As a follow up to the webinar we did in December, this webinar will dig in a little deeper into what we believe are the most impactful and relevant aspects of the Tax Cuts and Jobs Act of 2017 for both individuals and businesses. We will also identify planning opportunities for businesses to ensure that opportunities for tax minimization are realized and pitfalls are avoided. During the webinar, participants will understand how the potential tax legislation will affect themselves individually, their families, their businesses, and how to plan for future tax liabilities.

1. Tax Reform Legislation
Analysis
An overview of the Tax Cuts and Jobs Act of 2017

2. About Us
Mark Heath, CPA
Partner and Director of Tax
mheath@macpas.com
Dan Matarrese, CPA
Senior Manager and Director of
Individual Tax Services
dmatarrese@macpas.com

3. Individual Taxes – Digging Deeper
What happened to my deductions?
• Personal Exemptions
• State and Local Taxes
• Mortgage Interest
• Charitable Contributions
• Miscellaneous Deductions
• No more phaseout

4. Individual Taxes – Digging Deeper
Standard Issue – Not such a bad thing…..
• Almost doubling in 2018
• MFJ - $24k
• HoH - $18K
• Single - $12K
• MFS - $12K

5. Individual Taxes – Digging Deeper
The Smiths
• Married with two children, take the standard deduction.
• 2017 - $28,900 of total deduction ($4,050 exemptions X 4 + $12,700
Standard deduction).
• 2018 - $24,000 standard deduction
• Don’t forget to consider:
• Increased Child Tax Credit
• Drop in rates

6. Individual Taxes – Digging Deeper
Rates……
• Taxable Base: Amount of income subject to tax
• Tax Rate: The rate of tax applied to your taxable base
• The Tax Cuts and Jobs Act of 2017 cut taxes rates across the board
• But, it didn’t necessarily decrease your taxable base

7. Individual Taxes – Digging Deeper
All about that base, No C-Corp.
• With the C-Corp Rate going down, how do we keep pass-throughs
competitive?
• Qualified Business Income Deduction
• A new deduction of 20% from the taxpayer’s “Qualified Business Income”.

8. Individual Taxes – Digging Deeper
QBI is as simple as ABC…. Right?
• Owner of:
• Sole proprietorship – Schedule C
• Rental Activity – Schedule E
• S-Corporation – K-1
• Partnership K-1
• Gets a deduction equal to 20% of the amount of income from the business
activity they report on their return.

9. Individual Taxes – Digging Deeper
QBI – We need more postcards
• The deduction, however, is limited to the LESSER OF:
• 20% of qualified business income, or
• 50% of the total W-2 wages paid by the business.
• There is also an alternative limitation based on the owner's allocable share of 2.5% of the
unadjusted basis of certain business assets.
• The “50% of wage limitation” only applies if the taxable income of the
business owner is over certain thresholds
• $315,000 for a married filing joint return

10. Individual Taxes – Digging Deeper
QBI – We need more postcards
• So, all pass-through income is qualified business income……..
• Fake News!
• If taxable income is over the threshold amounts (315K for MFJ), income from “specified
service businesses” is no longer eligible for the deduction.

11. Individual Taxes – Digging Deeper
QBI – Still haven’t found what we’re looking for
• Is still remains clear whether the specifics of the calculation of the QBI
deduction will treat all pass-through entities equal.

12. C Corporations – The Key Aspects
• Flat tax rate of 21%
• Fiscal year filers must use a blended rate
• Impact on financial reporting
• Dividends received deduction
• 20% ownership = 65% deduction down from 80%
• <20% ownership = 50% deduction down from 70%
• AMT gone
• AMT Credits – refundable through 2021

13. C Corporations – The Key Aspects
• Net operating losses
• 2018 and future losses limited to offsetting 80% of taxable income
• Carried forward indefinitely (no carryback)
• 162(m) – key employee compensation
• Removes incentive based exception
• Applicable only to public companies

14. Business Taxes – The Key Aspects
• Limit on business interest deduction
• 30% of adjusted taxable income
• Taxable income adjusted for depreciation, amortization, and depletion
• Calculation done at the entity level
• 2018 through 2021
• BUSINESS interest only
• $25m gross receipts limitation
• Other restrictions

15. Business Taxes – The Key Aspects
• Domestic Production Activities Deduction
• Gone in 2018
• Fringe benefit rules
• Entertainment expenses now totally non-deductible
• No more free lunch
• ALL meals now only 50% deductible
• No deduction for transportation fringe benefits
• No deduction for local lobbying expenses

16. Business Taxes – The Key Aspects
• FMLA credit
• 2018 & 2019
• 12.5% of wages paid to FMLA employees
• If rate of wages paid is 50% of normal wages
• Increases ratably
• Qualified rehabilitation credit
• 10% credit – gone
• 20% now phased in over 5 years

17. Business Taxes – The Key Aspects
• 179 Expense
• Max up to $1m
• Phased out with cap ex over $2.5m
• Indexed for inflation
• Bonus depreciation
• 100% from 9/28/17 through 12/31/2022
• New and new to you
• Phase out after 2022
• PA says no bonus for you
• Qualified improvement property
• Removes restrictions

18. Business Taxes – The Key Aspects
• R&D Expenses
• Must be capitalized and amortized over 5 years beginning in 2022
• Like kind exchanges
• Gone for personal property

19. Flow-Through Entities – The Key Aspects
• Deduction for pass-through income
• 20% of qualified business income
• Reduction from taxable income at the individual level (not AGI)
• If MFJ AGI is greater than $315k, limitations apply
• 50% of W2 wages
• Sum of 25% of W2 wages plus 2.5% of qualified property
• Additional restrictions on professional service providers

20. Flow-Through Entities – The Key Aspects
• S Corporations converting to C Corporations
• Favorable treatment of post conversion distributions
• Partnership technical termination – gone

21. How Can McKonly & Asbury Help?
• Forecasting
• 199A deduction
• Business interest limitation
• Fixed asset review
• Bonus or 39 year property?
• Entity selection
• C Corp is back in play

22. Discussion and Questions
Mark Heath, CPA
Partner and Director of Tax
mheath@macpas.com
Dan Matarrese, CPA
Senior Manager and Director of
Individual Tax Services
dmatarrese@macpas.com

23. Building Successful
Employee Relationships
A Cornerstone to Fraud Prevention
and Risk Management