GOTHAM SOUND PRESENTS 2017 TAX UPDATE FEBRUARY 18, 2018 Nancy L. - - PowerPoint PPT Presentation
GOTHAM SOUND PRESENTS 2017 TAX UPDATE FEBRUARY 18, 2018 Nancy L. Adams, CPA Deborah Hammett, CPA Sullivan, Field & Smith, LLC Adelman, Katz & Mond, LLP 1468 S. Saint Francis Drive 230 West 41 st Street, 15 th Fl Santa Fe, NM 87505
Nancy L. Adams, CPA Sullivan, Field & Smith, LLC 1468 S. Saint Francis Drive Santa Fe, NM 87505 nadams@sfscpas.com Ph: (505) 982-4901 Deborah Hammett, CPA Adelman, Katz & Mond, LLP 230 West 41st Street, 15th Fl New York, NY 10036 dhammett@akmcpa.com Ph: (212) 382-0404
Nancy L. Adams recently moved to Santa Fe, NM and is a partner in the firm of Sullivan, Field & Smith, LLC. She has been a CPA for approximately 30 years. She has a Masters in Taxation from Pace University. She is a member of the American Institute of Certified Public Accountants (AICPA) and the New York State Society of CPAs (NYSSCPAs), where she is a member of the Entertainment Committee. She specializes in working with clients in the entertainment industry, including documentary filmmakers, feature filmmakers, talent and other production personnel. Debbie Hammett is a supervisor at Adelman Katz & Mond LLP. She has been a CPA for approximately 15 years. She has a MBA in taxation/international business from Pace University. She is a member of the American Institute of Certified Public Accountants (AICPA), the New York State Society of CPAs (NYSSCPAs), where she is co-chair of the Closely Held and S Corp Committee, NY Tax Study Group, Accountant’s Club of America and the Estate Planning Council of NYC. She works with a number of entertainment entities, including the production companies of a well known entertainment personality.
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DISCUSS THE BASIS OF TAX DEDUCTIONS
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COMPARE RULES IN EFFECTS FOR TAX YEAR 2017 TO 2018
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PLANNING OPPORTUNITIES IN 2018 The presentation is designed to address tax considerations for entertainment professionals. It is not intended to be a complete recap of the new tax laws.
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IRC Section 162 allows one engaged in “Trade or Business” to deduct expenses that are ordinary & necessary
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Trade or Business is not defined in the Code, but has come to mean an activity carried on for profit or as one’s livelihood
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Ordinary and necessary – facts and circumstances test (appropriate and common to one’s industry)
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Self-employed or employee?
deduction.
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Meals & Entertainment – must meet one of two standards
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Telephone – must allocate a portion of cell phone usage to personal use.
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Gifts – limited to $25/done.
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Education expenses – cost incurred in obtaining basic education for qualification in a professional are not deductible. Costs used to maintain or enhance skills are deductible.
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Gym – never deductible.
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Auto expenses
Standard Mileage Rate ($.535/mile in 2017 and $.545/mile in 2018)
Actual expenses (business percentage of all related expenses, including gas, repairs, insurance, registration, depreciation, etc.)
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Local Transportation
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Home Office Deduction
business.
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Expenses while Temporarily Away From Home on Business
Can take one of two forms:
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Accountable plans – employer requires receipts to reimburse, or pays per diems (not taxable to employee)
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Nonaccountable plans – do not require receipts (includible in employee W-2)
One of the few deductions that can be funded “after the fact” (i.e., up until the due date of the return, sometimes including extensions). Several types of retirement plans available, depending on whether an employee or self-employed:
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Traditional or ROTH IRAs
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Simplified Employee Pensions (SEP IRAs)
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SIMPLE plans
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Solo 401(k) plans
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Tax Rates – range from 10% - 39.6%
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Exemptions - $4,050 for taxpayer, spouse and any dependents
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Standard Deduction
Single $ 6,350 HOH $ 9,350 MFJ $12,700
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Tax Rates – range from 10% - 37%
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Exemptions – eliminated
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Standard Deduction
Single $12,000 HOH $18,000 MFJ $24,000
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Child tax credit - $1,000/child (limits)
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Itemized Deductions/Taxes - all state/local tax withholdings, plus all real estate taxes
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Itemized Deductions/Interest – Deductible on up to $1.1 million of indebtness, including home equity debt
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Child tax credit - $2,000/child and $500/non-child dependents (limits)
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Itemized Deductions/Taxes – limited to $10,000
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Itemized Deductions/Interest – home equity debt NOT deductible. New acquisition debt limited on up to $750,000 of debt (existing debt grandfathered in)
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Itemized Deductions/Personal Casualty Losses – allowed subject to limits.
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Itemized Deductions/Misc. Itemized Deductions – unreimbursed employee expenses, tax preparation fees, and investment expenses allowed.
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Charity – limited to 50% of AGI.
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Itemized Deductions/Personal Casualty Losses – Eliminated
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Itemized Deductions/Misc. Itemized Deductions – Eliminated
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Charity – limited to 60% of AGI.
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Adjustments/Alimony – Deductible for support awarded by a court.
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Adjustments/Moving expenses – Cost
household goods deductible if move is in conjunction with change in employment (mileage requirement).
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Adjustments/Educator Deduction – up to $250/teacher deductible
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Adjustments/Alimony – Nondeductible for settlements entered into after 2018.
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Adjustments/Moving expenses – eliminated.
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Adjustments/Educator Deduction – increased to $500/teacher
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Section 199 – Domestic Production Activities Deduction (DPAD) is deduction available to manufactures, producers, growers, extractors, under which film production has fallen been allowed a limited deduction.
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Section 181 – Film expensing election retained for 2017 in recently passed budget bill
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Section 199 – Repealed and replaced.
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Section 199A – New Qualified Business Income Deduction for “pass-thru” entities
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Section 181 – Retained with limitations (cannot take deductions until the year the film is released)
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General rule is that a taxpayer is entitled to a deduction of up to 20% of the Qualified Business Income from “pass-thru” entities (further income limitation of 20% of net income less net capital gain)
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What is a pass-thru entity? Sole proprietor (or Single Member LLC) filing a Schedule C, Partner in a partnership receiving a K-1, or S Corporation Shareholder receiving a K-1.
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What income qualifies? Only income from the trade or business (investment income is generally excluded from the calculation)
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How is the deduction calculated? It depends on: a) Is the person a member of a “Specified Service Trade or Business?” b) What is the person’s income level and marital filing status?
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What is a Specified Service Trade or Business? Defined as being one of the following businesses or professions: health care, law, accounting, actuarial services, performing arts, consulting, athletics, financial services, brokerage services, any trade or business where the principal asset is the reputation or skill of one or more employees, any trade
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Income below $157,500? Entitled to a deduction with no wage limitation
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Income between $157,501 - $207,500? Subject to a phase in of greater of wage limitation (50% of wages paid) OR wage/property limitation (25% of wages and 2.5% of unadjusted qualifying assets)
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Income above $207,500? No deduction.
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Income below $315,000? Entitled to a deduction with no wage limitation
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Income between $315,001 - $415,000? Subject to a phase in of greater of wage limitation (50% of wages paid) OR wage/property limitation (25% of wages and 2.5% of unadjusted qualifying assets)
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Income above $415,000? No deduction.
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Income below $157,500? Entitled to a deduction with no wage limitation
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Income between $157,501 - $207,500? Subject to a phase in of greater of wage limitation (50% of wages paid) OR wage/property limitation (25% of wages and 2.5% of unadjusted qualifying assets)
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Income above $207,500? Subject to wages/qualified property test.
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Income below $315,000? Entitled to a deduction with no wage limitation
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Income between $315,001 - $415,000? Subject to a phase in of greater of wage limitation (50% of wages paid) OR wage/property limitation (25% of wages and 2.5% of unadjusted qualifying assets)
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Income above $415,000? Subject to wages/qualified property test.
A married film director receives $200,000 of flow through income from his S Corporation loan out company, and has taxable income of $365,000. Further the S Corporation paid $100,000 of wages to him. The 199A deduction would be limited to $20,000, which is calculated as follows: $200,000 x 20% = $40,000 This is the deduction assuming no limitations. ($365,000 - $315,000) / $100,000 = 50% This is the amount by which his taxable income exceeds income limit divided by $100,000 (phase out range). $100,000 x 50% = $50,000 This is the wage limitation. ($200,000 x 20%) x 50% = $20,000 This is the allowed deduction (total deduction x phase out percentage of 50%.
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Income limitations are applied at the partner/S Corp shareholder level, not at the corporation level.
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Deduction is allowed after adjusted gross income but before taxable income.
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Deduction does not affect the calculation of self-employment tax for partners or sole proprietors.
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New Section 199A Deduction – Pros and cons
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Time to form an LLC or Corporation? Pros and cons
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Employer expense reimbursement
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C Corporation? Flat tax of 21%