Real Answers on Tax Reform
You don’t need tax reform info. You need answers. We’ve got them.
RKL separates the advice you can skip from real opportunities for maximum business and personal tax savings under the new law. We’ve done the deep dive on tax reform so you don’t have to, and we’re proud to share insights and context in a variety of formats for the benefit of business owners and individuals.
Tax Reform: The Big Picture
Watch the webinar
Run-time: 56:47 Join RKL’s Jonathan Clark and Eric Wenger for one hour of high impact ideas on how individuals, businesses and corporations can maximize their tax savings under the Tax Cut and Jobs Act of 2017.
- New Tax Law: Top-Level Impacts for Businesses and Individuals (RKL blog)
- Clock ticking on decisions in wake of tax bill (Rob Gratalo quoted in Central Penn Business Journal, December 20, 2017)
- RKL Alert: Key Tax Extenders in Federal Budget Bill (February 13, 2018 email)
Tax Reform Snapshot: Individual Impact
- Individual Provisions [PDF]
Individual planning ideas and considerations:
- Don’t file 2017 individual or business return without thinking about whether there is an opportunity to defer income to 2018 or accelerate deductions to 2017. Lower tax rates in 2018 mean tax deductions are worth more in 2017 than 2018.
- Don’t forget to claim the new, higher child tax credit. Phase-out doesn’t start until joint income exceeds $400,000.
- Avoid the aggravation of Kiddie Tax. Follow the trust tax brackets for kids’ unearned income.
- The timing of divorce decrees in 2018 versus 2019 could have a significant impact on both spouses’ tax situation. Plan accordingly!
- Taxpayers over age 70.5 who must pull Required Minimum Distributions from retirement accounts should consider donating those amounts directly to charity for additional tax savings.
- Medical expenses are more likely tax-deductible in 2017 or 2018 than in future years. Are there expenses that can be incurred sooner rather than later?
- Worried about the $10,000 cap on state and local taxes? Is the property used for rental, investment or self-employment business purposes?
- “Bunch” your itemized deductions (especially charitable contributions) by contributing to a donor advised fund.
- Might your employer be willing to cover some or all out-of-pocket job expenses you incur since those are no longer deductible for the employee?
- Trace the use of loan proceeds to maximize potential tax deductibility.
- Can individual tax preparation fees be allocated to your business or rental activities?
- Casualty and theft losses are no longer deductible…unless it’s a federally-declared disaster area. Something no one will hope for.
- No more penalty for failure to maintain health insurance.
- Owners of PA pass-through businesses that itemize their deductions and have exceeded the $10,000 cap on state and local taxes can actually MAKE money by making contributions to PA EITC or OSTC programs.
- Don’t be too quick to assume contractor status is preferable to employee. Weigh the facts and trade-offs.
- Look closely at estimated payment needs for 2018 – consider evaluating projected tax liabilities instead of simply using prior year safe harbor methodology.
Individual/Wealth Management planning ideas and considerations:
- A Roth IRA/401(k) contribution may be a better alternative to making a traditional/deductible contribution.
- Consider converting some portion of Traditional IRAs to Roth IRAs while tax rates are lower (or to maximize tax benefit of having a lower income year).
- No more Roth recharacterizations. Timing matters!
- Saving for education just became easier. Fund a 529 account and obtain PA tax deductions, avoid taxes on gains in the accounts and now you can use the money for private elementary and secondary schooling, too.
Tax Reform Snapshot: Business Planning
- Corporate Impact [PDF]
Business planning ideas and considerations:
- Choice of entity considerations – why not switch to a C Corp? Make sure to consider 2nd layer of tax on dividends, how long the earnings will remain in the entity, state tax implications (especially for PA-based businesses) and possible 1202 gain exclusion.
- Electing to change entity classification for the 2018 tax year? Form 8832 must be filed within 75 days (by 3/15/18).
- C Corps: Remember to revalue deferred tax assets and liabilities using the new 21% federal rate.
- C Corps with profitable foreign subsidiaries – Must include in 2017 U.S. taxable income the total amount of unremitted foreign earnings that were never repatriated back to the U.S. Should we elect to pay this additional tax liability over an eight-year period instead of all at once?
- Last chance to do a net operating losses (NOL) carryback! NOL’s arising from a tax year ending after 12/31/17 are not eligible for the 2 year NOL carryback.
- Research & Development (R&D) credit has been retained – can you take advantage of it? Remember that tax deductions are not worth as much with lower tax rates so credits are proportionately more advantageous.
- Small businesses with average annual gross receipts under $25M – consider accounting method changes that defer income or accelerate deductions. Possibilities include the expanded use of cash method, UNICAP exception, percentage of completion exception and requirement to keep inventory. Automatic changes can be made through extended due date of 2018 return.
- Should I continue to pay down high-yield debt since this may result in limitations on annual interest expense deductions?
- Consider changing your capital structure to avoid the interest expense limitations – perhaps preferred equity may be a better solution to debt despite different legal rights?
- Certain businesses have the option to elect out of the net interest deduction limitations – does it make sense to do this? The tradeoff is losing some depreciation benefits (ADS must be used).
Tax Reform Snapshot: Pass-Through Impact
- Pass-Through Impact [PDF]
Pass-through deduction planning ideas and considerations:
- 199A: How can you best avoid being caught in the qualified service provider definition?
- Make self-employed retirement plan contributions to further reduce taxable income and potentially increase 199A deduction.
- Consider bunching itemized deductions to maximize the potential benefit of Section 199A.
- Are your wages from a business you own set at the proper level to maximize the Section 199A deduction?
- Don’t tell the IRS you’re operating a qualified service provider business if you’re not! Watch out for NAICS code disclosures.
- Real estate folks: Remember that you could have NO payroll expense but still benefit from 199A.
Tax Reform Snapshot: Depreciation & Fixed Asset Planning
Ideas and considerations:
- Given immediate tax depreciation deductions coupled with labor shortages, is it time for your business to further explore robotics and automation?
- Are there prior cost segregation studies that were never done? It’s not too late to do a look back cost segregation study and claim 2017 deductions at higher tax rates! Form 3115 needs to be filed by extended due date of 2017 return.
- Can I still do a like-kind exchange? Yes, but only for real property so beware of accelerated depreciation on personal property and gain recognition upon exchanges. Consider strategies with allocation of purchase price to shift more to the real property and less to the personal property.
- 100% bonus depreciation opportunity applies for new and used assets placed in service after 9/27/17 so consider taking advantage of this on 2017 tax returns.
- Multi-year planning: in future years, if 100% bonus is going to go away (assuming it’s not extended), it might be worth electing OUT of bonus in those years
- Mergers & Acquisitions: Consider impact of being able to deduct 100% bonus depreciation on personal property; even greater incentive to do asset deal (for buyer), or 338(h)(10) or §336(e) transaction.
Other Tax Reform Impacts
- What Does Tax Reform Have to Do with My Nonprofit? (RKL blog post)
- 5 Things You Need to Know About International Tax Reform (RKL blog post)