Skoda Minotti takes a look at what you can expect regarding the future of taxation.

1. 1
Post-Election
What You Need to Know for Tax Planning
Michael Minotti, CPA
Jim Forbes, CPA
December 6, 2016

2. 2
• Overview
• Proposed business tax changes
• Business tax changes 2016
• Proposed individual tax changes
• Individual tax changes 2016
• Likely extensions during lame-duck session
AGENDA
2

3. 3
OVERVIEW
Election Results
• Trump wins electoral college 306-232
• Clinton wins popular vote 64.2M to 62.2M
• Republicans control both House and Senate
• House GOP blueprint released in June 2016
• Many potential changes on the horizon
3

4. 4
100-DAY PLAN
Middle-class Tax Relief And Simplification Act
• An economic plan designed to grow the economy 4% per
year and create at least 25 million new jobs through massive
tax reduction and simplification, in combination with trade
reform, regulatory relief, and lifting the restrictions on
American energy
Repeal and Replace Obamacare Act
• Fully repeals Obamacare and replaces it with Health
Savings Accounts, the ability to purchase health insurance
across state lines, and lets states manage Medicaid funds
4

5. 5
TRUMP TAX PLAN
COST OF THE
Taxfoundation.org – 10-year projection (09/19/2016)
• Reduction in tax revenue of $4.4T
• When accounting for increase in economic
growth, $2.6T
Tax Policy Center (10/18/2016)
• Federal revenues fall $6.2T over the first decade
without interest
• Including interest, federal debt would rise $7.2T
5

6. 6
BUSINESS RATE CHANGES
PROPOSED
Reduction in corporate tax rate
• Reduce rate from 35% to 15% for regular “C” corporation
(House plan cuts rate to 20%)
Rate reduction for pass-throughs
• S corporations, partnerships, LLCs
• Currently taxed as high as 39.6% (proposed highest
individual rate is 33%)
• 15% rate for small pass-throughs (House plan is 25%)
6

7. 7
RATE REDUCTION
PROPOSED PASS-THROUGH
• S corporations must pay a ‘reasonable’ salary to their owners
• Salary would be taxed at regular tax rate (proposed 33%
highest rate)
• Anti-abuse rules
• “Business income” would be taxed at favorable 15% rate
(25% under House plan)
• No definition for “small business”
• “Large business” would need to elect to be taxed as a
regular corporation to get reduced rate. However, double tax
would apply
7

8. 8
BUSINESS EXPENSING
PROPOSED
Full expensing of capital expenditures
• All businesses under House plan
• Trump plan is only for manufacturing equipment
• Effort to reshape the business code to more of a consumption tax
Trade-off is limitation on interest expense deduction
• Only to the extent of interest income
Repeal of most business incentives
• R&D credit would be retained
8

9. 9
PROVISION
PROPOSED INTERNATIONAL
Current rule
• U.S. entities generally taxed on U.S. income
• Earnings of foreign subsidiaries generally
not taxed until brought back to the U.S.
Deemed repatriation of offshore profits
• 10% tax rate (House plan 8.75% on cash,
3% on all other earnings)
• Regardless of whether money is actually
brought back to the U.S.
9

10. 10
OFFSHORE PROFITS
10

11. 11
PROPOSED CHILD CARE
Incentive for employers to provide on-site child care
• Part of promise to provide more support to middle-class
families
• Current law:
 Employer gets tax credit of 25% of qualified
expenses for on-site employee child care
 Maximum of $150,000 per year
 Recapture of construction costs if facility closed
within 10 years
• Proposal:
 Increase the cap to $500,000
 Shorten the recapture period to five years
11

12. 12
PATH ACT
Protecting Americans from Tax Hikes Act of 2015 (PATH Act)
• Signed into law December 18, 2015
• Research tax credit made permanent (with improvements)
• Extension of bonus depreciation
• Extension of Section 179 deduction
• New filing deadlines
12

13. 13
RESEARCH TAX CREDIT
PATH ACT
Research tax credit
• Made permanent for the first time in 30 years
• Enhanced benefit to start ups
• Up to $250K credit against payroll taxes
• Less than $5M in gross receipts and no
gross receipts outside of the last five years
• R&D credit also allowed against
alternative minimum tax (AMT) for
businesses with less than $50M in annual gross receipts
13

14. 14
BONUS DEPRECIATION
PATH ACT
Bonus depreciation
• 2016 and 2017 – still allowed 50% bonus depreciation
• 2018 – 40% bonus depreciation
• 2019 – 30% bonus depreciation
Note: Many states do not allow all
or a portion of bonus depreciation
14

15. 15
SECTION 179
PATH ACT
Section 179
• $500,000 annual limit made permanent
• Phase-out dollar-for-dollar for amounts over $2,010,000
• Indexed for inflation
Note: Many states may not follow the federal rule for Section 179
15

16. 16
FILING DEADLINES
PATH ACT
New filing deadlines
• Partnership – March 15 (was April 15)
 Extended filing deadline: September 15
• C Corporations – April 15 (was March 15)
 Extended filing deadline: Still September 15 (10/15 in 2025)
• S Corporations – March 15 (no change)
 Extended filing deadline: September 15 (no change)
Note: State returns are usually due on the same date as the federal day or
one month later
16

17. 17
INDIVIDUAL RATE CHANGES
PROPOSED
Rate reduction and fewer brackets:
• Current brackets: 10%, 15%, 25%, 28%, 33%, 35% and
39.6%
 2017 highest rate applies at $418,400 for single,
$470,700 for married
• Proposed brackets for married filing joint:
 12% - $0 - $75,000
 25% - $75,001 - $225,000
 33% - $225,001+
 Single brackets would be half these amounts
17

18. 18
INCOME CHANGES
PROPOSED INVESTMENT
Interest income
• Trump noted no specific changes
• House plan taxes interest income at ordinary rates with a
50% exclusion (effective rates of 6%, 12,5%, and 16.5%)
Capital gains and qualified dividends
• Trump proposes to retain current-law rates and brackets
• House plan taxes at ordinary rates with a 50% exclusion
(effective rates of 6%, 12,5%, and 16.5%)
18

19. 19
MEDICARE TAX
PROPOSED
Medicare Hospital Insurance Tax repealed
• Currently applies to wages and self-employment income
on individuals with more than $200,000 and joint filers
over $250,000
• Additional 0.9% employee tax (no employer match)
• Part of the Affordable Care Act (ACA)
• Additional tax would be repealed with
the repeal of ACA
19

20. 20
NET INVESTMENT INCOME
PROPOSED
Net investment income tax repealed
• Currently applies ‘net investment income’ for individuals
with more than $200,000 and joint filers over $250,000
• 3.8% additional tax (on top of 39.6% highest marginal rate)
• Part of the Affordable Care Act (ACA)
• Additional tax would be repealed with the repeal of ACA
20

21. 21
ITEMIZED DEDUCTIONS
PROPOSED
Itemized deductions
• Currently no cap on overall itemized deductions
• However, subject to phase-out for higher income
taxpayers
• Up to 80% of itemized deductions can be phased out
Proposed itemized deductions
• Capped at $100,000 for single filers,
$200,000 for joint filers
21

22. 22
EXEMPTIONS
PROPOSED
Standard deduction and personal exemptions
• Currently $12,700 for joint filers, $6,350 for single filers (2017)
• Personal exemption: $4,050
Proposed standard deduction and personal exemptions
• $30,000 for joint filers, $15,000 for single filers
• Eliminate personal exemptions
• Eliminate head-of-household filing status
House plan consolidates the standard deduction and personal
exemption into one larger standard deduction
• $12,000 for single, $18,000 for single with child, and $24,000 for
married
22

23. 23
INDIVIDUAL AMT
PROPOSED
Alternative Minimum Tax (AMT)
• Originated in 1969 to target 155 people with high
incomes that were paying zero federal income taxes
• Over 5M people pay AMT today
• AMT exemption amounts were recently indexed for
inflation
Proposal
• Eliminate
23
AMT

24. 24
ESTATE TAX
PROPOSED
Currently
• Top rate of 40%
• Exemption of $5.45M per spouse
Proposal
• Repeal, but appreciated assets held at death will be
subject to capital gains tax to the extent they exceed
$10M (unclear if this is per person or per couple)
• Eliminate the contribution of appreciated assets to a
private charity established by the decedent or the
decedent’s relatives
• House plan is complete repeal of estate tax
24

25. 25
EDUCATION CREDITS
PATH ACT
American Opportunity Tax Credit
• Made permanent
• Annual credit up to $2,500 for tuition
and related expenses
• Phased out for modified AGI
beginning at $80,000 for single filers
and $160,000 for joint filers, indexed
for inflation
25

26. 26
TUITION AND FEES
PATH ACT
Tuition and fees deduction
• Extended through 2016
• Above-the-line deduction
• Qualified tuition and higher education expenses
• Capped at $4,000
• Phased out for AGI beginning at $65,000 for single filers
and $130,000 for joint filers
26

27. 27
GAIN EXCLUSION
PATH ACT
Small business stock gain exclusion
• Made permanent
• 100% exclusion for small-business stock held more than
five years
• Acquired after September 27, 2010
• C corporation with gross assets less than $50M
• Eliminates gain exclusion as AMT adjustment
27

28. 28
CHARITABLE IRA
PATH ACT
Charitable giving from IRA
• Made permanent
• Taxpayers aged 70½ or older
• Make direct contributions to qualified charitable organization
• Up to $100,000 per year
28

29. 29
SALES TAX
PATH ACT
State and local sales tax
• Made permanent
• Deduct state and local sales tax instead of state and local
income taxes
• Valuable for individuals living in states without state
and/or local income taxes
29

30. 30
MORTGAGE INSURANCE
PATH ACT
Mortgage related benefits
• Deduct mortgage insurance premiums as interest
Extended through 2016
Phased out for taxpayers with AGI of $100,000 to
$110,000
• Exclusion from gross income of mortgage loan forgiveness
Extended through 2016
30

31. 31
EDUCATOR EXPENSES
PATH ACT
Educator expenses
• Above-the-line deduction for up to $250
• Books, supplies, computers and other equipment
• Made permanent
• Indexed for inflation
31

32. 32
TO BE EXTENDED
PROVISIONS LIKELY
More than 30 provisions set to expire at end of 2016:
• Mortgage insurance deduction
• Exclusion for home debt forgiveness
• Accelerated depreciation for racehorses and motorsport
tracks
• Alternative fuel and biofuel and biodiesel credits
• Section 179D deduction for energy-efficient buildings
• Credits for non-wind and non-solar energy property
32

33. 33
CONTACT INFORMATION
Michael L. Minotti, CPA
Partner
mminotti@skodaminotti.com
440-605-7133
Jimmy A. Forbes, CPA
Partner
jforbes@skodaminotti.com
440-605-7156
33