US ECONOMIC OUTLOOK...• Current account and trade deficits explode • 2018: $670 billion •...
Transcript of US ECONOMIC OUTLOOK...• Current account and trade deficits explode • 2018: $670 billion •...
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February 1, 2018
US ECONOMIC OUTLOOK
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Your instructor
RSM Us LLP
New York, NY
Kevin Depew
Director of Economics
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US ECONOMIC OUTLOOK
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US Economic Outlook
• Base Case: Growth above 3 percent in 2018
• Tax cut boosts growth prospects in 2018 & 2019
• Current account and trade deficits explode
• 2018: $670 billion
• 2019: $900 billion
• 2020: $1 trillion
• Tax effect fades in 2020 and growth moves back toward 2 percent (long-term trend)
• Household consumption of 3.5 percent
• Upper quintile of income earners to drive spending
• Wealth effect via rising equities to boost upper middle class
• Strong business outlays on capital expenditures
• Software, equipment and intellectual property
• Data from MMLC survey shows middle market ramping up
• Residential investment adjusts to cap on mortgage interest deduction
• Shift toward construction of entry level homes?
• Price adjustment above $500,000?
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US Economic Outlook
• Medium to Long-Term Outlook
• Long-term growth trend 2 percent
• Any growth above 2 percent should be considered healthy.
• Productivity remains tepid near 0.5 percent per year, but will pick up
on back of stronger fixed business investment
• Economic and wage growth uneven around the country
• 2018 Recession probability low; near 15 percent
• RSM Middle Market Business Index at 132.1, all-time high
• Household consumption of 3 percent
• Solid consumption and services demand driven by rising incomes
and decline in unemployment rate below 4 percent
• Residential Investment
• Forward looking permits at 1.25 million at annualized pace
• Major supply issues in new home markets
• Policy to impact residential investment going forward
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US Economic Outlook: Service Spending
10.9
2.2
10.5
4.4
9.3
8.4
1.4
6.4
6.4
6.1
3
1.2
5.3
0 2 4 6 8 10 12
OTHER
ACCOMMODATION
ARTS, ENTERTAINMENT AND RECREATION
HEALTH CARE & SOCIAL ASSISTANCE
EDUCATIONAL SERVICES
ADMIN, SUPPORT & WASTE MANAGEMENT
PROFESSIONAL, SCIENTIFIC & TECHNICAL SERVICES
REAL ESTATE, RENTAL & LEASING
FINANCE & INSURANCE
INFORMATION
TRANSPORTATION & WAREHOUSING
UTILITIES
SERVICES
Ye
ar-O
ver-
Ye
ar P
erc
en
tage
Ch
ange
Source; RSM, US Census
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Private Fixed Investment: Policy Key to Reversing Slide
12%
13%
14%
15%
16%
17%
18%
19%
20%
21%
1978 1983 1988 1993 1998 2003 2008 2013 2018
Pe
cen
tage
of G
DP
(No
min
al)
Source: RSM US, BEA
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Recession Probability Low
0
10
20
30
40
50
60
70
80
90
100
197
6
197
7
197
8
197
9
198
0
198
1
198
2
198
3
198
4
198
5
198
6
198
7
198
8
198
9
199
0
199
1
199
2
199
3
199
4
199
5
199
6
199
7
199
8
199
9
200
0
200
1
200
2
200
3
200
4
200
5
200
6
200
7
200
8
200
9
201
0
201
1
201
2
201
3
201
4
201
5
201
6
Per
cen
tage
Pro
bab
ility
Recessions Recession Probability IndexSource: RSM US
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US Economic Outlook
• Policy Normalization Amidst Low Rate Structure
• Central Bank
• Fed forecasting 3 rate hikes in 2018; we think 4 is more likely
• Balance sheet normalization in process
• 2018 Recession probability low; near 15 percent
• Interest Rates
• Policy rate likely to move to 2.5 percent in early 2018
• 10-year to trade between 2.5-3 percent with upside risk as Trump
tax plan implemented
• Inflation
• Modest inflation for now
• Stirrings in both producer and consumer data
• Technology likely to restrain inflation in near to medium term
• Fiscal operations likely to push inflation and bond yields much
higher over the long term
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Inflation: Your new friend
10
• NY Fed Underlying
Inflation Gauge
• At 3% (2.99%) for first
time in more than a
decade
• Measures 346 data
sets
• Goods and services
prices (CPI, PPI); labor
market, money,
producer surveys, and
financial variables
(short and long term
government interest
rates, corporate and
high yield bonds,
consumer credit
volumes and real
estate loans, stocks,
commodity prices).
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Household Outlook and Debt
•WARNING: WHAT YOU
ARE ABOUT TO SEE MAY
BE SHOCKING
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Household Outlook and Debt
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US Household Outlook and Debt
• Ratio: Debt service payments as a PERCENT OF DPI
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US Household Outlook and Debt
• Ratio: Total household debt service payments as a PERCENT OF DPI
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Global Economic Outlook
• Base Case: Growth above 4% percent in 2018
• Global Financial Conditions
• Major tailwind behind overall global growth
• US rising policy rate, EU to end negative interest rate policy
• Manufacturing Resurgence
• Germany, U.S., China, & India
• Supply Gap Forming in Global Oil Market
• Excess capacity clearing
• 6.5 million barrels per day need to be replaced
• U.S. Consumer Demand
• Mopping up excess supply
• Auto sales to remain robust
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US-Global Economic Relations: A Difficult Period Ahead
• U.S.-Global Trade Friction: Major 2018 Policy Issue
• This is the major risk to the domestic economic outlook in 2018
• Selective tariffs, NAFTA and key trading partners
• Trump administration 15-50% tariffs on solar, washing machine
• Targets China, South Korea
• Expect many more over coming months
• Asymmetric China retaliation will be designed to take market share
• NAFTA Modernization – Don’t believe the urgency hype from media
• March possible, or even July concurrent with MX presidential
election
• US will push to brink – classic Trump tactic (needs the base)
• Canada in some ways more at risk than Mexico
• Mexico willing to work out bilateral agreement if NAFTA terminated
• Meanwhile, prepare for short-term disruptions
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Why NAFTA Matters
• $1.2 trillion in cross border activity
• 12.5 million jobs at risk in the U.S. linked
to NAFTA
• $1 million in trade every minute of each
day of the calendar year
• Value added imports: 68 percent
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North American Economic Integration
-6
-5
-4
-3
-2
-1
0
1
2
3
4
5
6
7
8
1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016
GD
P Y
ear-
Ove
r-Ye
ar P
erce
nta
ge C
ha
nge
North American Economic Integration
Mexico Canada US
Source: RSM US, Bloomberg
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North American Intermodal Rail Network
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EMPLOYMENT OUTLOOK
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US Employment Outlook
• US Economy at Full Employment
• 173K per month gain in 2017 & 150K in 2018
• US Unemployment rate at 4.1 percent
• Heading to 3.7 percent with risk of lower rate in 2018
• Those working part time for economic reasons below long-term
average
• Initial claims at multi decade low
• Tight Labor
• Cyclical low of unemployed individuals per job opening
• Substitution of technology for labor
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Tight Labor Market
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
5.5
6.0
6.5
7.0
2003 2005 2007 2009 2011 2013 2015 2017
Job
Op
en
ings
Pe
r P
ers
on
Number of Unemployed Persons Per Job Opening=1.17
Source: RSM US, BLS
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Pulling Workers Back Into Market
3.0
3.5
4.0
4.5
5.0
5.5
6.0
6.5
7.0
7.5
8.0
8.5
9.0
9.5
10.0
1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017
Mill
ion
s
Noticeable Reduction in Labor Slack Over Past Year
Involuntary Part Time Employment=5.12 Million 20-Year Average=5.4 Million
Source: RSM US, BLS
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Shrinking Jobs vs Growing Jobs
Source: Bureau of Labor Statistics and Census Bureau, via IPUMS
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PRODUCTION AND MANUFACTURING
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Production and Manufacturing
• Industrial Production and Manufacturing
• Strong soft data positive
• Confidence measures
• Sentiment surveys
• Hard data not as encouraging
• Major risk is around policy: NAFTA
• Real concerns about auto production
• North American integrated auto supply chain provides a $4000.00 discount per auto produced
• Global and domestic demand
• Germany leads way
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Manufacturing Solid In 2017
20
30
40
50
60
70
80
2001 2003 2005 2007 2009 2011 2013 2015 2017
Ind
ex
ISM Manufacturing ISM New Orders Contraction=Less Than 50 Recession= Less Than 43.1
Source: RSM US, Bloomberg
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Industrial Production
-20
-15
-10
-5
0
5
10
15
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Yea
r-O
ver-
Year
Per
cent
age
Ch
ang
e
US Industrial Production US Industrial Production Materials & Energy
Source: RSM US, Bloomberg
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Global Manufacturing Snapshot
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
2014 2015 2016 2017
Ind
ex
US ISM Manufacturing JP Morgan Global Pmi German Markit PMI
Source: RSM US, Bloomberg
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HOUSING OUTLOOK
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Housing Outlook
• Housing Shortage Growing
• 350K units short
• Three Problems
• Lack of available lots
• Shortage of skilled workers
• Regulatory costs (also impacting labor mobility)
Amazon HQ2 (50k workers, need housing, etc.)
• Homeowners staying put
• Lack of supply
• Rising prices
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Residential Investment Recovery
0.3
0.5
0.7
0.9
1.1
1.3
1.5
1.7
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Mill
ion
s
Housing Starts Building Permits (2 Month Lead)
Source: RSM US, US Census
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THE MIDDLE MARKET LEADERSHIP COUNCIL (MMLC)
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RSM US Middle Market Leadership Council (MMLC)
• Designed to be a random and representative
sample of the middle market
• Comprised of 700 middle market business
leaders, not necessarily RSM clients
• Harris Poll-selected yearly, blind to RSM
• Surveyed quarterly
34
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RSM US Middle Market Business Index (MMBI)
Questions asked every quarter
Current sentiment
or recent performance
(current quarter
vs. last quarter)
Future period expectations
or intentions
(next 6 months)
Expectations regarding overall economy
(sentiment)
Gross revenues/incoming funds
Net earnings**
Capital expenditures/investments
Hiring levels
Average employee compensation
Credit
• Current period credit availability
• Future borrowing intentions
Prices paid (goods and services excluding
labor)
Prices received**
Inventory levels*****Not asked of non-profits***Asked of product and retail businesses only
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After a sharp decline in the prior quarter, the RSM US Middle Market Business Index in the fourth quarter surpassed it’s previous all-time high.
36
123.8
121.4
114.5 116.6
119.8
115.6
120.1
129.8
132.1
125.7
132.2
80
85
90
95
100
105
110
115
120
125
130
135
140
Q2‘15 Q3‘15 Q4‘15 Q1‘16 Q2‘16 Q3‘16 Q4‘16 Q1‘17 Q2‘17 Q3‘17 Q4'17
PES
SIM
ISM
OP
TIM
ISM
MIDDLE MARKET BUSINESS INDEX
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Executive Summary (cont’d)
The U.S. Middle Market Business Index hit a high point in the fourth
quarter.
• The RSM US Middle Market Business Index (MMBI) rose 6.5 points to post a new
cyclical high of 132.2 after the decline to 125.7 in the third quarter.
• The major catalyst for the increase was resurgent growth in the domestic economy,
which resulted in strong current gross revenues and net earnings and robust
expectations for the six-month forward look.
• Although slightly higher, aggregate capital expenditures/investments remained
relatively unchanged and cautious, which was somewhat surprising given the relative
economic trends
• Hiring and compensation results show the middle market continues to carefully
manage the labor situation.
• Prices paid and prices received both showed modest increases, in line with recent
stirrings in overall inflation data.
• Inventories continue to be carefully managed.
37
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TAX CUTS AND JOBS ACT CONSIDERATIONS FOR CONSUMER PRODUCTS INDUSTRY
February 1, 2018
Boston MA
Presented by Matt Talcoff
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TAX REFORMNotable provisions for consumer products Industry
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TAX REFORM
• Overview – Consumer Product Industry Impact
• Corporate rate cuts and choice of entity
• Pass-through entities
• Capital expenses
• Business interest deductions cutback
• Other important business deduction limitations, liberalizations, or deferrals
• Close-up on profits interests and carried interests
• Close-up on private equity
• Overview of State Tax Impacts
• Overview of the international business provisions
• Overview of the individual and wealth-transfer provisions
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OVERVIEW
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Provisions impacting the consumer products industry
1. Corporate tax rates reduced from a top rate of 35% to 21%
2. Individual tax rate of owners reduced from a top rate of 39.6% to 37%
3. Pass-through entity deduction up to 20% of the ‘qualified business income’
4. Enhanced depreciation deductions for capital expenditures (bonus and section 179)
5. Alternative minimum tax repealed for corporations and higher exemption for individual owners
6. Potential limit on Interest deduction based on 30% of modified taxable income
7. Net operating loss (NOL) rule changes generally reduce value of NOL carryforwards
8. Small business exemptions exist for limits on interest deduction and overall accounting methods
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Notable provisions, cont.
9. Many tax credits preserved (TIPs, WOTC, R&D)
10. Charitable contribution deductions preserves including enhanced food inventory deduction
11. Deduction for domestic production activities (section 199) was repealed
12. Transition to territorial system: Mandatory tax up to 15.5% on accumulated foreign earnings
13. Decoupled and diverse state income tax systems
14. Transaction related changes including limits on interest deductions and enhance write offs
15. Estate and gift tax exemptions nearly doubled to approximately $11M
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Major new or renewed concepts and provisions
• Corporate rate dramatically lower than top individual rate
• Double tax remains− All-in corporate plus dividend or capital gain rate slightly higher than top
individual rate
• Pass-through effective rate
− for qualifying income, lower than normal ordinary income tax rate
for salaries or portfolio income
• Limitations on business interest deductions
− even for payments to unrelated lenders
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Other key business provisions
Revenue Cuts:
• ($1.35T) - Corporate rate cuts
• ($414B) - Pass-through cuts
Revenue Raisers:
• $324.4B - International
• $253.4B - Limit net interest
• $201.1B - Limit net operating losses (NOLs)
• $149.7B - Limit pass-through losses
• $119.7B - R&D (research) amortization
• $ 98.0B - End domestic production deduction Sec 199
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CORPORATE TAX RATE CUTSThe choice of entity question
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Tax Revenue Landscape Sets the Stage2016 Federal tax revenues by category
Source: Congressional Budget Office
Individual Income Taxes47.3%
Payroll Taxes 34.1%
Corporate Income Taxes9.2%
Excise taxes 2.9%
Other (Estate, Customs, etc.) 6.5%
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Details of the reduced corporate tax rate
• Tax rate reduction from 35% to 21% − Compare to top individual tax rate of 37%
− Effective in 2018 (Audited Financial Stmts for Deferred Taxes in 2017)
− Repeals alternative minimum tax (AMT) for Corp not Individual
− No special 35% rate for personal service corporations (PSCs)
• Dividends received deductions (DRD) − Corporation-to-corporation dividends adjusted accordingly
− Reduces DRD 80% to 65% and 70% to 50% to preserve current effective rates
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Example for an individual shareholder
• Current (2017) income tax rules
− $100 of corporate income
• Less $35 tax at 35% rate
− $65 of cash on balance sheet
• Less $13 tax at 20% rate
− $52 of after tax cash
• 48% combined income tax rate
• 3.8% tax on $65 or $2.47
• All-in 50.47% tax rate
• Future income tax rules
− $100 of corporate income
• Less $21 tax at 21% rate
− $79 of cash on balance sheet
• Less $15.8 tax at 20% rate
− $63.2 of after tax cash
• 36.8% combined income tax rate
• 3.8% tax on $79 or $3
• All-in 39.8% tax rate
− Note: Max Indiv Rate of 37%
• 20% reduction is 29.6% on certain business income
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Planning around the new rates (C corporation/entity choice)
• New income tax rules (C corps)
− $100 of corporate income
• Less $21 tax at 21% rate
− $79 of cash on balance sheet
• Less $15.8 tax at 20% rate
− $63.2 of after tax cash
• 36.8% combined income tax rate
• 3.8% tax on $79 or $3
− All-in 39.8% tax rate
• Planning opportunities
− Defer the 20% dividend and
3.8% NII tax
• Reinvesting cash in the business
− Avoid the 20% dividend and
3.8% NII tax
• At death or
• Stock gifts to charity that would otherwise be made in cash
− Reduce the 20% dividend and
3.8% NII tax
• If shares held by lower-rate taxpayers
• Including from gifts, trusts, etc.
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PASS-THROUGH ENTITIES
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20% pass-through deduction in a nutshell
• Applies to operating income of active businesses− If at 37% tax rate then the 20% deduction results in an approx. 29.6% federal
tax
− Compared to: • 21% top corporate tax rate
• 37% top individual tax rate
• 39.8% top corporate/dividend tax rate
• 29.6% potential pass-through tax rate
• Does not apply, generally, to professions or financial businesses
• Business must either− Pay W-2 wages equal to 40% of income to get the full 20% deduction
− Limit deduction to 2.5% of original cost of depreciable, tangible property plus 25% of wages
• Business type and wage/asset limits do not apply below specified income limits ($315K)
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No benefits (above the income threshold) for owners of “specified service businesses”
Specific service businesses:
• Any trade or business involving the performance of services in the
fields of health, law, engineering, architecture, accounting, actuarial
science, performing arts, consulting, athletics, financial services,
brokerage services, or
• Any or business where the principal asset of such trade or business is
the reputation or skill of 1 or more of its employees [OR OWNERS]
What does this mean?
• For example, could a franchised restaurant operation be a service business under this
provision?
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CAPITAL EXPENSESDepreciation, expensing, bonus depreciation
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Capex - Depreciation
Complex analysis but generally…
• MACRS Continues
• 100% bonus depreciation through 2022, then phased out through 2026
• Applies to new and used property acquired
• Real property depreciation complex, potential business interest limitations
• Applied for property acquired after Sept. 27, 2017
• Qualified improvement property (QIP) remains − Qualified leasehold improvement (QLHI), restaurant and retail improvement eliminated
− But no life provided and needs to be 20 years or less to be 100% bonus eligible
• Section 179 − $1M permanent expensing, subject to limitations and phase-outs beginning at $2.5M
− QIP interior of non residential rental property (Includes roofs, HVAC, fire protection, security sys.
− Careful planning needed
• State conformity is a question and an opportunity
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BUSINESS INTEREST DEDUCTIONS CUTBACK
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Important changes to interest limitations
• Caps net interest deduction at 30% of an amount based on
earnings (EBITDA) for 4 years, then limits the deduction to 30% of
earnings before interest and taxes (EBIT)
• Taxpayers with average gross receipts of $25M or less and car
dealers using floor plan financing loans to fund their inventory are
excluded from the interest limitation
• Allows ‘limited’ deductions to carry forward forever
• Various exceptions for real estate, utilities, farming, and certain
small businesses
• Special rules for partners and partnerships
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Interest limitation using EBITDA
Company worth $3 million
Debt of $2 million @ 5%
Equity of $1 million
Earnings before interest and depreciation = $500,000
Depreciation = $200,000
Interest = $100,000
Taxable income before limitation = $200,000
Base for limitation = $500,000
30% of base = $150,000
No limitation applies
Carryforward allowed indefinitely
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Interest limitation using EBIT
Company worth $3 million
Debt of $2 million @5%
Equity of $1 million
Earnings before interest and depreciation = $500,000
Depreciation = $200,000
Interest = $100,000
Taxable income before limitation = $200,000
Base for limitation = $300,000
30% of base = $90,000
$10,000 interest is ‘limited’
Carryforward allowed indefinitely
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OTHER IMPORTANT BUSINESS DEDUCTION LIMITATIONS, LIBERALIZATIONS, OR DEFERRALS
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Good news
• Deferred taxes on financial statements
• Expanded use of cash method of accounting for small C corporations and partnerships with C corporation partners with < $25M gross receipts
• Expands the uniform capitalization (UNICAP) small business exception
• Generally exempts certain small business taxpayers from requirement to keep inventory
• Expands percentage of completion method exception for certain construction contracts
• Retains research and development credit
• Retains TIPs credit and WOTC
• Favorable depreciation rules (But QIP?)
• Repeals technical termination of partnerships
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Not good news
• No more manufacturer’s deduction (section 199) i.e. commissaries
• No more NOL carrybacks – some limitations and modifications to
the carryforward rules
• Modifies the exclusion from income of certain contributions to
capital (e.g., state/city grants)
• Limits like-kind-exchanges to certain real property
• Increased limitations on deductibility of certain expenses of
entertainment (good and bad), etc.
• Limits on business interest expense
• Limit on state income tax deductions for flow-throughs
• Deemed repatriation (good news, bad news)
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Limitations on entertainment
• New limitations apply
• What constitutes entertainment?
• Compliance and planning opportunities
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CLOSE-UP ON PROFITS INTERESTS AND CARRIED INTERESTS
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Treatment of carried interest
• Expressly recognizes the concept of different treatment for profits
interests in an ‘applicable trade or business’ defined as –
− A regular, continuous and substantial activity of
− Raising or returning capital, and either
• Investing in or disposing of specified assets, or
• Developing specified assets
− Specified assets include securities, commodities, real estate, cash,
options, derivatives, and partnership interests
• But, for now, only applies a 3 year holding period
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CLOSE-UP ON PRIVATE EQUITY
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Issues for private equity
• Generally good news for treatment of carried interest if hold for 3 years
• Business interest limitations may limit leverage
• NOL rules and other rules may require restructuring
• Reconsider choice of entity (partnership vs. corporation) for portfolio
companies
• Founders or other individuals may have rate issues, self-employment
issues and net investment income tax issues
• Write off of used assets in M&A transaction
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OVERVIEW OF STATE IMPACT
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State taxation: decoupled and diverse state systems
• Will states legislatures decouple?− 2018 sessions have begun
− 47 states and the District of Columbia scheduled to be in session
− Most sessions end by June
• A question of conformity− Rolling
− Fixed
− Selective
• Some provisions broaden the federal income tax base (e.g., interest expense limitations)
− Potential windfall for states
• Some provisions allow deductions from the federal income tax base (e.g., bonus
depreciation)
− Expect decoupling for state purposes
• Other state responses− Rate changes
− Deductions and exemptions eliminations
− Base expansions and new taxes, e.g., gross receipts taxes
− Continued aggressive nexus expansion
©2015 RSM US LLP. All Rights Reserved. ©2015 RSM US LLP. All Rights Reserved.
OVERVIEW OF THE INTERNATIONAL BUSINESS PROVISIONS
©2015 RSM US LLP. All Rights Reserved.
Why do we need international tax reform?
• Tax proposals are new to the United States but not to the rest of the world
• Consistent with global trends
− Lower corporate rates in Europe and many other countries
− Territorial system elsewhere
• Argument is competitive tax system will increase employment
− German experiment
− Tax is one leg of the stool: health care and education
©2015 RSM US LLP. All Rights Reserved.
What about offshore earnings (E&P)?
• New tax holiday for offshore earnings:− Deferred offshore earnings taxed in 2017 for calendar year ‘deferred income corps’;
• ‘clears the earnings and profits (E&P) decks’
− Two tier rates (15.5%/ 8%): cash vs non-cash assets
− Applies to a U.S. shareholder (individuals will get slightly higher rates)
− Must take into account share of ‘aggregate’ earnings in all foreign countries
− But can offset positive earnings in some foreign countries with deficits of others
− Election to defer payment of tax over 8 years
− Special election for S corporation shareholders – can defer until triggering event • (e.g., sale or liquidation)
• Other Items− BEAT
− GILTI
− Planning
©2015 RSM US LLP. All Rights Reserved. ©2015 RSM US LLP. All Rights Reserved.
OVERVIEW OF THE INDIVIDUAL AND WEALTH-TRANSFER PROVISIONS
©2015 RSM US LLP. All Rights Reserved.
Final provisions
Area Conference Resolution
Brackets and rates for individuals • Seven tax brackets—10, 12, 22, 24, 32, 35, and 37 percent. The top individual rate of 37
percent will apply at incomes of $500,000/$600,000
Brackets and rates
for estates and trusts
• Condenses the number of tax brackets from seven to four, including 10, 24, 35 and 37
percent brackets
Alternative minimum tax • Retained with higher exemptions ($70,300/ $109,400); phase-out of exemption
increased to $500,000/$1,000,000
Personal exemptions • Repeals
Standard deduction • Doubles to $12,000/$24,000; retains additional deduction for blind and elderly
Mortgage interest • Limits to interest on $750,000 of indebtedness on newly purchased principal and second
residences incurred after Dec. 15, 2017; not allowed for home equity loans
State and local tax deductions • Deduction of up to $10,000 for state and local property, income or sales taxes allowed
• Cannot pre-pay 2018 state and local income taxes to get 2017 deduction
Charitable contributions • Preserves deduction and increases the AGI limitation for cash contributions to public
charities and certain private foundations from 50 percent to 60 percent
529 plans • Up to $10,000 of 529 plans can be used per student for public, private and religious
elementary and secondary schools
©2015 RSM US LLP. All Rights Reserved.
Final provisions, cont.
Area Conference Resolution
Other deductions • Deductions for casualty and theft losses limited to those incurred in a disaster area
• Alimony paid for divorce after Dec. 31, 2018 not deductible/includible after 2018
Miscellaneous deductions • Eliminates miscellaneous deductions over 2 percent of AGI
Medical expenses • Medical expenses exceeding 7.5 percent of AGI deductible for 2017 and 2018;
eliminates AMT preference for medical expense deductions for 2017 and 2018.
Overall limitation on deductions (Pease
Limitation)
• Suspends 3 percent of AGI limit on deductions
IRA’s • Conversion of traditional IRA to a Roth IRA cannot be recharacterized; can still convert
traditional IRA into a Roth IRA.
Estate, gift and GST tax • Exemptions are doubled to approximately $11.18 million, effective January 2018.
• The estate, gift and GST tax rates remain the same as existing law.
• Estate and GST tax not repealed
• Provisions sunset after 2025
©2015 RSM US LLP. All Rights Reserved.
Key provisions of current law undisturbed
• Income tax− The 3.8 percent tax on investment income under section 1411 and
the .9 percent Medicare tax on compensation
− Tax rates on capital gains and qualified dividends
− Exclusion of gain on sale of a residence
− Ability to identify the securities that an investor is deemed to sell, i.e., the Senate’s proposal for a ‘first-in, first out’ method not included
− Pre-tax contribution limits (including catch-ups) for 401(k) plans
− Ability for beneficiaries to ‘stretch’ IRA withdrawals out over their lifetimes
− Student loan interest deductions, adoption assistance programs, dependent care accounts, tuition waivers, employer paid tuition, teacher supplies deduction and Archer medical savings accounts
©2015 RSM US LLP. All Rights Reserved.
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Panel Members
b.good
Anthony Ackil
Co-founder and CEO
J.W. Childs Associates
David Firoentino
Partner
The Paper Store
Tom Anderson
President and CEO
*Moderator
John Nicoloupos
Partner, RSM
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