Welcome
• Brian B. McCuller is the Tax Practice Leader for LBMC. Brian is an attorney and a CPA with over twenty years of experience in the state and local tax field. • He specializes in multi-state tax planning and controversy services. Brian has advised Fortune 500 companies, as well as middle-market companies with multi-state and multi-national operations. • Brian has represented clients on a variety of issues before state tax departments across the country. Brian is a frequent speaker and author on the topic of multi-state taxes. The industries Brian typically serves (615) 690-1971 bmcculler@lbmc.com include manufacturing, software and information technology, online retailers, hotel owners/operators, and retail consumer services.
Questions • Online Audience: email your questions to cpe@tscpa.com • TSCPA Brentwood: Write your questions on the question sheet provided at registration. Please write the question under the section title that it relates to.
Resources • LBMC Federal Tax Reform Resource Center https://www.lbmc.com/federal-tax-reform-resource-center • Four summaries – Overall, Individuals, Business, Employers • “Major Misconceptions About Tax Reform’s Impact on Individual Taxpayers” by Blake Harrison, Senior Manager, Wealth Advisors • “Federal Tax Reform Rolls into Tennessee, But Will it Stick? ” by Brian McCuller, Tax Practice Leader
Agenda • Individuals • 199A [20% Deduction for Qualified Business Income of Pass-Through Entities] • Estate and Gift • NOLs and Excess Business Losses • Depreciation and Interest Limitations • C-corp tax rates vs. Pass Through tax rates
Individuals • Blake Harrison is a Senior Manager with LBMC Tax Services. He has gained expansive experience in tax planning and compliance working with clients in Northeast Ohio, Washington, DC and New York City before settling in Nashville. • Blake practices in our Wealth Management Services team at LBMC where he serves the needs high net worth clients and their families. He specializes in investment entity taxation as well as individual, trust, and estate tax planning and compliance. He has worked with clients in various industries including investment managers, entrepreneurs, manufacturers, real estate professionals (615) 309-2620 and university professors. bharrison@lbmc.com
Tax Brackets, Rates, and Standard Deduction Amounts Prior Tax Law Rate New Tax Law Rate Under $9,325 Single 10% Under $9,525 Single 10% Under $18,650 MFJ Under $19,500 MFJ $9,325 - $37,950 Single 15% $9,525 - $38,700 Single 12% $18,650 - $75,900 MFJ $19,500 - $77,400 MFJ $37,950 - $91,900 Single 25% $38,700 - $82,500 Single 22% $75,900 - $153,100 MFJ $77,401 - $165,000 MFJ $91,900 - $191,650 Single 28% $82,500 - $157,500 Single 24% $153,100 - $233,350 MFJ $165,000 - $315,000 MFJ $191,650 - $416,700 Single 33% $157,500 - $200,000 Single 32% $233,350 - $416,700 MFJ $315,0000 - $400,000 MFJ $416,700 - $418,400 Single 35% $200,000 - $500,000 Single 35% $416,700 - $470,700 MFJ $400,000 - $600,000 MFJ Over $418,400 Single 39.6% Over $500,000 Single 37% Over $470,700 MFJ Over $600,000 MFJ Filing Status Prior Tax Law New Tax Law Single $6,350 $12,000 HOH $9,350 $18,000 MFJ $12,700 $24,000 Personal Exemption $4,050 per person None
Itemized Deductions Prior Tax Law New Tax Law State and Local Taxes Unlimited deduction of eligible state and Limited to annual deduction of $10,000 local sales, income and property taxes. ($5K for Single) Miscellaneous Deductible in excess of 2% of Adjusted Eliminated Itemized Deductions Gross Income Mortgage Interest Limited to interest on $1M of acquisition Limited for NEW mortgages to interest on debt and $100K of Home Equity Line. $750K of acquisition debt ($375K Single). Charitable Cash contributions deductible up to 50% Increase of limitation on cash contributions Contributions of AGI. now up to 60% of AGI. Payments in exchange Charitable deduction of 80% of the Not Deductible. for the rights to payment. purchase college athletics tickets PEASE Adjustment Limited overall itemized deductions by Eliminated – eligible itemized deductions 3% of AGI above a certain threshold are no longer limited by a function of AGI.
AMT for Individuals Prior Tax Law New Tax Law Minimum Tax Rate 26% up to$186,300 AMTI Same 28% AMTI > $186,300 Exemption $54,300 Single $70,300 Single $84,500 MFJ $109,400 MFJ Phase-Out Thresholds $120,700 Single $500,000 Single $150,900 MFJ $1,000,000 MFJ
Impact Of Individual Tax Changes Larry Example Steve Example Phil Example Old Law New Law Old Law New Law Old Law New Law Adjusted Gross Income 685,000 685,000 702,000 702,000 4,200,000 4,200,000 State and Local Taxes 57,000 10,000 9,900 9,900 300,000 10,000 Misc. 2% Itemized 190,000 - 2,000 - 400,000 - Charity, Interest, Other 5,700 5,700 26,000 26,000 947,000 947,000 PEASE Limitation (11,000) - (11,600) - (117,000) - Total Deductions 241,700 24,000 26,300 35,900 1,530,000 957,000 Taxable Income 443,300 661,000 675,700 666,100 2,670,000 3,243,000 Regular tax 61,500 120,000 203,000 177,000 799,000 964,000 AMT 69,000 - - - 20,000 - Other 16,500 16,500 5,700 5,700 197,000 218,000 Total Tax 147,000 136,500 208,700 182,700 1,016,000 1,182,000 Difference 10,500 26,000 (166,000) Tax Savings Tax Savings Tax Cost
Tax reform timeline House Ways and Means approves H.R.1 as amended. Congress agrees President Trump’s Senate Finance Committee on a budget releases “policy highlights” Inauguration paving path for outlining their tax reform tax reform goals. legislation January September October November November 20th 27th 26th 2nd 9th Trump “Tax Cuts and Jobs Act” administration (H.R.1) released by the releases “Unified House Ways and Means Framework Committee for Fixing Our Broken Tax Code”
Tax reform timeline cont’d House bill Passes Reconciliation Senate Finance process between Committee President Trump signs the the two bills approves new tax bill into law begins November November December December December 16 29 6 19 22 Senate bill passes House and Senate pass revised bill
199A [20% Deduction for Qualified Business Income of Pass-Through Entities] • Cindy Anderson is a Senior Manager in the LBMC Tax practice. She has extensive tax experience in individual, business, estate, trust, and inheritance returns. • Cindy is a member of the Wealth Management team at LBMC, where she works with closely-held businesses and their owners on a wide range of tax issues, as well as high wealth individuals and families to maximize their wealth building and protection strategies. • Cindy has been involved in tax, accounting and consulting engagements in various industries including real estate and construction, restaurant, wholesale distribution, service organizations, healthcare, retail businesses, and not-for profits. She (615) 690-1935 enjoys working closely with clients and their staff to take care of their canderson@lbmc.com needs, answer questions or provide software assistance.
Pass Through Entities – New Special 20% Deduction Pass-thru entities • Sole proprietorships (no entity, Schedule C). • Real estate investors (no entity, Schedule E). • Disregarded entities (single member LLCs). • Multi-member LLCs. • Any entity taxed as an S corporation. • Trusts and estates, REITs and qualified cooperatives.
Pass Through Entities – New Special 20% Deduction Section 199A – Broad Strokes • Individuals, trusts, and estates are eligible for a 20% deduction on certain income from pass through entities. • Cap on the amount eligible for the deduction based on W-2 wages, plus in some cases, the “unadjusted basis” of eligible property at specific income levels. • Modified taxable income limitation. • Special limitations apply to “specified service businesses”. • Below-the-line deduction to taxable income. • Effective top tax rate of 29.6% (37% x 80%)
Pass Through Entities – New Special 20% Deduction 199A Qualified Business Income pass-through deduction 20% of the taxpayer’s qualified business income (Before limitations)
Pass Through Entities – New Special 20% Deduction Section 199A – Qualified Business Income QBI – What it Is: Includes the profit from an active trade or business and including rental income as long as you are not operating as a c corporation QBI – What it Is NOT: • Reasonable compensation paid by the business • Guaranteed payments • Investment items, e.g. interest income, not properly allocable to the trade or business
Pass Through Entities – New Special 20% Deduction QBI calculation • Sam is a small business owner with a Schedule C who makes $100,000 from his business • Sam’s taxable income is $150,000 • Sam’s §199A deduction is 20% * $100,000 or $20,000 His §199A is not limited 100,000 x 20% = $20,000 .
Pass Through Entities – New Special 20% Deduction Income Limits 20% taxable income (excluding cap gains) $207.5k Single; $415k MFJ Limitation phased-in: 157.5K - 207.5K Single 315k - 415k MFJ .
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