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Current Tax Developments Kevin McCollum and Bill Butler
Current Tax Developments
Kevin McCollum and Bill Butler
Today’s Discussion Topics
• Healthcare
• Due Date Changes
• 2016 & 2017 Tax updates/Planning ideas
• Valuation Changes
• Partnership IRS Exam Changes
• Retirement Enhancement and Savings Act – RESA
• Trump Proposed Tax Plan
ACA – Play or Pay Mandate
• Full Implementation of the Employer Mandate• Also known as the Play or Pay (POP)
• Requires Applicable Large Employer (ALE) to offer health coverage to full-time employees (50 full-time equivalents)
• Plan must be affordable/meet minimum value standards
• Penalty for no coverage or unaffordable coverage
(shared responsibility payment)
2016 – Summary of Changes
• Reporting Requirements:• Copies of Form 1095-B and/or 1095-C by January 31,2017
• Copies to IRS by February 28,2017 – if filed manually
March 31, 2017 – if filed electronically
ACA – Other Notes
• Go into effect for the 2016 Tax Year (2017 Filing Season)
• Partnerships (Form 1065)• Current Law
• Original Due Date – April 15
• Extended Due Date – September 15
• New Law
• Original Due Date – March 15
• Extended Due Date – September 15
Due Date Changes
• C-Corporations (Form 1120)• Current Law
• Original Due Date – March 15• Extended Due Date – September 15
• New Law• Before January 1, 2026
• Original Due Date – April 15• Extended Due Date – September 15
• After December 31, 2025• Original Due Date - April 15• Extended Due date – October 15
Due Date Changes
• FinCEN – Report 114 (FBAR)• Current Law
• Original Due Date – June 30
• Extended Due Date – None allowed
• New Law
• Original Due Date – April 15
• Extended Due Date – October 15
• Form 8938
Due Date Changes
• Exempt Organizations – (Form 990)• Current Law
• Original Due Date – May 15
• 1st Extended Due Date – August 15
• 2nd Extended Due Date – November 15
• New Law
• Original Due Date – May 15
• Extended Due Date – November 15
Due Date Changes
• Trust and Estate – (Form 1041)• Current Law
• Original Due Date – April 15
• Extended Due Date – September 15
• New Law
• Original Due Date – April 15
• Extended Due Date – September 30
Due Date Changes
• S-Corporations – No change
• Individuals – No change
• Foreign Trust with a U.S. Owner Form 3520-A – No change
• Information Returns (i.e. W-2s and 1099s) – File with IRS by 01/31/17
Due Date Changes
2016 and 2017 Rates, Limits and Phase-outs
Federal Estate Tax
2016 2017
Exemption $ 5,450,000.00 $ 5,490,000.00
Top Tax Rate 40% 40%
2016 and 2017 Rates, Limits and Phase-outs
Gift Tax Provisions
2016 2017
14,000.00$ 14,000.00$
Repealed Repealed
Federal
Tennessee
2016 and 2017 Rates, Limits and Phase-outs
401(k) and 403(b) Limits
2016 and 2017 Rates, Limits and Phase-outs
401(k) and 403(b) Limits
2016 2017
Contribution Limit $ 18,00.00 $ 18,000.00
Catch-Up Contribution $ 6,000.00 $ 6,000.00
2015 and 2016 Rates, Limits and Phase-outs
Defined Contribution Limits
2016 2017
53,500.00$ 54,000.00$
265,000.00$ 270,000.00$
Maximum Contribution
Maximum Compensation
2015 and 2016 Rates, Limits and Phase-outs
IRA Limits
2016 2017
5,500.00$ 5,500.00$
1,000.00$ 1,000.00$
Contributions
Catch-Up
• 2016: Estimate of Brackets and Rates
Year-End Tax Planning - Individuals
Individual
Rate Single Filers Married Joint Filers Head of Household Filers
10% $0 to $9,275 $0 to $18,550 $0 to $13,250
15% $9,275 to $37,650 $18,550 to $75,300 $13,250 to $50,400
25% $37,650 to $91,150 $75,300 to $151,900 $50,400 to $130,150
28% $91,150 to $190,150 $151,900 to $231,450 $130,150 to $210,800
33% $190,150 to $413,350 $231,450 to $413,350 $210,800 to $413,350
35% $413,350 to $415,050 $413,350 to $466,950 $413,350 to $441,000
39.60% $415,050+ $466,950+ $441,000+
• Dividend and Capital Gains Rates Unchanged
Year-End Tax Planning - Individuals
• Permanent Tax Extenders• Deduction for State and Local General Sales Tax in lieu of a deduction for
State and Local Income Taxes• Child Tax Credit• American Opportunity Tax Credit • Charitable Distribution from IRA
• Two-Year Extenders• Exclusion of discharge of qualified principal residence indebtedness income from
gross income• Mortgage Insurance Premiums• Above-the-line deduction for qualified tuition and related expenses
Year-End Tax Planning - Individuals
• Last-Minute Planning Tips• Pre-pay deductible expenses before December 31st
• Harvest capital losses
• Maximize out retirement savings
• Gift appreciated stock
Year-End Tax Planning - Individuals
• Permanent Tax Extenders - Depreciation• 15-year straight line cost recovery for qualified leasehold, restaurant, and
retail improvements
• Section 179 – increased amounts• $500k expensing limit
• $2mil phase-out (approximate)
• Expanded definition to included qualified real property
• Eliminated $250k cap to qualified real property
• Indexes amounts for inflation beginning in 2016
• Air conditioning and heating units placed in services after 2015 are eligible
Year-End Tax Planning – Businesses
• Permanent Tax Extenders• Exclude 100% of gain on certain small business stock
• Built-in-gain period on S Corp conversion is 5 years
• R&D credit for qualified research expenses
Year-End Tax Planning – Businesses
• Five Year Extenders• Work Opportunity Credit
• Bonus depreciation equal to 50% of basis of qualifying property thru 2017
• 40% in 2018
• 30% in 2019
Year-End Tax Planning – Businesses
• Review Entity Structure
• You could be operating as a C Corporation when an LLC or S Corporation is a better choice
• Retirement Plans
• Review State Filings/Exposure
• Communicate with Your CPA
• Ensure that you’re taking advantage of all deductions
Year-End Tax Planning – Small Businesses
Entity Selection
Summary
• Passed as part of the November 2015 budget agreement.
• Replaces TEFRA and rules for electing large partnership.
• Exam changes made at the partnership level.
• Tax collected from the partnership.
Electing Out
• Only if individuals, estates of deceased partner, or S or C Corps.
• No more than 100 K-1s.
Partnership IRS Audit Rules
Timing
• Effective in tax years beginning in 2018
• Partnerships may elect to adopt the rules for any years beginning after November 2, 2015
• Partnerships that have received notices
• IRS timeline
Partnership IRS Audit Rules
• Consistency requirement• Inconsistent items automatic change
• Statement
• Adjustments at Partnership Level• 270-day notice
• Payment in the year finalized
• Payment by Partners
• Standard 3-year statute
Partnership IRS Exam Rules – How it works
Speculation
• New Regulations were proposed on August 2, 2016
• Still in comment period
• December 1st public hearing
IRC 2704 Proposed Regulations
What they say (in English):• If a family unit can change the terms of the governing agreement of any
entity then;
• The family has control of the entity and;
• Any restrictions on liquidation or redemption of a fractional ownership interest in the family entity are necessarily a device concocted to manufacture valuation discounts.
IRC 2704 Proposed Regulations
IRS does not like the use of valuation discounts• Minimum value
• IRS language tried to negate workarounds
Changing the landscape• Shift to selling of appreciated assets
• Charitable strategies may be used
• Life insurance
IRC 2704 Proposed Regulations
Will they stand?
If they come to fruition?• Talk to your advisor
• Possible workarounds
• Trump
IRC 2704 Proposed Regulations
1. Creation of Pooled Employer Plans• Unrelated employers enter in to new MEP.
• ERISA would treat as single plan.
2. Encourage Lifetime Income Options• Lifetime Income Disclosures
• Fiduciary Safe Harbor for Selection
• Portability
Retirement Enhancement and Savings Act (RESA)
3. Changes Affecting Plan Distributions• Post Death Required Minimum Distribution Rules
• Extend rollover contributions to 60 days
• Substantial Modifications of Hardship Withdrawal Rules
• New Limits on Plan Loans made thru credit cards
4. Changes Affecting Nondiscrimination Rules and Safe Harbor Plans• Nondiscrimination relief for a closed class of participants
• Removal of Limit on Automatic Enrollment Safe Harbor Default Rate
• Nonelective 401(k) Safe Harbor Changes
RESA - Continued
5. Changes Affecting IRS• Repeal of Maximum Age for Traditional IRA Contributions
• Stipend Payments Treated as Compensation
• IRA Ownership of S Corp Banks
6. Other Provisions• Increase to Small Employer Plan Start-Up Credit
RESA - Continued
Trump Proposed Tax Plan
Individual Income Tax Changes
Consolidation of the current seven tax brackets into three:
Table 1. Individual Income Tax Brackets Under the Trump Plan
Ordinary Income Rate
Capital Gains Rate
Single FilersMarried Joint Filers
12% 0% $0 to $37,500 $0 to $75,000
25% 15%$37,500 to $112,500
$75,000 to $225,000
33% 20% $112,500+ $225,000+
Individual Income Tax Changes
• Eliminates the head of household filing status.
• Eliminates the Net Investment Income Tax.
• Increases standard deduction.
• Eliminates the personal exemption.
• Makes childcare costs deductible from AGI (above-the-line).
• Credits for childcare expenses.
Individual Income Tax Changes
• New child/elderly care savings accounts.
• Itemized deductions capped at $100,000 single, $200,000 MFJ.
• Eliminates the alternative minimum tax.
Business Tax Changes
• Reduces the corporate income tax rate from 35% to 15%.
• Eliminates the corporate alternative minimum tax.
• Eliminates DPAD and other credits, except R&D.
• Enacting of deemed repatriation at 10%.
• Increases the cap for employer provided daycare.
Questions?
