Tax law change projection

Considering the Impact

Of Potential 2017 Tax Law Changes

© John Caughell All Rights Reserved

About Today’s Speakers and Sponsors

• Today’s Sponsor• Currie & McLain CPA’s

• Today’s Speaker• John Caughell

• Technical Assistance Provided by• Randy Sprenger

• Find out more about us on the web• www.currie-mclain.com


Objectives and Goals of Today’s Presentation

• Identify the major potential tax changes for 2017• Individuals• Business• Estates

• Help understand what areas may cause planning problems• Understand the impact of these potential changes


Interesting Tax Facts• Individual Taxes• Over 140 Million 1040 returns are filed annually • Reporting $1.2 Trillion in taxes

• Business Taxes• Over 2 Million Corporation, S Corporation and Partnership returns• Reporting about $300 Billion

• Estate Taxes• Only about 300,000 filed annually• Generating under $20 Billion in Taxes


Interesting Tax Facts• Size of the Tax Code• Title 26 of the US Code of Federal Regulations is about 14,000 pages • Not including forms, instructions, revenue procedures, treasury regulations• Not including court cases from tax court or federal court

• Last Major Tax Reform Act (e.g. Simplification)• Enacted in 1986• Was supposed to be the last major change to federal tax law

• The highest marginal tax bracket in 1954 was 91% on income above $200,000• About $12 Million in today’s dollars


Individual Tax Changes

• Significant Changes Proposed• Reduction in top bracket to 33%• Eliminate exemptions• Reduce filing statuses• Increase standard deduction• Itemized deduction changes• Ceiling on deduction• Limits on deduction categoris

• Simplify retirement-type savings• Postcard tax filings


Individual Tax Changes

• Current Law• Progressive Tax Brackets

• 10% to 39%• 3.8% “Obamacare tax”• 20% tax on investments

• Itemized Deductions• Medical (limited)• Mortgage interest• State and local tax• Miscellaneous

• Standard Deduction• Personal Exemptions• Alternative Minimum Tax

• Potential Law• Progress Tax Brackets

• 10% to 33%• Eliminate “Obamacare tax”• 50% “credit” on investment earnings

• Two filing status choices• Single• Married

• Capping itemized deductions• $100,000 per filer ($200,000 Married)• Eliminate all but interest and

charitable

• Eliminate exemptions• Eliminate AMT


Single PersonDependents 1Children 0

Current Law Potential

Wages 50,000 50,000 Standard Deduction 6,300 12,500 Exemption 4,100 -

Taxable Income 39,600 37,500 Income Tax 5,278 3,750 Child Credits - -

Tax Savings 1,528

Single Person (head of Household)

Dependents 2Children 1



Taxable Income 32,500 37,500 Income Tax 4,213 3,750 Child Credits 2,000 2,000

Tax 2,213 1,750 Tax Savings 463

MarriedDependents 6Children 4



Taxable Income 62,800 75,000 Income Tax 8,493 8,750 Child Credits 8,000 8,000

Tax 493 750 Additional Tax (258)

Unanswered Questions• Exemptions/Dependents• Treats an economic unit (i.e. single person or family) as 1• No additional deduction for larger families• Non-child dependents (parents, grandparents, multi-generational)

• Required to report?• How to prove dependency for childcare credits?

• Standard/Itemized Deductions• Aging population and no medical expense deduction?• Higher standard deduction simplifies filing

• Lots of systemic changes• Minimal tax reduction

• Earnings from Small Businesses• Deemed wages from “Small Business• Subject to self employment tax?


Business Tax Changes• Major Reforms Expected• Reduction in highest bracket to 25% of taxable income• Repatriation tax rate lowered• Potential change away from World Wide Income model• Destination Basis

• Full deductibility of assets purchased in year of purchase• Substantial limitation on interest deduction• Deemed wages for “small business”• Small Business

• S Corporations• Sole Proprietorships• LLC’s and partnerships

• Losses Carried forward only© John Caughell All Rights Reserved

Business Tax Changes• Current Law• Progressive rates• From 15% to 35%• Based on 7 income brackets

• Repatriated earnings taxed at regular corporate rate

• Liberal business deductions• Accelerated depreciation• No standard on

compensation for flow-through entities

• Deductibility of Interest• Provided a business

purpose

•Potential Law• Progressive rates• From 10% to 20%• Based on 3 income brackets

• 10% tax on repatriated earnings• Some limitation on

deductions• Accelerated depreciation on

all capital purchases• Interest expense limited

• Flow-through entity changes• Deemed wages “Reasonable

Compensation” standard© John Caughell All Rights Reserved

Business Examples• Income Before Depreciation and Interest $150,000• Interest of $10,000• Depreciation (all §179) $90,000 ( total assets purchased)


Net Taxable Income Before Depreciation and Interest 150,000 150,000 Interest 10,000 - Depreciation (all §179) 90,000 90,000 Taxable Income 50,000 60,000

Income Tax 7,500 6,000

Business Examples• Income Before Depreciation and Interest $100,000• Interest of $10,000• Depreciation (all §179) $90,000 ( total assets purchased)


Net Taxable Income Before Depreciation and Interest 100,000 100,000 Interest 10,000 - Depreciation (all §179) 90,000 90,000 Taxable Income - 10,000

Income Tax - 1,000

Small Business ExampleCurrent Tax Disparity

S Corp (Reasonable

Comp) S CorpSole Prop

Taxable Income Before Owner Compensation 100,000 100,000 100,000 Owner Compenation 50,000 - 92,500 Company Payroll Taxes 8.0% 4,000 - 7,400 Taxable Income Passed Through 46,000 100,000 100

Income Tax for OwnerWages 50,000 - 92,500 Taxable Income Passed Through 46,000 100,000 100 Taxable Income for Owner 96,000 100,000 92,600 Tax Liabilities 25.0% 24,000 25,000 23,150

Total Taxes PaidCompany Payroll Taxes 4,000 - 7,400 Owner Payroll Taxes 4,000 - 7,400 Income Taxes 24,000 25,000 23,150 Total Taxes 32,000 25,000 37,950 Taxes as a Percent of Income Before Comp 32.0% 25.0% 38.0%

Small Business ExampleDeemed Wage Correction

S Corp (reasonable Comp) S Corp

Sole Prop

Taxable Income Before Owner Compensation 100,000 100,000 100,000 Deemed Wage 50,000 50,000 50,000 Company Payroll Taxes 8.0% 4,000 4,000 4,000 Taxable Income Passed Through 46,000 46,000 46,000

Income Tax for OwnerWages 50,000 50,000 50,000 Taxable Income Passed Through 46,000 46,000 46,000 Taxable Income for Owner 96,000 96,000 96,000 Tax Liabilities 15.0% 14,400 14,400 14,400

Total Taxes PaidCompany Payroll Taxes 4,000 4,000 4,000 Owner Payroll Taxes 4,000 4,000 4,000 Income Taxes 14,400 14,400 14,400 Total Taxes 22,400 22,400 22,400 Taxes as a Percent of Income Before Comp 22.4% 22.4% 22.4%

Unanswered Questions• Determination of “Deemed Wages”• By Formula• By Schedule• Taxpayer judgement• Regardless, will be an audit area

• Accelerated Write-off of Capital Purchases• Active trade or business only?• What about rental properties?• Small business already gets §179 so why limit interest?

• State Tax Connection issues• More complex accounting• Different depreciation rules


Estate (Death) Tax Changes

• Full Repeal of Federal Level Taxes• Estate taxes account for less than 1% of Federal Taxes• Complex and costly to administer in most estates

• States will not follow suit• Substantially lower limits• Higher tax rates

• State Reporting will be more challenging• Moving from a low/no estate tax state to a high• Gifting


Estate (Death) Tax Changes

• Current Tax Law• Estates over $5.0 Million are subject• Flat tax rate of 45%• Gifts included

• Potential Tax Law• Fully eliminate Estate tax• No gift reporting


Tax law change projection

Business

Transcript of Tax law change projection