – Business losses of a non-corporate taxpayer are not allowed for the taxable year in excess of $500K (MFJ). • Such losses are carried forward and treated as part of a taxpayer’s NOL carryforward in subsequent taxable years 6 February 22, 2018 C a s h M e t h o d o f A c c o u n t i n g O p p o r t u n i t i e s • Cash Method - Taxpayers with less than $25 million in gross receipts will be able to use the cash method of accounting. • Regardless of type of entity (C Corp, S Corp, LLC, etc) or whether inventory is a material income producing factor. • UNICAP – Taxpayers under $25 million gross receipts are also exempt from the UNICAP rules of IRC Section 263A. • Inventories - Taxpayers under $25 million gross receipts are exempt from accounting for inventories under IRC section 471. Instead, inventory can be treated as non-incidental supplies, including related overhead and labor. • A Change in Accounting Method – A Form 3115 would be required to change to Cash method of Accounting. February 22, 2018 7 4

  5. The Aerospace & Defense Forum San Fernando Valley Chapter February 20, 2018 I n d i v i d u a l P r o v i s i o n s Tax Cuts and Jobs Act Prior Law Individual Rates Seven rate brackets (10%, 12%, Seven rate brackets (10%, 15%, 25%, 22%, 24%, 32%, 35%, and 37%) 28%, 33%, 35%, and 39.6%) LTCG / QDI Rates Maximum 20% rate (unchanged) Maximum 20% rate Standard $12,000 – Single $6,500 – Single Deduction $24,000 – Married Filing Jointly $13,000 – Married Filing Jointly Personal Eliminated $4,050 per person Exemption Itemized No overall limitation Phase out begins at $320,000 for joint Deduction filers and $266,700 for single filers State/Local Tax State and local sales, income, No cap for state/local tax and property tax deduction deductions Deduction capped at $10,000 Net Investment 3.8% of net investment income if 3.8% of net investment income if Income Tax MAGI is above $250,000 (MFJ) MAGI is above $250,000 (MFJ) (unchanged) ACA Individual Eliminate mandate payment Greater of 2.5% of a household’s AGI Mandate beginning after Dec. 31, 2018 or a maximum flat penalty of $2,085 8 February 22, 2018 O t h e r P r o v i s i o n s • Estate and gift tax - The exemption doubles from $5 million to $10 million for transfers between 2018 -2025. • Entertainment expenses – No deduction is allowed for entertainment expenses, including membership dues for clubs. • Meal Expenses – Business meals are generally still 50% limited. Meals provided as a de minimis fringe (formerly 100% deductible) are 50% deductible until 2025, then non-deductible thereafter. • Transportation Fringe Benefits – No deduction is allowed for expenses associated with transportation fringe benefits for employees. February 22, 2018 9 5

  6. The Aerospace & Defense Forum San Fernando Valley Chapter February 20, 2018 Q u e s t i o n s 10 February 22, 2018 6

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