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2018 Tax Reform

Implications & Implementation of the Tax Cuts & Jobs Act (TCJA) February 8, 2018 wifi: Kraft Guest password: Kraft555

Jerry Moss, CPA, CVA Mark Patterson, CPA David Lister, CPA


Topics to be Covered • Corporations & Businesses • Pass-Through Entities • International • Individuals • Estates • Benefit Plans

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Corporations & Businesses


Corporate Tax Rate • Reduced to a flat 21% for years beginning after Dec. 31, 2017 • Under the prior law, the rates were progressive with the maximum tax rate at 35%

• Does not require a special rate for personal service corporations (PSCs) • No expiration • Dividends received deduction is reduced • 80%  65% • 70%  50%

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Corporate Alternative Minimum Tax (AMT) • Repealed for tax years beginning after Dec. 31, 2017 • Taxpayers can still use the prior year minimum tax credit to offset the taxpayer’s regular tax liability for any tax year • For tax years beginning after Dec. 31, 2017 and before Jan. 1, 2022 the prior years’ minimum tax credit is refundable up to 50% of regular tax liability • 100% beginning in 2021

• No expiration 5


Cash Method of Accounting • Prior Law • Corporations and partnerships with corporate partners prohibited from using cash method unless they had gross receipts < $5M for the prior three taxable years

• TCJA • Taxpayers with < $25M in average gross receipts for the prior three taxable years are permitted to use the cash method of accounting regardless of industry or entity structure • Effective for tax years beginning after Dec. 31, 2017 6


Accounting for Inventories • Prior Law • Businesses where production, purchase or sale of merchandise is a material income-producing factor must account for inventories and must use the accrual method of accounting • Taxpayers with average gross receipts < $10M may account for inventory as materials and supplies that are not incidental if they are not otherwise prohibited from using the cash method

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Accounting for Inventories • TCJA • Taxpayers with average gross receipts < $25M for the prior three taxable years are exempt from the requirement to account for inventories, regardless of entity structure or industry • Taxpayers may either treat inventories as materials and supplies that are not incidental or conform to the taxpayer’s financial accounting treatment

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Uniform Capitalization (UNICAP) • Prior Law • Applied to taxpayers with average gross receipts of > $10M • Several industry or item-specific exemptions

• TCJA • Applies to taxpayers with average gross receipts > $25M for the prior three taxable years • Industry-specific exemptions were retained • Effective for tax years beginning after Dec. 31, 2017

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Accounting for Long-Term Contracts • Prior Law • Small contractors (average gross receipts < $10M for the prior three years) were exempt from using percentageof-completion method of accounting for long-term contracts

• TCJA • Gross receipts requirement for prior three taxable years increased to $25M • Contractors that meet exemption can use completedcontract method (or any other permissible exempt contract method) • Effective for contracts entered into after Dec. 31, 2017 10


100% Expensing for Certain Business Assets • Applies to qualified property placed into service after Sept. 27, 2017 and before Jan. 1, 2023

• Used property now qualifies • Taxpayers can elect to use 50% limitation in lieu of 100% expensing for property placed in service during first tax year ending after Sept. 27, 2017 • Phases out between 2023 and 2026 with 20% decrease annually (80/60/40/20) 11


Section 179 Expensing • The TCJA increases Section 179 expensing for assets placed in service after Dec. 31, 2017 • $510,000  $1,000,000 (adjusted for inflation)

• Increase to the phase-out threshold • $2,030,000  $2,500,000 (adjusted for inflation)

• TN difference between Section 179 and 100% expensing options

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Depreciation Limitation for Luxury Automobiles • Increased depreciation limitations for passenger automobiles placed in service after Dec. 31, 2017: • • • • •

$10,000 in the 1st year, up from $3,160 $16,000 in the 2nd year, up from $5,100 $9,600 in the 3rd year, up from $3,050 $5,760 in the 4th year (and later), up from $1,875 Amounts indexed for inflation

• The TCJA removes computer or peripheral equipment from the definition of listed property 13


Depreciation for Non-Residential Real Property & Residential Rental Property • Provides a 15-year recovery for qualified improvement property (QIP) and Section 179 and bonus depreciation eligibility • QIP: An interior improvement (other than an elevator, enlargement or structural change) to nonresidential real property placed in service after the date the building was first placed in service • Eliminates the separate definitions of: • Qualified Leasehold Improvements • Qualified Restaurant Property • Qualified Retail Improvement Property

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Depreciation for Non-Residential Real Property & Residential Rental Property â&#x20AC;˘ Provides a 20-year alternative depreciation system (ADS) recovery period for all QIPs â&#x20AC;˘ Lowers the ADS recovery period to 30 years for residential rental property â&#x20AC;˘ Requires a real property trade or business electing out of the interest expense limitation to use ADS lives to depreciate its non-residential real, residential rental, and qualified improvement property 15


Self-Created Property • Prior Law • A self-created patent, invention, model or design, or secret formula or process was treated as a capital asset

• TCJA • Treats gain or loss from the disposition of the above as ordinary in character • Effective for disposition of such property after 2017 • The election to treat musical composition and copyright in musical works as a capital asset is retained 16


Amortization of Research & Experimental Expenditures • Prior Law • Allowed taxpayers to elect to: • Deduct current research or experimental expenditures paid or incurred in connection with a current or future trade or business, or • Treat as deferred expenses and amortize over a period of not less than 60 months

• TCJA • Requires specified research or experimental expenditures, including software development expenditures to be capitalized and amortized ratably over a five-year period (15 years if attributable to research conducted outside the U.S.) 17


Like-Kind Exchanges (LKEs) • Prior Law • Allowed LKEs if the property was exchanged for property of like-kind and: • The property was held for productive use in a trade or business, or • The property was held for investment purposes

• TCJA • Limits the non-recognition of gain to real property that is not held primarily for sale • Applies to exchanges completed after Dec. 31, 2017

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Limitation on Business Interest Expense Deduction • Prior Law • Interest has generally been allowed as a deduction in the year in which it was paid or accrued

• TCJA • Limits the deduction for net interest expenses incurred by a business to a sum of • Interest income • 30% of the business’s adjusted taxable income, and • Floor plan financing interest

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Limitation on Business Interest Expense Deduction • TCJA (continued) • Businesses with < $25M average annual gross receipts are exempt from limitation • Disallowed interest carried forward indefinitely • Real property trades or businesses can elect out of limitation but must use ADS lives for depreciation

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Deductions for Income Attributable to Domestic Production Activities • Applied to income derived from property that was manufactured, produced, grown or extracted within the U.S. • In prior years a deduction was allowed equal to 9% of the lesser of: • Taxpayer’s Qualified Production Activity Income (QPAI) • Taxpayer’s taxable income for the year

• Deduction repealed for all taxpayers for tax years beginning after Dec. 31, 2017 21


Net Operating Loss (NOL) Deduction • Prior Law • Carried back two years and forward 20 years • Could use NOL against 100% of other years’ income

• TCJA • Eliminates carryback period and can be carried forward indefinitely • Limits the NOL deduction to 80% of taxable income of other years • Applies to losses arising in tax years beginning after Dec. 31, 2017 22


Entertainment Expense • No deduction allowed for: • Entertainment, amusement, or recreation expenses • Membership dues for a club organized for business, pleasure, recreation, or other social purposes • Country clubs, golf and athletic clubs, airline clubs, hotel clubs, and dining clubs

• Facilities used in connection with any of the above

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Entertainment Expense Exceptions - IRC 274(e) • Recreational expenses for employees • Employee, stockholder & business meetings • Meetings of business leagues, chambers of commerce, boards of trade, etc. • Professional organizations • Bar associations, medical associations, etc.

• Civic clubs or public service organizations • Kiwanis, Lions, Rotary, Civitan, etc. 24


Business Meals Expense • 50% limit of food & beverage is generally retained • Meals on premises for convenience of employer • 50% limit applies 2018 – 2025 • Non-deductible after 2025

• Employer-operated eating facility • 50% limit applies 2018 – 2025 • Non-deductible after 2025

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Deductibility of Fines & Penalties • Prior Law • No deduction is allowed for fines or penalties paid to a government for the violation of any law

• TCJA • Denies a deduction for amounts paid in relation to the violation of a law or investigation into potential violation if a government is a complainant or investigator with respect to the violation or potential violation • Exception for restitution identified in a court order or settlement agreement as restitution, remediation, or required to come into compliance with any law • Effective for amount paid or incurred on or after 26 the date of enactment (Dec. 22, 2017)


Deduction for Settlements Subject to a Nondisclosure Agreement Paid in Connection with Sexual Harassment or Sexual Abuse • Prior Law • Taxpayers generally may deduct ordinary and necessary business expenses paid or incurred in carrying on any trade or business, with considerable exceptions

• TCJA • Disallows a deduction for any settlement, payout, or attorney fees related to sexual harassment or sexual abuse if the payments are subject to a nondisclosure agreement • Effective for amounts paid or incurred after the date of enactment (Dec. 22, 2017) 27


Employer Credit for Paid Family & Medical Leave â&#x20AC;˘ Prior Law â&#x20AC;˘ Taxpayers generally may deduct ordinary and necessary business expenses paid or incurred in carrying on any trade or business, with considerable exceptions

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Employer Credit for Paid Family & Medical Leave • TCJA • Eligible employers can claim a business credit for 12.5% of the wages paid to qualifying employees while the employees are on family or medical leave • Employers must allow all qualifying full-time employees at least two weeks annual paid leave and part-time employees a commensurate pro rata amount of time • Payment rate must be 50% of normal wages • Credit is increased by 0.25% (not to exceed 25%) for each percentage point by which the payment rate exceeds 50%

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Pass-Through Entities


General Business

Specified Service Trade or Business

Wage & property limitation fully applies

No deduction allowed

$415,000 MFJ/$207,500 for others

Deduction phase-out

Wage & property limitation phase-in

$315,000 MFJ/$157,500 for others

No wage or property limitation exists

No wage or property limitation exists

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Pass-Through Tax Treatment • Prior Law • Sole proprietorships, partnerships, limited liability companies and S Corporations were subject to tax at the individual owner or shareholder level rather than the entity level • Income was reported on the individual tax returns of the owners and subject to ordinary income tax rates of up to 39.6%

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Pass-Through Tax Treatment • TCJA • Taxpayers who have domestic “qualified business income” (QBI) from a pass-through entity are entitled to a 20% deduction • Effective for tax years beginning after 2017 and before 2026

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Pass-Through Tax Treatment • TCJA (continued) • The deduction: • Reduces taxable income, not adjusted gross income (AGI) • Do not have to itemize, can take standard deduction

• Cannot exceed the taxpayer’s taxable income for the year reduced by net capital gain • Does not reduce self-employment income • Reduces both regular tax and alternative minimum tax

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Pass-Through Tax Treatment • TCJA (continued) • Income qualifying for this deduction includes: • QBI of proprietors, partners (including LLC members) and S corporation shareholders • Qualified REIT dividends (other than capital gain dividends), • Qualified cooperative dividends • Income from a publicly traded partnership that is not treated as a corporation

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Pass-Through Tax Treatment • TCJA (continued) • QBI does not include: • Any amount paid by an S corporation that is treated as “reasonable compensation” paid to the taxpayer claiming the 20% deduction • Any amount that is a guaranteed payment for services by a partner actually rendered to or on behalf of a partnership • To the extent provided in regulations, any amount allocated or distributed by a partnership to a partner who is acting other than in his or her capacity as a partner for services

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Pass-Through Tax Treatment • TCJA (continued) • The deduction for pass-through income is limited to the lesser of: • 20% of QBI (or loss) of each qualified trade or business • The greater of: • 50% of the W-2 wages paid with respect to the qualified trade or business • The sum of 25% of the W-2 wages with respect to the qualified trade or business plus 2.5% of the unadjusted basis, immediately after acquisition, of all qualified property

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Pass-Through Tax Treatment • TCJA (continued) • Specified service trades or business (SSTB) income generally does not qualify for 20% deduction • SSTB means any trade or business activity involving the performance of services in the fields of health, law, accounting, actuarial science, performing arts, consulting, athletics, financial services, brokerage services or any trade or business where the principal asset of the trade or business is the reputation or skill of one or more of its employees or owners • Owners of a SSTB may qualify for 20% deduction if their taxable income is $315,000 (MFJ) / $157,500 (all others) or less • There is a phase-out of the deduction for taxable income between $315,000 and $415,000 (MFJ) / $157,500 and $207,500 (all others) 38


Pass-Through Tax Treatment • Questions remain. What about… • Rental real estate? • Not considered to be a trade or business in other sections of the IRC • 2.5% of property limitation added in Conference Committee to cover real estate

• • • •

Tiered entities? Current grouping elections? Similar businesses – Are they automatically grouped? Management companies if they are an integral part of trade or business?

• What to do? • Wait for guidance!

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Limitation on Losses • Prior Law • Losses limited to amounts at risk and subject to passive activity loss rules • Other than the above limitations, no limit on deducting losses

• TCJA • Limits the excess business loss for the year • Excess business loss for the year is the excess of aggregate deductions of the taxpayer attributable to trades or businesses of the taxpayer, over the sum of aggregate gross income or gain from trades or businesses plus a threshold amount 40


Limitation on Losses • TCJA (continued) • Threshold amount is $500,000 (MFJ) / $250,000 (all other taxpayers) • Limitation applies at the partner or S corporation shareholder level • Effective for tax years beginning after Dec. 31, 2017 and before Jan. 1, 2026 • Limits losses from trades or businesses that can offset wages or other sources of income • Amount above threshold is added to NOL in future years (subject to 80% utilization limitation) 41


International


100% Deduction for ForeignSourced Portion of Dividends • Prior Law • U.S. citizens, resident individuals and U.S. corporations are subject to tax on worldwide income • U.S. shareholders of foreign corporations are generally not taxed on the income earned by the foreign corporation until the income is distributed as a dividend to the U.S. shareholders • Taxpayers allowed foreign tax credit or deduction for foreign taxes paid on the income out of which the dividend is paid 43


100% Deduction for ForeignSourced Portion of Dividends • TCJA • 100% dividend deduction for foreign-sourced portion of dividends received from “specified 10% owned foreign corps” by U.S. corporate shareholders • Subject to a one-year holding period • No foreign tax credit with respect to qualified dividends • No deduction for foreign taxes paid on qualified dividends

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Repatriation • TCJA • Mandatory tax on post-1986 accumulated foreign earnings • Held in cash or cash equivalents - 15.5% • Held in illiquid assets - 8% • Resulting liability can be paid over an eight-year period

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Individuals


Tax Rates • Prior Law • There are seven regular individual income tax brackets of 10%, 15%, 25%, 28%, 33%, 35%, and 39.6%

• TCJA • There are seven regular individual income tax brackets: 10%, 12%, 22%, 24%, 32%, 35%, and 37% • These brackets apply to tax years beginning after Dec. 31, 2017 and before Jan. 1, 2026

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Tax Brackets

Married Filing Jointly & Surviving Spouse Pre-Reform

Post-Reform

• 10% (Taxable income not over $18,650)

• 10% (Taxable income not over $19,050)

• 15% (Over $18,650 but not over $75,900)

• 12% (Over $19,050 but not over $77,400)

• 25% (Over $75,900 but not over $153,100)

• 22% (Over $77,400 but not over $165,000)

• 28% (Over $153,100 but not over $233,350)

• 24% (Over $165,000 but not over $315,000)

• 33% (Over $233,350 but not over $416,700)

• 32% (Over $315,000 but not over $400,000)

• 35% (Over $416,700 but not over 470,700)

• 35% (Over $400,000 but not over 600,000)

• 39.6% (over $470,700)

• 37% (over $600,000)

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Tax Brackets

Married Filing Separately Pre-Reform

Post-Reform

• 10% (Taxable income not over $9,325)

• 10% (Taxable income not over $9,525)

• 15% (Over $9,325 but not over $37,950)

• 12% (Over $9,525 but not over $38,700)

• 25% (Over $37,950 but not over $76,550)

• 22% (Over $38,700 but not over $82,500)

• 28% (Over $76,550 but not over $116,675)

• 24% (Over $82,500 but not over $157,500)

• 33% (Over $116,675 but not over $208,350)

• 32% (Over $157,500 but not over $200,000)

• 35% (Over $208,350 but not over $235,350)

• 35% (Over $200,000 but not over $300,000)

• 39.6% (over $235,350)

• 37% (Over $300,000)

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Tax Brackets

Head of Household Pre-Reform

Post-Reform

• 10% (Taxable income not over $13,350)

• 10% (Taxable income not over $13,600)

• 15% (Over $13,350 but not over $50,800)

• 12% (Over $13,600 but not over $51,800)

• 25% (Over $50,800 but not over $131,200)

• 22% (Over $51,800 but not over $82,500)

• 28% (Over $131,200 but not over $212,500)

• 24% (Over $82,500 but not over $157,500)

• 33% (Over $212,500 but not over $416,700)

• 32% (Over $157,500 but not over $200,000)

• 35% (Over $416,700 but not over $444,550)

• 35% (Over $200,000 but not over $500,000)

• 39.6% (over $444,550)

• 37% (Over $500,000)

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Tax Brackets Single

Pre-Reform

Post-Reform

• 10% (Taxable income not over $9,325)

• 10% (Taxable income not over $9,525)

• 15% (Over $9,325 but not over $37,950)

• 12% (Over $9,525 but not over $38,700)

• 25% (Over $37,950 but not over $91,900)

• 22% (Over $38,700 but not over $82,500)

• 28% (Over $91,900 but not over $191,650)

• 24% (Over $82,500 but not over $157,500)

• 33% (Over $ 191,650 but not over $416,700)

• 32% (Over $157,500 but not over $200,000)

• 35% (Over $416,700 but not over $418,400)

• 35% (Over $200,000 but not over $500,000)

• 39.6% (over $418,400)

• 37% (Over $500,000)

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Tax Brackets

Trusts and Estates Pre-Reform

Post-Reform

• 15% (Taxable income not over $2,550)

• 10% (Taxable income not over $2,550)

• 25% (Over $2,550 but not over $6,000)

• 24% (Over $2,550 but not over $9,150)

• 28% (Over $6,000 but not over $9,150)

• 35% (Over $9,150 but not over $12,500)

• 33% (Over $ 9,150 but not over $12,500)

• 37% (Over $12,500)

• 39.6% (over $12,500)

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“Kiddie Tax” Rates • Prior Law • Earned income taxed at single individual rates • Unearned income taxed at parents’ rates

• TCJA • Earned income still taxed at individual rates • Unearned income now taxed at trust tax rates as summarized on previous slide

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Tax Rates & Brackets Capital Gains Tax Rates Married Filing Jointly and Surviving Spouses: • 15% Rate Threshold - $77,200

• 20% Rate Threshold - $479,000

Heads of Household: • 15% Rate Threshold - $51,700 • 20% Rate Threshold - $452,400

Married Filing Separately:

Other Individuals:

• 15% Rate Threshold - $38,600

• 15% Rate Threshold - $38,600

• 20% Rate Threshold - $239,500

• 20% Rate Threshold - $425,800

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Carried Interest – Capital Gain • Partnership interests received in connection with the performance of services

• Prior Law • One-year holding period for long-term capital gain treatment

• TCJA • Three-year holding period for long-term capital gain treatment

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Personal Exemptions • Prior Law • For 2017, taxpayers could deduct $4,050 for each personal exemption (subject to phase-outs)

• TCJA • Suspends the deduction for personal exemptions for tax years beginning after Dec. 31, 2017 and before Jan. 1, 2026

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Standard Deduction • The TCJA increases the standard deduction: • $24,000 (married filing jointly or surviving spouse) • $12,700 in 2017

• $18,000 (unmarried individual with at least one qualifying child) • $9,350 in 2017 for head of household

• $12,000 (single filers) • $6,350 in 2017

• The TCJA retains the enhanced standard deduction for the blind and elderly that is available under current law • Will also be indexed for inflation

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Miscellaneous Itemized Deductions 2% Floor

• Prior Law • Taxpayers could deduct certain expenses as miscellaneous itemized deductions such as unreimbursed employee expenses, tax preparation fees and investment fees • Amount over 2% of AGI was deductible

• TCJA • All miscellaneous itemized deductions that are subject to the 2% floor are suspended for tax years beginning after Dec. 31, 2017 and before Jan. 1, 2026

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Mortgage Interest Deduction • Prior Law • Itemized deduction for mortgage interest paid with respect to principal residence and one other residence • $1M of acquisition indebtedness • $100,000 of home equity indebtedness

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Mortgage Interest Deduction • TCJA • Limits mortgage interest deduction to interest on $750,000 of acquisition indebtedness for debt incurred after Dec. 15, 2017 • $1M limitation will remain for older debt • Not limited just to taxpayer’s principal residence • Limitation reverts back to $1M for tax years beginning after Dec. 31, 2025

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Home Equity Indebtedness • TCJA • Mortgage interest deduction for interest on home equity indebtedness suspended for tax years beginning after Dec. 31, 2017 and before Jan. 1, 2026 • The date the home equity loan was incurred matters not • A second mortgage used to substantially improve a qualified residence is considered home acquisition indebtedness with deductible interest subject to the new $750,000 debt cap

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State & Local Tax Deduction • Prior Law • Itemized deduction allowed for all state and local income (or sales) and property taxes paid without limitation

• TCJA • $10,000 limitation for tax years beginning after Dec. 31, 2017 and before Jan. 1, 2026

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Charitable Contributions • Increases the AGI limitation on cash contributions from 50% to 60%, effective for contributions made in tax years beginning after Dec. 31, 2017 and before Jan. 1, 2026 • Repeals the current 80% deduction for contributions made for university athletic seating rights, effective for contributions made in tax years beginning after Dec. 31, 2017 • Also repeals the exception to the contemporaneous written acknowledgement requirement for contributions of $250 or more when the organization files the required return, effective for contributions made in tax years beginning after Dec. 31, 2016 63


Personal Casualty Loss Itemized Deduction • Prior Law • Covered losses arising from fire, storm, shipwreck or other casualty, or theft

• TCJA • Applies only to losses incurred as a result of federallydeclared disasters • Applies to losses arising in tax years beginning after Dec. 31, 2017 and before Jan. 1, 2026

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Medical Expense Deduction • Prior Law • Floor of 10% of AGI for most taxpayers

• Reduced to 7.5% of AGI for taxpayers over 65 years of age

• TCJA • Floor of 7.5% of AGI for all taxpayers

• Eliminates the minimum tax preference • Effective for tax years beginning after Dec. 31, 2017 and before Jan. 1, 2019

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Limitation on Itemized Deductions • Prior Law • Amount of otherwise allowable itemized deductions is limited for certain upper-income taxpayers

• TCJA • Suspends the overall limitation on itemized deductions for tax years beginning after Dec. 31, 2017 and before Jan. 1, 2026

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Alternative Minimum Tax (AMT) • AMT exemption amounts are increased: • $109,400 for married taxpayers filing jointly or for surviving spouses • $70,300 for single taxpayers • $54,700 for married taxpayers filing separately

• Phase-out of exemption amounts are increased: • $1,000,000 for married taxpayers filing jointly or for surviving spouses • $500,000 for single taxpayers and married taxpayers filing separately

• Effective for years beginnings after Dec. 31, 2017 67 and before Jan. 1, 2026


Alimony Payment Deduction • Prior Law • Alimony payments were generally allowed as above-theline deductions for the payor • Were included as income of the payee • Could be excluded from income and non-deductible if designated as such in the divorce decree or separation agreement

• TCJA • Eliminates the above-the-line deduction • Does not require the taxpayer receiving alimony to include as income • Effective for divorce decrees, separation agreements and certain modifications entered into after 2018

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Child Tax Credit • Prior Law • $1,000 credit for each qualifying child under the age of 17 • Phase-out thresholds of $75,000 (single) / $110,000 (MFJ) • Portion could be refundable

• TCJA • Credit now $2,000 • Provides a $500 non-refundable credit for dependents other than qualifying children • Increases phase-out thresholds to $200,000 (single) / $400,000 (MFJ) • Effective for tax years beginning after Dec. 31, 2017 69 and before Jan. 1, 2026


Moving Expenses Deduction • Prior Law • Taxpayers could claim deductions for moving expenses incurred in connection with starting a new job, regardless of whether or not the taxpayer itemizes his deductions • Subject to certain time and distance requirements

• TCJA • Suspends the deduction for moving expenses for tax years beginning after Dec. 31, 2017 and before Jan. 1, 2026 • Generally still deductible for active duty service members that are required to move for a permanent change of station 70


Education Savings • Prior Law • Did not allow elementary and secondary school expenses to be paid under a qualified tuition program, only qualified higher education expenses

• TCJA • Elementary and secondary school expenses up to $10,000/year are now qualified • The provision applies to distributions made after Dec. 31, 2017

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Discharge of Certain Student Loan Indebtedness • Prior Law • Debt that is forgiven constitutes gross income of the debtor, even if the debt is forgiven on the account of death or disability

• TCJA • Excludes from taxable income, income resulting from the discharge of certain student debt on account of the death or total and permanent disability of the student • Effective for loans discharged after Dec. 31, 2017

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Exclusion for Qualified Moving Expense Reimbursements • Prior Law • Qualified moving expense reimbursements provided by an employer to an employee are excluded from the employee’s income

• TCJA • Suspends the exclusion for tax years beginning after Dec. 31, 2017 and before Jan. 1, 2026 • The exclusion is available for active duty members of the Armed Forces who move pursuant to a military order and incident to a permanent change of station 73


ACA Individual Mandate • Prior Law • Individuals are responsible for obtaining healthcare coverage on a monthly basis that meets the requirement for minimum essential coverage • A tax penalty applies unless the individuals purchase insurance or are exempt from the penalty

• TCJA • Reduces the amount of the individual shared responsibility payment enacted as part of the Affordable Care Act to zero • Applies to months beginning after Dec. 31, 2018 74


Estates, Gifts & Trusts


Estate & Gift Taxes • Prior Law • For decedents dying and gifts made before 2018, the federal estate and gift tax unified credit exclusion amount is set at $5M adjusted for inflation ($5.49M for decedents dying and gifts made in 2017)

• TCJA • Increases the federal estate and gift tax unified credit basic exclusion amount to $10M adjusted for inflation (expected to be $11.2M in 2018) • Effective for decedents dying and gifts made after 2017 and before 2026 76


Generation-Skipping Transfer Tax â&#x20AC;˘ The TCJA increases the federal GenerationSkipping Transfer (GST) exemption amount to $10M adjusted for inflation to match the estate and gift tax exclusions (expected to be $11.2M in 2018) â&#x20AC;˘ Effective for generation-skipping transfers made after 2017 and before 2026

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Compensation & Benefits


Recharacterization of Certain IRA & Roth IRA Contributions • Taxpayers can no longer use re-characterization as a way to unwind a Roth conversion

• Other re-characterizations still allowed: • Example: Contribution to a Traditional IRA as a contribution to a Roth IRA (and vice versa)

• Deadline for re-characterization is still generally October 15

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Rollovers of Plan Loan Offsets • An employee who has taken a plan loan has until the due date of the employee’s tax return (including extension) to contribute the loan balance to an IRA to avoid the amount being treated as a taxable distribution • Previously, the deadline was 60 days

• Applies to employees whose plan terminates or who experiences a severance of employment while having a plan loan outstanding 80


Qualified Equity Grants • New Section 83(i) provides tax benefits to employees of certain start-up companies • Employees may make a special election with respect to qualified stock transferred to them

• Income taxation can be deferred by the employee until the earlier of • Five years • The occurrence of a specified event (i.e., the stock being readily tradable on an established securities market)

• Written plan that 80% of the employees of the company are granted stock options or restricted stock units (RSUs) with the same rights and privileges 81 • Certain notice requirements apply


Questions?


Contact Us • Jerry Moss, CPA, CVA Member-in-Charge, Tax Services 615-782-4279 jmoss@kraftcpas.com • Mark Patterson, CPA Member, Tax Services 615-346-2488 mpatterson@kraftcpas.com • David Lister, CPA Member, Tax Services 615-346-2492 dlister@kraftcpas.com

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