Tax law change projection

Considering the Impact
Of Potential 2017Tax Law Changes
© John Caughell All Rights Reserved

AboutToday’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 ofToday’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

InterestingTax Facts
• IndividualTaxes
• Over 140 Million 1040 returns are filed annually
• Reporting $1.2Trillion in taxes
• BusinessTaxes
• Over 2 Million Corporation, S Corporation and Partnership returns
• Reporting about $300 Billion
• EstateTaxes
• Only about 300,000 filed annually
• Generating under $20 Billion inTaxes

InterestingTax Facts
• Size of theTax 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 MajorTax 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

IndividualTax 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 Person
Dependents 1
Children 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 2
Children 1
Current
Law Potential
Wages 50,000 50,000
Exemption 8,200 -
Child Credits 2,000 2,000
Tax 2,213 1,750
Tax Savings 463

Married
Dependents 6
Children 4
Current
Law Potential
Wages 100,000 100,000
Exemption 24,600 -
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?

BusinessTax 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

BusinessTax 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

Business Examples
• Income Before Depreciation and Interest $150,000
• Interest of $10,000
• Depreciation (all §179) $90,000 ( total assets purchased)
Current
Law Potential
Net Taxable Income Before Depreciation and Interest 150,000 150,000
Interest 10,000 -
Depreciation (all §179) 90,000 90,000

Business Examples
• Income Before Depreciation and Interest $100,000
• Interest of $10,000
• Depreciation (all §179) $90,000 ( total assets purchased)
Current
Law Potential
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 Example
CurrentTax Disparity
S Corp
(Reasonable
Comp) S Corp
Sole
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 Owner
Wages 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 Paid
Company 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 Example
DeemedWage 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 Owner
Wages 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 Paid
Company 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 “DeemedWages”
• By Formula
• By Schedule
• Taxpayer judgement
• Regardless, will be an audit area
• AcceleratedWrite-off of Capital Purchases
• Active trade or business only?
• What about rental properties?
• Small business already gets §179 so why limit interest?
• StateTax Connection issues
• More complex accounting
• Different depreciation rules

Estate (Death)Tax Changes
• Full Repeal of Federal LevelTaxes
• Estate taxes account for less than 1% of FederalTaxes
• 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

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