0. 2016 BUSINESS tax update
Saturday, January 28, 2017

1. Today’s presenter
Kate Spinnato Private Client Services Senior Manager, Houston

2. Agenda Topic Minutes Business Tax & Legislative Updates 30
Business Tax Reform & Planning Strategies 15
Q & A 5
Total 50

3. BUSINESS TAX & LEGISLATIVE UPDATES

4. 2016 corporate income tax rates
Tax Brackets
15%
$0 - $50,000
25%
$50,001 - $75,000
34%
$75,001 - $100,000
39%
$100,001 - $335,000
$335,001 - $10,000,000
35%
$10,000,001 - $15,000,000
38%
$15,000,001 - $18,333,333
Over $18,333,333

5. Filing deadlines have changed for 2016 returns
Calendar year business returns
Entity
Return
Prior due date
New due date
If extended due date
C Corporation
Form 1120
March 15
April 15
September 15
S Corporation
Form 1120-S
Partnership
Form 1065

6. New filing dates for W-2s and 1099-MISC (box 7)
Forms W-2 must be filed with Social Security Administration by January 31
Forms 1099-MISC (box 7) must be filed with the IRS by January 31
Forms W-2 and 1099-MISC must be furnished to the employee or independent contractor by January 31
Increased penalties for failure to file timely or failure to furnish timely

7. Affordable Care Act Update
The Affordable Care Act (ACA) is now fully in effect
Large employers must offer minimum essential health coverage to substantially all (95%) of it’s employees and their dependents or be assessed a shared responsibility payment by the IRS
To determine which employers owe the penalty, the IRS requires large employers to file Forms C and 1094-C

8. Filing/furnishing dates for Forms 1094 and 1095
Affordable Care Act information returns
Provide Form 1095 to employees by January 31, 2017
File Form 1094 and 1095 with IRS by:
Paper filing: February 28, 2017
Electronic filing: March 31, 2017

9. Penalties for incorrect information returns
Pre-2011
After 2016
Standard penalty per failure
$50
$100
$260
Discounted penalty for correction within 30 days
$15
$30
Discounted penalty for correction before Aug. 1
$60
Intentional disregard penalty
$250
$530
Annual maximum
$250,000
$1,500,000
$3,193,000
Annual maximum if gross receipts $5 million or less
$100,000
$500,000
$1,064,000
Double these amounts if the IRS and recipient copies are both incorrect

10. Foreign Bank Account Report (FBAR)
Due date for the FBAR (Form 114) has changed from June 30 to April 15
Must be filed electronically with Financial Crimes Enforcement Network (FinCEN)
Form 114 is available only through the BSA e- Filing System Website

11. Tax Provisions Made Permanent
Research and development tax credit
Section 179 expensing limit of $500,000 and phaseout amount of $2 million, indexed for inflation
15-year recovery period for qualified leasehold improvements, qualified restaurant property and qualified retail improvements
Exclusion of gain on certain small business stock
Stock basis adjustments for S corporations making charitable contributions of property
Five-year built-in gain period for S corporations

12. Tax Provisions Extended Through 2019
Bonus Depreciation
Look-through treatment of certain payments between related controlled foreign corporations
Work Opportunity Tax Credit

13. Tax Provisions Extended Multiple Years
30 percent investment tax credit for qualified solar property is fully extended through 2019, with a 26 percent credit available in 2020 and a 22 percent credit available in 2021
Renewable electricity production tax credit and election to claim 30 percent investment tax credit related to qualified wind property are phased out over five years, with full credit for 2015 and 2016, 80 percent for 2017, 60 percent for 2018, and 40 percent for 2019

14. Tax Provisions Expiring at the End of 2016
Section 179D energy efficient commercial building deduction
Renewable electricity production tax credit
The energy investment credit
$0.50 per gallon alternative fuel credit and alternative fuel mixture credit
The $1 per gallon biodiesel and renewable diesel credit
The section 45L new energy efficient homes credit in the amount of $1,000 or $2,000 per unit

15. Partnership Audit Rules Repealed and Replaced
Returns filed for partnership taxable years beginning after 2017 are subject to a centralized system for audit, adjustment, and collection of tax that applies to all partnerships, except those eligible partnerships that have filed a valid election out
The changes are effective for partnership tax years beginning after December 31, 2017.
Under the centralized system, the audit of a partnership takes place at the partnership level

16. BUSINESS TAX REFORM & PLANNING STRATEGIES

17. Make up of Congress in 2017 114th Congress 115th Congress Change
House
Senate
Republican
247 54
241 52 -6 -2
Democrat
187 44
194 46 +7 +2
Independent 2 18

18. Business tax reform themes
Proposal
Donald Trump
Comprehensive tax reform
Lower rates for all types of businesses
Encourage investment in capital (tangible and intangible)
End inversions
Tax foreign earnings as earned – eliminate deferral
House Republicans
Comprehensive tax reform proposal
Discourage debt
Restructure taxation of foreign earnings
Level the trade playing field 19

19. Business tax reform: Rates – corporate
Donald Trump
15%
House Republicans
20% 20

20. Business tax reform: Rates – pass-through entities
Proposal
Donald Trump
15%
Large pass-throughs would also pay “dividend taxes”
House Republicans
Ordinary income rates on reasonable compensation
+25% on the remainder 20

21. Business tax reform: Depreciation
Proposal
Donald Trump
Choice between:
Current law or
Immediate expensing for tangible and intangible property (not land) with no deduction for interest expense
House Republicans
Immediate expensing – tangible and
intangible (not land) 20

22. Business tax reform: Interest deductions
Proposal
Donald Trump
No deduction if immediate expensing is
elected
House Republicans
Limited to interest income 20

23. Business tax reform: Last-in, first-out (LIFO)
Proposal
Donald Trump
No proposal
House Republicans
Retained 20

24. Business tax reform: Research and development (R&D) credit
Proposal
Donald Trump
Retained
House Republicans 20

25. Business tax reform: Corporate AMT
Proposal
Donald Trump
Eliminates
House Republicans 20

26. Business tax reform: Other business deductions
Proposal
Donald Trump
‘Eliminates corporate tax expenditures’
(unspecified)
House Republicans
Repeal certain business deductions
(unspecified other than domestic
production activities deduction (DPAD)) 20

27. Business tax reform: Carried interest
Proposal
Donald Trump
Eliminate
House Republicans
No proposal 20

28. Planning Strategies – Tangible Property
De minimis
Notice
Effective Jan. 1, 2016
Increased $500 to $2,500
Consider next year’s amount
Partial dispositions
Full dispositions
Extension of waiver of five-year eligibility limitation on making automatic method changes – tax years beginning before January 1, 2017

29. Planning Strategies – Method Changes
Automatic procedures
UNICAP Requirement
Percentage completion method no longer automatic
Federal credits may disqualify from automatic consent change eligibility
Non-automatic procedures
Fee $8,600
In year of change so calendar year taxpayers must file Form 3115 by Dec. 31, 2016

30. Planning Strategies – Common Method Changes
Decrease in taxable income
Deferral method of accounting for advance payments
Bad debts
Incurred but not reported
Software developments costs
Depreciation/amortization
Inventory valuation – lower of cost or market (LCM) and subnormal goods
Self-developed UNICAP method
Prepaids 12-month rule
Increase in taxable income
Generally improper to proper method changes
Specific item cash to accrual
Accrued bonuses not fixed at year-end
Workers compensation liabilities
LIFO termination
Simplified UNICAP method

31. Planning Strategies – Considerations for Pass-Through Entities
Look for ways to create basis
Consider deferring interest payments on shareholder-partner loans
Defer capital transactions
Defer tax payment distributions
Bonus accruals
Start considering the implications of conversion to C Corporation status
Defer a Subchapter S election

32. Q&A