Top 7 Questions on Tax Reform
From converting to a C corporation to the new meals and entertainment rules and beyond, the 2017 Tax Cuts and Jobs Act has touched business of all sizes. In this episode of “The Bottom Line,” EisnerAmper manager Tim Schuster talks about the seven questions he’s receiving the most from clients on tax reform.
Dave Plaskow: Hello and welcome to The Bottom Line. This podcast examines the everyday business and finance issues faced by closely held and private businesses. We hope to provide you with news you can use, in what we like to think of as a jargon free zone. I’m your host Dave Plaskow and with us is Tim Schuster, a manager in EisnerAmper’s Private Business Services Group. Today, we’ll discuss with Tim the most common questions he’s receiving from clients concerning tax reform. Tim, hello.
Tim Schuster: Dave, it’s good seeing you.
DP: So tax reform has certainly touched businesses of all sizes, across all industries, I mean, it’s really, it, its, its tentacles go long and wide.
TS: Oh, it’s beyond anything that we’ve seen in at least thirty plus years.
DP:Yeah, so you and I have come up with a top 7 list of business tax reform questions you’re receiving from clients. So let me start with the first one. If I’m an LLC or an S corp, should I convert to a C corp?
TS:So it’s astonishing actually how many questions I’ve received from clients in regards to this. Really, they shouldn’t either convert to a C or revert back to being a C. So, while yes, the new C corp rates are favorable, and really, this is what kind of stirs the conversation is, wait a second, it’s 21% now - why would I not convert? C corps are still subject to double taxation. So, the profits of the corporation are taxed and dividends distributed to the owners are taxed as income on the individual level. You know, another reason to also not be a C corp is if you decide to sell your business down the road, you would be subject to double taxation on the sale. So your assets are taxed in the entity when it’s sold and then it’s taxed when the corporation is liquidated.
DP:Ok. Now number two is one that I’m hearing a lot – that’s the new meals and entertainment rules. Tell us about that one.
TS:There are a lot of changes with this as well, but I also want to start by just saying that I do come bearing good news. So office holiday parties are still 100% deductible. Oh yeah.
DP:Ok.
TS:The meals purchased while entertaining clients are still 50% deductible. Unfortunately that’s where the good news ends. There is no longer a 50% deduction on entertainment expenses. Also, meals provided for the convenience of an employer are now subject to 50% deduction where it used to be 100%.
DP:Ok. Now, this third one I haven’t heard much about, so why don’t you enlighten me…
TS:Sure.
DP: … on the domestic production activities deduction.
TS:Absolutely. So, unfortunately – and if you’re in the manufacturing realm, this was a very, very popular deduction – this has been completely eliminated starting in tax year 2018. In the past, manufacturers used to receive a 9% deduction from income derived from U.S. production activities. Congress had to make up the deficit somewhere.
DP: Ok. Number four – the new depreciation rules.
TS: Sure. There’s a lot of changes with this as well, and actually very favorable for taxpayers. So the new rules went into effect retroactively to September 27, 2017. So you can benefit from these new rules so long as the assets were placed in service after that date, or on that date as well. So the new depreciation rules will be favorable until at least 2022. 100% bonus is back. After 2022 the bonus depreciation is scaled back by 20% each year. This break on bonus depreciation is applied to assets with a useful life of twenty years or less, and the assets can be used or new. This is huge by the way.
DP: Ok.
TS: Section 179 saw an increase as well – up to $1 million. This limitation phases out dollar for dollar once you hit $2.5 million of qualified purchases.
DP:Ok. Number five – I feel like Dave, Dave Letterman here. Net operating loss rules.
TS:So the old rules were you would carry back your NOLs – net operating losses – first, to the second prior tax period if you had taxable income, then carry forward up to twenty years. The new rules, effective for years beginning after December 31, 2017 are, that two year carry back, are completely repealed. NOLs generated after December 31, 2017 are eligible to be carried forward indefinitely. But there is a huge caveat with that – you are only allowed to deduct up to 80% of taxable income in future years, so you cannot directly write off all of your NOLs being carried forward.
DP: Now, if I was on the cash method of accounting can I maintain that?
TS:Of course. Actually, in fact the new law expanded on this and more taxpayers are able to benefit. You’re allowed to be on the cash method of accounting if your average gross receipts are $25 million or less in the preceding three tax years.
DP:And finally, how does the new interest deduction work?
TS:So this change is huge for taxpayers who have high interest expense from each year. I honestly would expect to see this a lot in the real estate industry. So, interest deduction is limited to 30% of earnings before interest, taxes and depreciation amortization, or EBITDA. Any amounts disallowed may be carried forward indefinitely. If you are a taxpayer where your average gross receipts are less than $25 million for the proceeding tax… for the proceeding three tax years, then you’re exempt from this limitation. Have you guys noticed recently a trend with the look back period being three proceeding years?
DP:Ok. Well Tim, thanks for bringing some clarity to that for us.
TS: It’s my pleasure.
DP: Now let’s lighten the mood a little, and give us one of your New Jersey Historical Society fun facts.
TS:This is actually one of my favorites. Did you happen to know that New Jersey used to be two separate states at one point?
DP:Nope.
TS:So, it used to be East and West Jersey from the years 1674 to 1702. In fact, if you’re in the Princeton area, and drive on Province Line Road, this road used to be the dividing line between the states.
DP:Interesting. Well thanks again Tim for all this valuable information.
TS: My pleasure.
DP:And thank you for listening to The Bottom Line, as part of the EisnerAmper podcast series. If you have any questions or there’s a topic you’d like us to cover, email us at contact@eisneramper.com and visit EisnerAmper.com for more information on this, and a host of other topics. And join us for our next EisnerAmper podcast when we get down to business.
In this episode of The Bottom Line, EisnerAmper Private Business Manager Tim Schuster discusses developing a quarterly planning calendar, including budget, tax planning and speaking with your trusted advisor. Review these concepts monthly from an accounting perspective.
In the wake of the government shutdown, Tim Schuster offers tips on creating an emergency fund. To avoid living paycheck to paycheck, Tim suggests putting money into a separate savings account, as well as a portion of any windfalls. Emergency funds should include medical expenses.
Tim Schuster from EisnerAmper’s Private Business Services Group talks about the family issues and financial burdens for members of the sandwich generation - those individuals who are responsible for raising their children as well as caring for aging parents.
As New Jersey initiates paid employee sick leave The Bottom Line examines the requirements for business owners. Some reasons for which employees can use sick leave include an employee's own personal medical treatment or legal services, or that of a family member.
EisnerAmper’s Private Business Services Group Manager discusses the current unemployment rate and the booming economy despite current trade tariffs. To help attract employees, businesses are offering incentives such as assisting with student loans to attract millennials.
EisnerAmper’s Private Business Services Group partner discusses estate planning and the need to have a will - from an online provider or an estate planning professional - to help your heirs understand your estate asset wishes and the Tax Cuts and Jobs Act estate tax thresholds.
The Bottom Line looks at some of the common IRS scams out there and what you should do if you fall victim to one of these scammers, including email and personal data hacks, ID theft and fraudulent returns. Contact your accountant if you think you’re a victim of a scam
The landmark Supreme Court decision in the Wayfair case on e-commerce taxation allows states to collect sales tax on e-commerce companies, even without brick and mortar locations in that state, affecting all e-commerce companies such as Amazon. Accountant guidance is suggested.
This podcast discusses the New Jersey Department of Labor and the employee or independent contractor (freelance work) classification under new Tax Cuts. A DOL audit might look at your Facebook and LinkedIn, and can also change your employee or contractor classification.
This episode of The Bottom Line looks at New Jersey Governor Phil Murphy’s inaugural NJ budget. The discussion includes the Governor's proposed New Jersey's state tax on Uber and Airbnb, addressing tax loopholes for hedge funds and New Jersey tax's effect on the gig economy.
In this episode of The Bottom Line, Tim Schuster discusses some of the individual taxation questions bubbling up from clients in the wake of tax reform including adjusted gross income changes, private business taxation, QBI, and the importance of talking with your tax advisor.
In this episode of “The Bottom Line,” Tim Schuster talks about the benefits of retirement savings plans for small businesses, including SEP IRAs, SIMPLE IRAs, and Solo 401(k) plans, as well as eligibility and contribution limits set for small business contributions.
Tim Schuster discusses how starting a college savings account – sooner rather than later – can help alleviate sticker shock for your child’s college education. He talks about the different state-sponsored 529 plans, what you can use the money for, the tax benefits and more.
EisnerAmper’s examines the differences between different Health Spending Accounts including HSAs, HRAs and FSAs. It is recommended you speak with your tax advisor about qualified medical expenses and pending tax reform's affect on health spending accounts.
EisnerAmper's Tim Schuster looks at several categories of SBA loans for working capital. He covers the loan approval process, SBA 504, real estate exclusions and how business advisors can help you make the most of the Small Business Administration (SBA) loan process.
EisnerAmper’s Tim Schuster tackles the issue of succession planning - Companies should have something written down for succession planning purposes as well as take into consideration estate planning, wealth management and valuation when creating their transition plan.
EisnerAmper's private business manager, Tim Schuster discusses the need for proactive disaster planning for private businesses, as well as business interruption insurance in the event that your disaster planning fails. FEMA offers online disaster planning recovery courses.
In this episode, Tim breaks down what a closely held business is, the different business formats such as LLC LLP and S Corp, and how this impacts the role of business advisors. Regardless of business structure, your accountant, banker and lawyer all need to be on the same page.
