Tax Cuts and Jobs Act
Tax Cuts and Jobs Act APRIL 17, 2018
WHAT WE’LL COVER TODAY
1
Review key tax law changes enacted by the Tax Cuts and Jobs Act
2
Discuss the implications to you and your business
3
Consider planning strategies to implement now
Corporate Effect of Tax Reform APRIL 17, 2018
Corporate Tax Rate Flat rate of 21 percent effective January 1, 2018 (Previously top rate of 35 percent)
BUSINESS PROVISIONS
Alternative Minimum Tax Repealed (Previously 20 percent)
Cash Method of Accounting Allowed for C corporations with < $25 million in gross receipts (Previously allowed for C corporations that do not exceed $5 million gross receipts test)
Enhanced Bonus Depreciation • Now available for both new & used assets
COST RECOVERY PROVISIONS
September 27, 2017 – December 31, 2022
100%
2023
80%
2024
60%
2025
40%
2026
20%
Expanded Section 179 • Up to $1 million; phase-out beginning at $2.5 million of assets placed in service
• Deduction generally limited to sum of ▪ Business interest income
BUSINESS INTEREST EXPENSE DEDUCTION
▪ Floor plan financing interest ▪ 30 percent of “adjusted taxable income” Taxable income
+/- Items of income, gain, deduction or loss not properly allocable to trade/business +
Business interest expense
-
Business interest income
+
Net operating loss
+
Pass-through business deduction
+
Depletion, depreciation & amortization (taxable years beginning before January 1, 2022, only)
• Excess carried forward indefinitely • Limit does not apply to
BUSINESS INTEREST EXPENSE DEDUCTION
✓ Businesses with average annual gross receipts ≤ $25 million (affiliated group basis)
✓ Regulated public utility business (including electric cooperatives) ✓ Following businesses may elect not to be subject to limitation provided they use ADS method for depreciation o Real property businesses o Farming businesses (including agricultural & horticultural cooperatives)
• Applies to amounts paid or incurred after December 31, 2017 • Food & beverage expense •
Employer-operated eating facility for convenience of employer now limited to 50 percent until December 31, 2025; nondeductible thereafter
•
Certain expenses still 100 percent deductible, e.g., company holiday party
• Entertainment, amusement & recreation (includes certain membership dues) •
Generally nondeductible
•
Certain expenses still 100 percent deductible, e.g., company holiday party
MEALS & ENTERTAINMENT EXPENSE
Executive compensation • Applies only to publicly traded companies
EMPLOYEE RELATED PROVISIONS
• Taxable compensation paid to covered employees in excess of $1 million is nondeductible • Covered employees now includes CFO • Performance-based compensation no longer excluded from $1 million limit
Guidance on withholding rules • Employers must implement new withholding tables by February 15, 2018
EMPLOYEE RELATED PROVISIONS
• 2018 version of Form W-4 expect after February 15 • Withholding rate on supplemental wages lowered from 25 to 22 percent
Fringe benefit- changes • Qualified transportation fringe benefits not deductible • Employee reimbursed moving expenses not excludable from employee income
• Deduction limited ▪ 80 percent of taxable income ▪ Applies to losses arising in tax years beginning after December 31, 2017
• No carryback ▪ Applies to losses arising in tax years beginning after December 31, 2017
• Carried forward indefinitely ▪ Applies to losses arising in tax years beginning after December 31, 2017
NET OPERATING LOSS (NOL)
Pass-Through Considerations of Tax Reform APRIL 17, 2018
Pass-Through Business Deduction
QUALIFIED BUSINESS INCOME DEDUCTION Sunsets 12/31/2025
• Deduction = 20 percent of • Domestic qualified business income from partnership, S corporation or sole proprietorship • Qualified REIT dividends • Qualified cooperative dividends • Qualified PTP income • Available to individuals, trusts & estates
• Aimed at maintaining tax rate benefit of flowthrough structure • Sunsets December 31, 2025 • Limitations apply
• Domestic: effectively connected with conduct of trade/business within U.S. + Puerto Rico
PASSTHROUGH BUSINESS DEDUCTION Sunsets 12/31/2025
• Qualified business income: net amount of items of income, gain, deduction & loss with respect to any qualified trade or business, except ▪ Reasonable compensation ▪ Guaranteed payments ▪ Investment income o Short-term & long-term capital gain/loss o Dividend income o Interest income
(Note overall loss treated as loss for purposes of calculation in subsequent year)
PASSTHROUGH BUSINESS DEDUCTION Sunsets 12/31/2025
• Limitations: Apply when taxable income exceeds $157,500 single ($315,000 MFJ) & phase out over next $50,000 ($100,000) of taxable income 1) Wage limitation: Greater of ▪
50 percent of W-2 wages paid with respect to business OR
▪
25 percent of W-2 wages paid plus 2.5 percent of unadjusted basis (immediately after acquisition) of all qualified property
2) Not allowed for “specified service trade or businesses” once income exceeds threshold amounts
• Specified service business: Any trade or business involving performance of services in fields of
PASSTHROUGH BUSINESS DEDUCTION Sunsets 12/31/2025
▪ ▪ ▪ ▪ ▪ ▪
Health Law Accounting Actuarial science Performance arts Investing & investment management, trading or dealing in securities, partnership interests or commodities
▪ ▪ ▪ ▪ ▪
Consulting Athletics Financial services Brokerage service Principal asset is reputation or skill of one or more of its employees or owners
• Need further guidance in several areas ▪ Definition qualified trade or business
PASSTHROUGH BUSINESS DEDUCTION Sunsets 12/31/2025
▪ Application of grouping elections ▪ Clarification on how definition of specified service trade or business applies ▪ Whether wages paid by an affiliated management company count for purposes of wage limitation
International Considerations of Tax Reform APRIL 17, 2018
Transition Tax • Deemed repatriation tax imposed on nonpreviously taxed post-1986 accumulated foreign earnings of U.S. shareholders upon transition from existing deferral regime to new participation exemption regime • Toll charge is intended to prevent pre-tax reform foreign earnings from escaping the pre-tax reform deferral regime • Applies to all U.S. shareholders • Tax rate of 15.5% (cash) or 8% (non-cash) • Tax due can be spread over eight-year period
• Effective date: last taxable year of the foreign corporation that begins before 1/1/2018
INTERNATIONAL PROVISIONS
Transition Tax • Earnings & Profits are the GREATER of • E&P as of 11/02/2017 or • E&P as of 12/31/2017 • Netting of E&P deficits allowed • Applies regardless of movement of cash • Ability to claim pro rata foreign tax credits for corporations
• Same for individuals who make the §962 election • S corporation shareholders may elect to indefinitely defer this tax until there is a triggering event
INTERNATIONAL PROVISIONS
New Participation Exemption • 100 percent of foreign-sourced portion of dividends paid by foreign corporation to U.S. corporate shareholder owning 10 percent or more of foreign corporation’s stock is exempt from U.S. taxation • No foreign tax credit or deduction allowed for any foreign taxes paid or accrued with respect to any exempt dividend • C corporations now eligible to claim DRD for qualifying dividends from foreign corporations received after December 31, 2017
• S corporation shareholders still subject to tax on foreign dividends under existing deferral regime
INTERNATIONAL PROVISIONS
Global Intangible Low Taxed Income (GILTI) • Applies to all U.S. shareholders, including noncorporate shareholders
• Exception to new foreign DRD exemption regime • GILTI rules employ residual concept whereby extranormal foreign profits are presumed to be attributable to intangibles (vs. identifying offshored intangible assets & foreign income generated therefrom under current regime)
INTERNATIONAL PROVISIONS
Global Intangible Low Taxed Income (GILTI) • C corporations can claim a deduction equal to 50% of the GILTI inclusion plus the foreign tax gross-up • C corporations can also claim a deemed paid foreign tax credit for 80% of foreign taxes attributable to GILTI inclusion
• Noncorporate shareholders should generally make an election under 962 to be taxed on GILTI inclusions at corporate tax rates • Without a §962 election, noncorporate shareholders would be taxed on GILTI at ordinary U.S. individual income tax rates with no GILTI deduction or indirect foreign tax credit
INTERNATIONAL PROVISIONS
Foreign Derived Intangible Income (FDII) • Foreign-derived deduction eligible income is profit from property sold or leased/licensed by U.S. corporation or services provided to foreign person or with respect to foreign-located property • Applies only to C corporations • Deduction for 37.5 percent of FDII
• Results in effective tax rate of 13.125 percent • Deduction reduced to 21.875 percent for tax years beginning after December 31, 2025 (effective tax rate increases to 16.40625 percent for FDII) • Foreign branch income is not eligible
INTERNATIONAL PROVISIONS
Base Erosion Anti-Abuse Tax (BEAT) • New minimum tax that applies to certain payments made to foreign-related entities • Essentially a new alternative minimum tax having a broader taxable income base but lower tax rate than regular U.S. corporate tax • Income base calculated without deductions for foreign-related party expenses, e.g., interest, royalties & management fees to extent such outbound expenses are exempt from U.S. withholding tax • Tax rate: 5% (2018), 10% (2019-2024), 12.5%
• Applies to corporations with average annual gross receipts of ≥ $500 million & base erosion percentage ≥ 3 percent
INTERNATIONAL PROVISIONS
PLANNING STRATEGIES FOR BUSINESSES Consider strategies to accelerate deductions & defer income if you expect lower rates
Capital improvement planning
Accounting method changes
R&D credit studies
Cost segregation studies
E&P studies
Individual Considerations of Tax Reform APRIL 17, 2018
Bracket
INDIVIDUAL PROVISIONS Tax brackets: single
2018 Ordinary Rates 2018 Capital Gains Rates Current Conference Current Conference Law* Agreement*^ Law* Agreement*^
$0–$9,525
10%
10%
0%
0%
9,526–38,600 38,601–38,700 38,701–82,500 82,501–93,700 93,701–157,500 157,501–195,450 195,451–200,000 200,001–424,950 424,951–425,800 425,801–426,700 426,701–500,000 More than 500,000
15% 15% 25% 25% 28% 28% 33% 33% 35% 35% 39.6% 39.6%
12% 12% 22% 24% 24% 32% 32% 35% 35% 35% 35% 37%
0% 0% 15% 15% 15% 15% 15% 15% 15% 15% 20% 20%
0% 15% 15% 15% 15% 15% 15% 15% 15% 20% 20% 20%
*Plus 3.8 percent net investment income tax on unearned income when modified adjusted gross income exceeds $200,000 ($250,000) ^Expires after December 31, 2025
Bracket
INDIVIDUAL PROVISIONS Tax brackets: married filing jointly
2018 Ordinary Rates 2018 Capital Gains Rates Current Conference Current Conference Law* Agreement*^ Law* Agreement*^
$0–$19,050
10%
10%
0%
0%
19,051–77,200 77,201–77,400 77,401–156,150 156,151–165,000 165,001–237,950 237,951–315,000 315,001–400,000 400,001–424,950 424,951–479,000 479,001–480,050 480,051–600,000 More than 600,000
15% 15% 25% 28% 28% 33% 33% 33% 35% 35% 39.6% 39.6%
12% 12% 22% 22% 24% 24% 32% 35% 35% 35% 35% 37%
0% 0% 15% 15% 15% 15% 15% 15% 15% 15% 20% 20%
0% 15% 15% 15% 15% 15% 15% 15% 15% 20% 20% 20%
*Plus 3.8 percent net investment income tax on unearned income when modified adjusted gross income exceeds $200,000 ($250,000) ^Expires after December 31, 2025
Alternative Minimum Tax • 28 percent top rate • Exemption of $70,300 single ($109,400 MFJ) • Phaseout begins at $500,000 single ($1 million MFJ) • Sunsets December 31, 2025 (Previously 28 percent top rate; exemption of $55,400 single ($86,200 MFJ); exemption amounts begin phaseout at $123,100 & $164,100, respectively)
INDIVIDUAL PROVISIONS
Nonpassive Losses
INDIVIDUAL PROVISIONS
• Limits amount of deduction for nonpassive losses from pass-through entity to $250,000 for single filers ($500,000 MFJ) • Excess loss treated as NOL • Sunsets December 31, 2025 (Not previously addressed)
Carried Interest • Capital gains rate after three-year holding period (Previously capital gains rate after one-year holding period for interests received in exchange for performance of services)
Standard Deduction
INDIVIDUAL PROVISIONS
• $12,000 single ($24,000 MFJ) • Sunsets December 31, 2025 (Previously $6,500 ($13,000 MFJ))
Personal Exemption • Repealed • Expires December 31, 2025 (Previously $4,150 subject to phaseout based on AGI)
Child Tax Credit • $2,000 ($1,400 refundable) • Phaseout beginning at $200,000 single ($400,000 MFJ) • Sunsets December 31, 2025 (Previously $1,000; phaseout at $75,000 single ($110,000 MFJ))
Medical & Dental Expense • Deduction for qualified out-of-pocket medical expenses paid or incurred during year to extent exceed • 7.5 percent of AGI for 2017 & 2018 • 10 percent of AGI beginning in 2019
State & Local Tax Expense • Combined deduction capped at $10,000
• Amounts paid in 2017 for income taxes imposed for 2018 or later treated as paid in 2018
INDIVIDUAL PROVISIONS Itemized deductions
Home Mortgage Interest Expense • Deduction for mortgage interest paid or incurred up to $750,000 of acquisition indebtedness after December 15, 2017 • Deduction for interest paid on home equity loans eliminated
Gifts to Charity • Deduction for cash contributions limited to 60 percent of AGI
Miscellaneous Itemized Deductions • Repealed
• Gambling losses allowed to extent of winnings
INDIVIDUAL PROVISIONS Itemized deductions
Keep Up with What’s Next • BKD Tax Reform Resource Center • bkd.com/taxreform
• Simply Tax podcast • bkd.com/simplytax
Questions? Andrea Lewman [email protected]
Toug Plilar [email protected]
Justin Stenberg [email protected]
The information contained in these slides is based on data available as of the date of the presentation & is not to be considered as tax advice. Applying specific information to your situation requires careful consideration of facts & circumstances. We are under no obligation to update these slides if changes occur. Consult your BKD advisor before acting on any matters covered
41
Thank You!
WHAT WE’LL COVER TODAY
1
Review key tax law changes enacted by the Tax Cuts and Jobs Act
2
Discuss the implications to you and your business
3
Consider planning strategies to implement now
Corporate Effect of Tax Reform APRIL 17, 2018
Corporate Tax Rate Flat rate of 21 percent effective January 1, 2018 (Previously top rate of 35 percent)
BUSINESS PROVISIONS
Alternative Minimum Tax Repealed (Previously 20 percent)
Cash Method of Accounting Allowed for C corporations with < $25 million in gross receipts (Previously allowed for C corporations that do not exceed $5 million gross receipts test)
Enhanced Bonus Depreciation • Now available for both new & used assets
COST RECOVERY PROVISIONS
September 27, 2017 – December 31, 2022
100%
2023
80%
2024
60%
2025
40%
2026
20%
Expanded Section 179 • Up to $1 million; phase-out beginning at $2.5 million of assets placed in service
• Deduction generally limited to sum of ▪ Business interest income
BUSINESS INTEREST EXPENSE DEDUCTION
▪ Floor plan financing interest ▪ 30 percent of “adjusted taxable income” Taxable income
+/- Items of income, gain, deduction or loss not properly allocable to trade/business +
Business interest expense
-
Business interest income
+
Net operating loss
+
Pass-through business deduction
+
Depletion, depreciation & amortization (taxable years beginning before January 1, 2022, only)
• Excess carried forward indefinitely • Limit does not apply to
BUSINESS INTEREST EXPENSE DEDUCTION
✓ Businesses with average annual gross receipts ≤ $25 million (affiliated group basis)
✓ Regulated public utility business (including electric cooperatives) ✓ Following businesses may elect not to be subject to limitation provided they use ADS method for depreciation o Real property businesses o Farming businesses (including agricultural & horticultural cooperatives)
• Applies to amounts paid or incurred after December 31, 2017 • Food & beverage expense •
Employer-operated eating facility for convenience of employer now limited to 50 percent until December 31, 2025; nondeductible thereafter
•
Certain expenses still 100 percent deductible, e.g., company holiday party
• Entertainment, amusement & recreation (includes certain membership dues) •
Generally nondeductible
•
Certain expenses still 100 percent deductible, e.g., company holiday party
MEALS & ENTERTAINMENT EXPENSE
Executive compensation • Applies only to publicly traded companies
EMPLOYEE RELATED PROVISIONS
• Taxable compensation paid to covered employees in excess of $1 million is nondeductible • Covered employees now includes CFO • Performance-based compensation no longer excluded from $1 million limit
Guidance on withholding rules • Employers must implement new withholding tables by February 15, 2018
EMPLOYEE RELATED PROVISIONS
• 2018 version of Form W-4 expect after February 15 • Withholding rate on supplemental wages lowered from 25 to 22 percent
Fringe benefit- changes • Qualified transportation fringe benefits not deductible • Employee reimbursed moving expenses not excludable from employee income
• Deduction limited ▪ 80 percent of taxable income ▪ Applies to losses arising in tax years beginning after December 31, 2017
• No carryback ▪ Applies to losses arising in tax years beginning after December 31, 2017
• Carried forward indefinitely ▪ Applies to losses arising in tax years beginning after December 31, 2017
NET OPERATING LOSS (NOL)
Pass-Through Considerations of Tax Reform APRIL 17, 2018
Pass-Through Business Deduction
QUALIFIED BUSINESS INCOME DEDUCTION Sunsets 12/31/2025
• Deduction = 20 percent of • Domestic qualified business income from partnership, S corporation or sole proprietorship • Qualified REIT dividends • Qualified cooperative dividends • Qualified PTP income • Available to individuals, trusts & estates
• Aimed at maintaining tax rate benefit of flowthrough structure • Sunsets December 31, 2025 • Limitations apply
• Domestic: effectively connected with conduct of trade/business within U.S. + Puerto Rico
PASSTHROUGH BUSINESS DEDUCTION Sunsets 12/31/2025
• Qualified business income: net amount of items of income, gain, deduction & loss with respect to any qualified trade or business, except ▪ Reasonable compensation ▪ Guaranteed payments ▪ Investment income o Short-term & long-term capital gain/loss o Dividend income o Interest income
(Note overall loss treated as loss for purposes of calculation in subsequent year)
PASSTHROUGH BUSINESS DEDUCTION Sunsets 12/31/2025
• Limitations: Apply when taxable income exceeds $157,500 single ($315,000 MFJ) & phase out over next $50,000 ($100,000) of taxable income 1) Wage limitation: Greater of ▪
50 percent of W-2 wages paid with respect to business OR
▪
25 percent of W-2 wages paid plus 2.5 percent of unadjusted basis (immediately after acquisition) of all qualified property
2) Not allowed for “specified service trade or businesses” once income exceeds threshold amounts
• Specified service business: Any trade or business involving performance of services in fields of
PASSTHROUGH BUSINESS DEDUCTION Sunsets 12/31/2025
▪ ▪ ▪ ▪ ▪ ▪
Health Law Accounting Actuarial science Performance arts Investing & investment management, trading or dealing in securities, partnership interests or commodities
▪ ▪ ▪ ▪ ▪
Consulting Athletics Financial services Brokerage service Principal asset is reputation or skill of one or more of its employees or owners
• Need further guidance in several areas ▪ Definition qualified trade or business
PASSTHROUGH BUSINESS DEDUCTION Sunsets 12/31/2025
▪ Application of grouping elections ▪ Clarification on how definition of specified service trade or business applies ▪ Whether wages paid by an affiliated management company count for purposes of wage limitation
International Considerations of Tax Reform APRIL 17, 2018
Transition Tax • Deemed repatriation tax imposed on nonpreviously taxed post-1986 accumulated foreign earnings of U.S. shareholders upon transition from existing deferral regime to new participation exemption regime • Toll charge is intended to prevent pre-tax reform foreign earnings from escaping the pre-tax reform deferral regime • Applies to all U.S. shareholders • Tax rate of 15.5% (cash) or 8% (non-cash) • Tax due can be spread over eight-year period
• Effective date: last taxable year of the foreign corporation that begins before 1/1/2018
INTERNATIONAL PROVISIONS
Transition Tax • Earnings & Profits are the GREATER of • E&P as of 11/02/2017 or • E&P as of 12/31/2017 • Netting of E&P deficits allowed • Applies regardless of movement of cash • Ability to claim pro rata foreign tax credits for corporations
• Same for individuals who make the §962 election • S corporation shareholders may elect to indefinitely defer this tax until there is a triggering event
INTERNATIONAL PROVISIONS
New Participation Exemption • 100 percent of foreign-sourced portion of dividends paid by foreign corporation to U.S. corporate shareholder owning 10 percent or more of foreign corporation’s stock is exempt from U.S. taxation • No foreign tax credit or deduction allowed for any foreign taxes paid or accrued with respect to any exempt dividend • C corporations now eligible to claim DRD for qualifying dividends from foreign corporations received after December 31, 2017
• S corporation shareholders still subject to tax on foreign dividends under existing deferral regime
INTERNATIONAL PROVISIONS
Global Intangible Low Taxed Income (GILTI) • Applies to all U.S. shareholders, including noncorporate shareholders
• Exception to new foreign DRD exemption regime • GILTI rules employ residual concept whereby extranormal foreign profits are presumed to be attributable to intangibles (vs. identifying offshored intangible assets & foreign income generated therefrom under current regime)
INTERNATIONAL PROVISIONS
Global Intangible Low Taxed Income (GILTI) • C corporations can claim a deduction equal to 50% of the GILTI inclusion plus the foreign tax gross-up • C corporations can also claim a deemed paid foreign tax credit for 80% of foreign taxes attributable to GILTI inclusion
• Noncorporate shareholders should generally make an election under 962 to be taxed on GILTI inclusions at corporate tax rates • Without a §962 election, noncorporate shareholders would be taxed on GILTI at ordinary U.S. individual income tax rates with no GILTI deduction or indirect foreign tax credit
INTERNATIONAL PROVISIONS
Foreign Derived Intangible Income (FDII) • Foreign-derived deduction eligible income is profit from property sold or leased/licensed by U.S. corporation or services provided to foreign person or with respect to foreign-located property • Applies only to C corporations • Deduction for 37.5 percent of FDII
• Results in effective tax rate of 13.125 percent • Deduction reduced to 21.875 percent for tax years beginning after December 31, 2025 (effective tax rate increases to 16.40625 percent for FDII) • Foreign branch income is not eligible
INTERNATIONAL PROVISIONS
Base Erosion Anti-Abuse Tax (BEAT) • New minimum tax that applies to certain payments made to foreign-related entities • Essentially a new alternative minimum tax having a broader taxable income base but lower tax rate than regular U.S. corporate tax • Income base calculated without deductions for foreign-related party expenses, e.g., interest, royalties & management fees to extent such outbound expenses are exempt from U.S. withholding tax • Tax rate: 5% (2018), 10% (2019-2024), 12.5%
• Applies to corporations with average annual gross receipts of ≥ $500 million & base erosion percentage ≥ 3 percent
INTERNATIONAL PROVISIONS
PLANNING STRATEGIES FOR BUSINESSES Consider strategies to accelerate deductions & defer income if you expect lower rates
Capital improvement planning
Accounting method changes
R&D credit studies
Cost segregation studies
E&P studies
Individual Considerations of Tax Reform APRIL 17, 2018
Bracket
INDIVIDUAL PROVISIONS Tax brackets: single
2018 Ordinary Rates 2018 Capital Gains Rates Current Conference Current Conference Law* Agreement*^ Law* Agreement*^
$0–$9,525
10%
10%
0%
0%
9,526–38,600 38,601–38,700 38,701–82,500 82,501–93,700 93,701–157,500 157,501–195,450 195,451–200,000 200,001–424,950 424,951–425,800 425,801–426,700 426,701–500,000 More than 500,000
15% 15% 25% 25% 28% 28% 33% 33% 35% 35% 39.6% 39.6%
12% 12% 22% 24% 24% 32% 32% 35% 35% 35% 35% 37%
0% 0% 15% 15% 15% 15% 15% 15% 15% 15% 20% 20%
0% 15% 15% 15% 15% 15% 15% 15% 15% 20% 20% 20%
*Plus 3.8 percent net investment income tax on unearned income when modified adjusted gross income exceeds $200,000 ($250,000) ^Expires after December 31, 2025
Bracket
INDIVIDUAL PROVISIONS Tax brackets: married filing jointly
2018 Ordinary Rates 2018 Capital Gains Rates Current Conference Current Conference Law* Agreement*^ Law* Agreement*^
$0–$19,050
10%
10%
0%
0%
19,051–77,200 77,201–77,400 77,401–156,150 156,151–165,000 165,001–237,950 237,951–315,000 315,001–400,000 400,001–424,950 424,951–479,000 479,001–480,050 480,051–600,000 More than 600,000
15% 15% 25% 28% 28% 33% 33% 33% 35% 35% 39.6% 39.6%
12% 12% 22% 22% 24% 24% 32% 35% 35% 35% 35% 37%
0% 0% 15% 15% 15% 15% 15% 15% 15% 15% 20% 20%
0% 15% 15% 15% 15% 15% 15% 15% 15% 20% 20% 20%
*Plus 3.8 percent net investment income tax on unearned income when modified adjusted gross income exceeds $200,000 ($250,000) ^Expires after December 31, 2025
Alternative Minimum Tax • 28 percent top rate • Exemption of $70,300 single ($109,400 MFJ) • Phaseout begins at $500,000 single ($1 million MFJ) • Sunsets December 31, 2025 (Previously 28 percent top rate; exemption of $55,400 single ($86,200 MFJ); exemption amounts begin phaseout at $123,100 & $164,100, respectively)
INDIVIDUAL PROVISIONS
Nonpassive Losses
INDIVIDUAL PROVISIONS
• Limits amount of deduction for nonpassive losses from pass-through entity to $250,000 for single filers ($500,000 MFJ) • Excess loss treated as NOL • Sunsets December 31, 2025 (Not previously addressed)
Carried Interest • Capital gains rate after three-year holding period (Previously capital gains rate after one-year holding period for interests received in exchange for performance of services)
Standard Deduction
INDIVIDUAL PROVISIONS
• $12,000 single ($24,000 MFJ) • Sunsets December 31, 2025 (Previously $6,500 ($13,000 MFJ))
Personal Exemption • Repealed • Expires December 31, 2025 (Previously $4,150 subject to phaseout based on AGI)
Child Tax Credit • $2,000 ($1,400 refundable) • Phaseout beginning at $200,000 single ($400,000 MFJ) • Sunsets December 31, 2025 (Previously $1,000; phaseout at $75,000 single ($110,000 MFJ))
Medical & Dental Expense • Deduction for qualified out-of-pocket medical expenses paid or incurred during year to extent exceed • 7.5 percent of AGI for 2017 & 2018 • 10 percent of AGI beginning in 2019
State & Local Tax Expense • Combined deduction capped at $10,000
• Amounts paid in 2017 for income taxes imposed for 2018 or later treated as paid in 2018
INDIVIDUAL PROVISIONS Itemized deductions
Home Mortgage Interest Expense • Deduction for mortgage interest paid or incurred up to $750,000 of acquisition indebtedness after December 15, 2017 • Deduction for interest paid on home equity loans eliminated
Gifts to Charity • Deduction for cash contributions limited to 60 percent of AGI
Miscellaneous Itemized Deductions • Repealed
• Gambling losses allowed to extent of winnings
INDIVIDUAL PROVISIONS Itemized deductions
Keep Up with What’s Next • BKD Tax Reform Resource Center • bkd.com/taxreform
• Simply Tax podcast • bkd.com/simplytax
Questions? Andrea Lewman [email protected]
Toug Plilar [email protected]
Justin Stenberg [email protected]
The information contained in these slides is based on data available as of the date of the presentation & is not to be considered as tax advice. Applying specific information to your situation requires careful consideration of facts & circumstances. We are under no obligation to update these slides if changes occur. Consult your BKD advisor before acting on any matters covered
41
Thank You!
