Tax Changes and Planning for ‘17: A Look Ahead

Jennifer Allen Manager Tax Services

November 9, 2016 The webinar will begin at 1:30 p.m. CT.

Emily Keesling Supervising Associate Tax Services

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Meet the Speaker

Jennifer Allen CPA with extensive experience working with manufacturers, complex partnership structures and medical practices Emily Keesling CPA who works with individuals, businesses and trusts. Her practice includes manufacturing and vehicle dealerships.

Learning Objectives

• Understand major PATH Act provisions and their effects for business owners

• Know which deadline changes affect different tax filings

• Recognize scope of major tax changes for partnerships

• Preview possible taxation approach post-election

• Learn an overview of broad tax concepts to manage tax liability

Polling Question #1

INCREASED DE MINIMIS

Increased De Minimis

• $2,500 as of 1/1/15 • Best practice is written but not required • Impact on financials (must conform book vs

tax)

PATH ACT PROVISIONS

PATH Act Provisions

• Section 179 levels are permanent. • $500K expense up to $2M investment

• Bonus depreciation • 50% through 2017 (vehicle first-year bonus of

$8,000) • 40% - 2018 (vehicle first-year bonus of

$6,400) • 30% - 2019 then expired (vehicle first-year

bonus of $4,800)

• R&D credit is permanent.

Individual: Permanent vs. through 2016

• Permanent • Child tax credit permanent for kids under 17 • Earned income credit permanent • Refunds w/ child tax credit or EITC can’t be issued till 2/15 • $250 educator expenses permanent & adjusts for inflation • American Opportunity tax credit permanent • 529 plans allow for expenses of computers/software if for

primary use of school

• Through 2016 • Mortgage insurance premiums on Schedule A • Tuition & fees deduction • Cancellation of debt income on primary homes - $2M

married filing joint/$1M married filing separately

Business: permanent vs. temporary

• Permanent • S corp. built-in-gain tax recognition period is

now 5 years • Temporary

• Work Opportunity Credit extended through 2019 - veterans, felons, long-term unemployed (more than 27 weeks)

Polling Question #2

DEADLINE CHANGES

Due date changes

FORM WAS DUE NOW DUE

1065 April 15 March 15, ext. to Sept. 15

1120 March 15 April 15, ext. to Sept. 15 for 10 years, then Oct. 15

1041 April 15 Same but ext. to Sept. 30 vs. Sept. 15

990 Two 3-month extensions 1 6-month extension

5500 July 31 Extended to Nov. 15 vs. Oct. 15 FINCEN 114 June 30 April 15 with ext. to Oct. 15

1099s Feb. 28 Jan. 31

PARTNERSHIP CHANGES

Partnership changes

• Stemmed from the Bipartisan Budget Act of 2015 (enacted Nov 2, 2015) • Replaces TEFRA – Tax Equity and Fiscal

Responsibility Act of 1982 • Effective for returns filed for tax years

beginning after Dec 31, 2017 so update partnership agreements now

Partnership changes

• IRS will examine partnership for one year (the reviewed year), and any adjustments will take place at the entity level in the year the audit is completed (the adjustment year).

• Entity will pay the tax, interest, and penalties on underpayments. Tax is calculated using the highest statutory rates.

Partnership changes

• Election out – Partnerships with 100 or fewer qualifying partners (individuals, C corporations, foreign entities that would be treated as C corps if domestic, S corps, estates of deceased partners, or others if prescribed in Treasury secretary guidance) • Partnerships with other partnerships or trusts

as partners cannot elect out.

Partnership changes

• Designated partnership representative – • Can be a partner or non-partner with

substantial presence in the US. • Representative has broad authority to resolve

any partnership audit, and the resolution is binding on all partners.

Polling Question #3

POST-ELECTION PREVIEW

Core Tax Approach

Donald Trump Hillary Clinton

Cut taxes Tax the wealthy

Individual Tax: Trump

• Reduce marginal tax rates (0%, 12%, 25%, 33%). • Increase standard deduction by 4x. • Capital gains, dividends rates (0%, 15%, 20%) • Eliminates personal exemption and head of

household filing status • New child-care cost provisions • Repeal alternative minimum tax (AMT). • Repeal the 3.8% net investment income tax (NII). • Limit itemized deductions to $100,000 for single

filer ($200,000/joint return). • Repeal estate and gift tax.

Corporate Tax: Trump

• Corporate tax rate 15% • Repeal alternative minimum tax (AMT). • Deemed repatriation of cash

– one-time 10% tax • Eliminate most corporate tax

credits • Manufacturers – Either expense capital

investments or deduct interest paid • Enhance the employer-provided child-care

tax credit.

Other Initiatives: Trump

• Repeal Affordable Care Act. • Ordinary income treatment for carried

interests

Polling Question #4

TAX MINIMIZATION CONCEPTS

Tax Planning for Businesses

Plan timing of income and expenses where possible based on expectations of next year’s tax rates compared to current year.

• Defer income. • Accelerate deductions.

Defer Income

• Delay sending year-end invoices so payment is received in 2017.

Cash method

• Provide goods/services after Jan. 1, 2017, if possible. • Advance payments: Defer

performance (Rev. Procs. 2004-34 and 2011-18, Form 3115 required)

Accrual method

Accelerate Deductions: What can be spent by 12-31? Examples:

Equipment repair (review to ensure it is truly repair, not capitalizable under new repair regs)

Bonuses: • Pay before year-end. Cash

method • Have fixed and

determinable liability by year-end; pay within 2.5 months of year-end.

Accrual method

Accelerate Deductions: What can be spent by 12-31? Examples:

Section 179 $500,000 expensing reduced when property placed in service exceeds $2,000,000

Partial-asset dispositions

Review current-year additions for potential partial asset dispositions. E.g., If new roof added in 2016, could old roof (part of the asset “building”) be broken out and disposed? If new AC added in 2016, could old AC unit (perhaps part of “HVAC asset”) be broken out and disposed?

Accelerate Deductions: What can be spent by 12-31? Examples:

Accelerate deductions: What can be spent by 12-31? Examples:

De minimis safe harbor $2,500 ($5,000 if have an Applicable Financial Statement) Book and tax capitalization policy must conform. Capitalization policy in place on Jan. 1, 2016, for 2016 return

Safe harbor for repairs, maintenance or improvements to eligible buildings

Available to small businesses with avg. gross receipts of <$10M Available for buildings with unadjusted basis of <$1M

Accelerate deductions: What can be spent by 12-31? Examples:

Other considerations: Beware of triggering mid-quarter (MQ) convention by placing more than 40% of asset additions in service in last 3 months of year. Domestic Production Activities Deduction (DPAD): Accelerate salaries or bonuses attributable to taxpayer’s gross receipts (DPGR) into Q4 to increase deduction.

If DPAD limited to W-2 wages, will increase your deduction

IC-DISC: Accrue commission, but defer dividend payment.

What Should I Do Now?

1. Update your capitalization policy for higher limit, if desired.

2. Update partnership agreement with attorney for new Bipartisan Budget Act.

3. Discuss due date changes with advisory team & affected parties.

4. Review financial statements for deferring income & accelerating deductions before year-end.

Thank you! Questions?

Jennifer Allen Jennifer.Allen@aghlc.com 316.291.4087 https://www.linkedin.com/in/jenniferallencpa @AGHtax_Jennifer

Emily Keesling Emily.Keesling@aghlc.com 316.267.7231 https://www.linkedin.com/in/emilykeesling

For questions not related to the webinar’s content, contact: Mike.Ditch@aghlc.com