2020 TAX UPDATE: TAX PLANNING FOR EXECUTIVES IN A PANDEMIC AND PRESIDENTIAL ELECTION YEAR - EXECUTIVE BRIEFING - UHY LLP
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
EXECUTIVE BRIEFING 2020 TAX UPDATE: TAX PLANNING FOR EXECUTIVES IN A PANDEMIC AND PRESIDENTIAL ELECTION YEAR An independent member of UHY International
YOUR PRESENTERS
Pat Stark Paul Truber
Partner | UHY LLP Partner | UHY LLP
pstark@uhy-us.com ptruber@uhy-us.com
The Next Level
An independent member of UHY international of Service
2020 TAX UPDATE: TAX PLANNING FOR EXECUTIVES
IN A PANDEMIC AND PRESIDENTIAL ELECTION YEAR
PRESENTED BY: PAUL TRUBER
PAT STARK
OCTOBER 27, 2020
The next level
An independent member of UHY International of service
6 An independent member of UHY international
PPP LOAN FORGIVENESS TIMELINE
2020 OR 2021
COVERED FORGIVENESS LENDER SBA
PERIOD APPLICATION DECISION PAYMENT NOTIFICATION
- 60 days from
receiving the
- Borrower - Up to 10 months application - 90 days from -Lender notifies
chooses 8 or 24 from the end of the receiving borrower of
-Lender must
weeks covered period lender’s decision forgiveness amount
request payment
from the SBA
The next level
7 An independent member of UHY International of service
PPP LOAN FORGIVENESS
Forgiveness and Timing
• CARES Act Section 1106(i) – Income associated with
forgiveness is excluded from gross income.
• IRS Notice 2020-32 – Expenses associated with tax-exempt
income are non-deductible.
• Loan legally forgiven in 2021 vs 2020
• SBA Review/Audit
Safe Harbor
9 An independent member of UHY international
CARES ACT 10 An independent member of UHY international
SUSPENSION OF 80% OF TAXABLE INCOME
LIMITATION FOR 2018-2020
• Prior to the CARES Act, the amount of the NOL deduction was
equal to the lesser of:
The aggregate of the NOL carryovers to such year and NOL
carrybacks to such year, or
80% of taxable income computed without regard to the
deduction allowable in this section.
• The CARES Act temporarily removed the taxable income
limitation so as to allow an NOL to fully offset income for
2018, 2019, and 2020.
The next level
11 An independent member of UHY International of service
5-YEAR NOL CARRYBACK
• The CARES Act provides that NOLs arising in a tax year
beginning after 12/31/2017 and before 1/1/2021 (calendar
years 2018, 2019, and 2020) can be carried back to each of
the five tax years preceding the tax year of such loss.
A taxpayer may elect to forgo the five-year carryback.
The next level
12 An independent member of UHY International of serviceNOLS GENERATED ON OR BEFORE
12/31/2017
• Two-year carryback
• 20-year carryforward
• Eligible to offset 100% of taxable income
The next level
13 An independent member of UHY International of serviceNOLS BEGINNING AFTER 12/31/2017 AND
BEFORE 1/1/2021
• Five-year carryback
• Indefinite carryforward
• Eligible to offset 100% of taxable income prior to 2021
and 80% of taxable income after 2020
The next level
14 An independent member of UHY International of serviceNOLS BEGINNING ON OR AFTER 1/1/2021
• No carryback
• Indefinite carryforward
• Eligible to offset 80% of taxable income
The next level
15 An independent member of UHY International of serviceCARES ACT 16 An independent member of UHY international
CHANGE IN DEDUCTIBILITY OF
BUSINESS INTEREST
• Section 163(j), as amended by the TCJA, limited the amount
of business interest allowed as a deduction to:
30% of the taxpayer’s adjusted taxable income (ATI) for the
tax year.
• The CARES Act temporarily and retroactively increased the
limitation on the deductibility of interest expense from 30%
to 50% for tax years beginning in 2019 and 2020.
The next level
17 An independent member of UHY International of serviceCHANGE IN DEDUCTIBILITY OF
BUSINESS INTEREST
ATI is computed as taxable income computed without regard to:
• any item of income, gain, deduction, or loss that is not
properly allocable to a trade or business,
• business interest expense or business interest income,
• the amount of any net operating loss (“NOL”) deduction,
• the 20% deduction for certain passthrough income (199A),
• and in the case of tax years beginning before 1/1/2022, any
deduction allowable for depreciation, amortization, or
depletion.
The next level
18 An independent member of UHY International of serviceCHANGE IN DEDUCTIBILITY OF
BUSINESS INTEREST
Additional Changes
• There was a special carve out rule for partnerships.
Partnerships could not use the increased 50% limitation
in 2019, thereby deferring any potential benefits from
the 50% threshold to 2020.
The next level
19 An independent member of UHY International of service163(j)(7) ELECTION – REAL ESTATE
BUSINESS/FARMING BUSINESS
• Two types of business can elect out of the 163(j) interest
limitation:
Real property trade or business
Farming businesses
• The election is irrevocable, and requires the electing business
to utilize the Alternative Depreciation System with respect to
certain of its assets.
• The CARES Act allows taxpayers to either make a late
election, or revoke a prior election under 163(j)(7).
The next level
20 An independent member of UHY International of serviceCARES ACT 21 An independent member of UHY international
MODIFICATION OF LIMITATION ON LOSSES
FOR NONCORPORATE TAXPAYERS
• Prior to the CARES Act, the TCJA disallowed the deduction of
excess business losses by noncorporate taxpayers for tax
years beginning after 12/31/2017 and ending before
1/1/2026.
• Generally, business losses were limited to $250,000/$500,000
(Single/MFJ).
The next level
22 An independent member of UHY International of serviceMODIFICATION OF LIMITATION ON LOSSES
FOR NONCORPORATE TAXPAYERS
• The CARES Act temporarily suspends the loss limitation for
noncorporate taxpayers so they can deduct excess business
losses arising in 2018, 2019, and 2020.
• The CARES Act delays the effective date of this limitation
until 2021.
• This change suggests filing an amended return if this
limitation was applied on a tax return for 2018 or 2019.
The next level
23 An independent member of UHY International of serviceCARES ACT 24 An independent member of UHY international
BONUS DEPRECIATION TECHNICAL CORRECTION FOR
QUALIFIED IMPROVEMENT PROPERTY
• The CARES Act provided a technical correction to the TCJA so
that QIP is assigned:
A 15-year class life for the General Depreciation System.
A 20-year class life for the Alternative Depreciation System.
• With a 15-year class life, QIP is now eligible for Bonus
Depreciation.
• Under the TCJA, bonus rates are set at 100% for 2018-2022
and will subsequently decline to 80% in 2023, 60% in 2024,
40% in 2025, and 20% in 2026.
The next level
25 An independent member of UHY International of servicePROCEDURES TO CORRECT QIP
• Under Rev. Proc. 2020-25, certain taxpayers can elect to take
100% bonus depreciation on qualified improvement property
by filing an amended return, an administrative adjustment
request (AAR) under Sec. 6227, or a Form 3115, Application
for Change in Accounting Method, to change their
depreciation of QIP placed in service after Dec. 31, 2017, in
the taxpayers’ 2018, 2019, or 2020 tax year.
The next level
26 An independent member of UHY International of serviceCARES ACT 27 An independent member of UHY international
ACCELERATION OF THE CORPORATE
MINIMUM TAX CREDIT (MTC)
• TCJA
The alternative minimum tax was repealed for corporations
for tax years after 2017.
Corporations may claim outstanding Minimum Tax Credits
(MTCs), subject to limits, for tax years before 2021.
• The CARES Act allows a corporate taxpayer to claim a 50%
credit for 2018 and a 100% of any remaining credit for 2019.
• Alternatively, a taxpayer may elect to claim the entire
refundable credit amount for 2018.
The next level
28 An independent member of UHY International of serviceACCELERATION OF THE CORPORATE
MINIMUM TAX CREDIT (MTC)
• The CARES Act allows the taxpayer to file an application by
12/31/2020 for a refund to claim its aggregate MTCs for its
2018 tax year, thereby accelerating the taxpayer’s receipt of
the refund attributable to the MTCs.
• The IRS would have 90 days from the date of filing to review
the application and refund any overpayment to the taxpayer.
• If the taxpayer wishes to forgo filing a 2018 amended return
(or filing for a refund relating to 2018), it may claim its
outstanding MTCs on its 2019 return.
The next level
29 An independent member of UHY International of servicePROPOSED TAX PLANS OF
PRESIDENTIAL CANDIDATES
30PROPOSED TAX PLANS OF
PRESIDENTIAL CANDIDATES
31 An independent member of UHY internationalJOE BIDEN TAX PROPOSAL -
INDIVIDUALS
Individual Tax Rates
1. Increase top individual rate to 39.6%
a. This would generally apply to those making more than
$400K.
Current Rate Schedules:
Source: joebiden.com, bloomberglaw.com, taxfoundation.org
The next level
32 of serviceJOE BIDEN TAX PROPOSAL -
INDIVIDUALS
Capital Gains
2. Tax long-term capital gains at 39.6% for taxpayers with over
$1M of income
Current Rate Schedules:
If 2020 Taxable Income Is: Long-Term
Cap Gain
Tax Rate
Single Married Filing Joint Head of Household
$0-$40,000 $0-$80,000 $0-$53,600 0%
$40,001-$441,450 $80,001-$496,600 $53,601-$469,050 15%
Over $441,450 Over $496,600 Over $469,050 20%
The next level
33 of service
Source: joebiden.com, bloomberglaw.com, taxfoundation.orgJOE BIDEN TAX PROPOSAL -
INDIVIDUALS
Itemized Deductions
3. Cap the tax value of itemized deductions at 28%
4. Restore limitations on itemized deductions for incomes
above $400K
5. Remove $10k deduction limit on state taxes
Current Itemized Deductions:
Taxpayers are allowed to reduce taxable income by eligible deductions (generally -
medical, state taxes, interest, charitable contributions, casualty and theft losses).
State taxes are capped at $10k. Casualty and Theft losses are limited to federally
declared disaster areas.
Source: joebiden.com, bloomberglaw.com, taxfoundation.org The next level
34 of serviceJOE BIDEN TAX PROPOSAL -
INDIVIDUALS
Carried Interest
6. Carried Interest – Eliminate Carried Interest
Current Law - Carried Interest:
General partners that received a “carried interest” in a hedge or private equity fund, are
taxed at capital gains rates. Interests held less than 3 years are considered “short-term”
and taxed a ordinary rates.
Source: joebiden.com, bloomberglaw.com, taxfoundation.org The next level
35 of serviceJOE BIDEN TAX PROPOSAL -
INDIVIDUALS
Child Credits
7. Child care credit – $8,000 for one child, $16,000 credit for
two or more children (partially refundable)
8. Child tax credit – $3,600 credit for child >6 years, $3,000
credit for child 6-17 years (Credits would be refundable)
9. Supports $3,000 tax credit to family caregivers to help defray
cost of assisting their loved ones
Current Law – Child Credits:
Child care credit – Maximum $3,000 for one child, $6,000 for two or more children. Non-
refundable.
Taxpayers may claim $2,000 child tax credit for dependent children under 17 years. A $500
credit is available to taxpayers with dependents age 17 and older. Credits are phased out for
single/MFJ taxpayers at $200k/$400k. Credits can be partially refundable for lower income
taxpayers.
The next level
36 of service
Source: joebiden.com, bloomberglaw.com, taxfoundation.orgJOE BIDEN TAX PROPOSAL -
INDIVIDUALS
Payroll Taxes
10. Remove Social Security wage base cap on taxpayers making
more than $400k
a. Presumably, wages between the regular wage base cap
and $400K will not be subject to Social Security tax
Current Law – Payroll Tax:
Social Security tax of 6.2% is assessed on the first $137,700 of each employees
wages for 2020 ($142,800 for 2021). Employers pay a matching Social Security tax
of 6.2%.
The next level
37 of service
Source: joebiden.com, bloomberglaw.com, taxfoundation.orgJOE BIDEN TAX PROPOSAL -
INDIVIDUALS
Retirement Plans
11. Create “automatic 401(k) for workers without access to a
qualified plan
12. Equalizing 401(k) tax benefits
a. Provide (flat rate) tax credit to taxpayers vs. deduction
b. Credit would equalize tax benefits between taxpayers in
all tax brackets
Current Law – Retirement Plans:
Eligible employees may contribute a portion of their wages to a qualified retirement
plan. Amounts contributed are excluded from current tax, and tax is deferred until
withdrawn from plan. 2020 401(k) contribution limits are $19,500 ($26,000 for
those 50+ years old).
The next level
38 of service
Source: joebiden.com, bloomberglaw.com, taxfoundation.orgJOE BIDEN TAX PROPOSAL -
INDIVIDUALS
Student Loans
13. Student loans will be cancelled, tax free, after borrowers
have been enrolled in repayment plan for 20 years
Current Law – Cancellation of Debt
Loan forgiveness is generally included in income unless an exception applies
(students that fulfill obligations to work within certain fields, death, permanent
disability).
The next level
Source: joebiden.com, bloomberglaw.com, taxfoundation.org
39 of serviceJOE BIDEN TAX PROPOSAL -
INDIVIDUALS
First-Time Homebuyers
14. Establish refundable/advanceable tax credit of up to $15k
for first-time homebuyers
Current Law:
No credits currently available to first-time homebuyers
The next level
40 of service
Source: joebiden.com, bloomberglaw.com, taxfoundation.orgJOE BIDEN TAX PROPOSALS –
ESTATE TAX
Estate Tax
15. Generally does not support the current estate tax exemption
of $11,580,000
16. Eliminate the ability to step-up the basis of assets
transferred at death
Current Law:
Estate tax exemption of $11.58M (for 2020) per person, and the exemption is
indexed annually for inflation. After December 31, 2025, this increased exemption
will sunset and revert back to pre-TCJA amounts.
The cost-basis of an asset transferred at death receives a “step-up” in basis to its fair
market value.
The next level
41 Source: joebiden.com, bloomberglaw.com, taxfoundation.org of serviceDONALD TRUMP
TAX PROPOSALS
INDIVIDUAL INCOME TAX CHANGES
1. Extend the benefits of the 2017 Tax Cuts and Jobs Act(TCJA)
beyond 2025
2. 10% Middle class tax cut, and make the current seven tax
brackets system permanent
a. Currently set to expire on December 31, 2025.
b. 7 brackets – 10%, 12%, 22%, 24%, 32%, 35%, 37%
3. Reduce maximum long-term capital gains rate to 15%
a. Would consider indexing rate for inflation
4. Carried Interest – Eliminate Carried Interest
The next level
42
Source: donaldjtrump.com, bloomberglaw.com, taxfoundation.org of servicePROPOSED TAX PLANS OF
PRESIDENTIAL CANDIDATES
43 An independent member of UHY internationalJOE BIDEN TAX PROPOSALS -
BUSINESS
Corporate Tax Rate
1. Increase corporate tax rate to 28%
2. Establish a 15% alternative minimum tax on corporations
with book income of $100M+
Current Law:
Corporate tax rate is 21%.
Corporations are currently not subject to alternative minimum tax.
Source: joebiden.com, bloomberglaw.com, taxfoundation.org The next level
44 of serviceJOE BIDEN TAX PROPOSALS -
BUSINESS
QBI Deduction
3. Qualified Business Income (QBI) deduction
a. End all qualifying rules, including those for real estate
investors
b. Only allow deduction to taxpayers making $400k or less
Current Law:
Taxpayers, other than C corporations, are generally allowed a deduction equal to
20% of qualified business income. Deduction can be limited by taxable income,
share of wages, share of qualified assets, and specified service businesses. QBI
deduction is set to expire on 12/31/2025.
Source: joebiden.com, bloomberglaw.com, taxfoundation.org The next level
45 of serviceJOE BIDEN TAX PROPOSALS -
BUSINESS
Real Estate
4. Eliminate “unproductive and unequal tax breaks to real
estate investors with income over $400k”
a. This could limit like-kind exchange benefits for real
estate.
Current Law:
A like-kind exchange allows taxpayers to exchange one real estate investment
property for another similar property, and defer paying tax on any gain until you
sell the replacement property.
Source: joebiden.com, bloomberglaw.com, taxfoundation.org The next level
46 of serviceJOE BIDEN TAX PROPOSALS -
BUSINESS
Fossil Fuels
5. Repeal certain current-law tax incentives for fossil fuels
Current Law:
Intangible drilling costs are 100% deductible in the first year for independent
producers, and 70% deductible for integrated firms.
Percentage depletion – A set of prescribed percentages that exempts taxable
income for oil, gas, and coal.
Source: joebiden.com, bloomberglaw.com, taxfoundation.org The next level
47 of serviceJOE BIDEN TAX PROPOSALS -
BUSINESS
Drug/Pharmaceutical Companies
6. Impose a tax penalty on drug manufacturers that increase
the costs of their products over the general inflation rate
7. Eliminate advertising deduction for pharmaceutical
corporations
8. Eliminate incentives for pharmaceutical and other
companies to move production overseas
No current tax provisions
Source: joebiden.com, bloomberglaw.com, taxfoundation.org The next level
48 of serviceJOE BIDEN TAX PROPOSALS -
BUSINESS
Credits
9. Establish child care construction tax credit for businesses that
build child care facilities at places of work
a. 50% credit for first $1M of construction costs per facility
10. Offer tax credits to small businesses to offset much of the cost of
starting or maintaining retirement plans
a. Potential benefit for businesses required to implement
“automatic 401(k)
11. Establish 10% “Made in America” tax credit for companies that
create jobs for American workers
No current tax provisions
Source: joebiden.com, bloomberglaw.com, taxfoundation.org The next level
49 of serviceJOE BIDEN TAX PROPOSALS -
BUSINESS
Credits
12. Establish a Manufacturing Communities Tax Credit to incentivize
investment in communities that experience workforce layoffs, or a
major government institution closure
13. Establish Neighborhood Home Credit for renovation of distressed
properties in distressed communities
14. Expand Work Opportunity Tax Credit to include Military Spouses
a. Current WOTC is set to expire on 12/31/2020
No current tax provisions
Source: joebiden.com, bloomberglaw.com, taxfoundation.org The next level
50 of serviceJOE BIDEN TAX PROPOSALS -
BUSINESS
Multinational Businesses
15. Establish a 10% offshoring surtax on profits generated by a
U.S. company on overseas production for sale on American
soil
a. This would increase the corporate tax rate to 30.8%
(28% + 2.8%)
16. Establish a “claw-back” provision requiring a company to
return public investments and tax benefits when they send
US jobs overseas
No current tax provisions
Source: joebiden.com, bloomberglaw.com, taxfoundation.org The next level
51 of serviceJOE BIDEN TAX PROPOSALS -
BUSINESS
Multinational Businesses
17. Global Intangible Low-Taxed Income (GILTI) – Double the
effective minimum rate from 10.5% to 21%
18. Reduce incentives for “tax havens, evasion, and
outsourcing”
Current Law:
GILTI earned by US-based multinational is allowed a 50% deduction (effective rate
of 10.5%) through 2025, and a 37.5% deduction (effective rate of 13.125%)
thereafter.
Base Erosion and Anti-Abuse Tax (BEAT) limits the ability of large multinationals to
make deductible payments to affiliates in low-tax countries.
Source: joebiden.com, bloomberglaw.com, taxfoundation.org The next level
52 of serviceDONALD TRUMP
TAX PROPOSALS
Business Income Tax Changes
1. Extend the benefits of the 2017 Tax Cuts and Jobs Act(TCJA)
beyond 2025
2. “Create Tax Credits for companies that bring jobs from
China back to America”
3. Allow 100% expensing “for essential industries like
pharmaceuticals and robotics who bring back their
manufacturing to the United States”
4. Create “Made in America” tax credits
The next level
53 Source: donaldjtrump.com and taxfoundation.org of service7 MORE DAYS! 54
THANK YOU!
Pat Stark Paul Truber
pstark@uhy-us.com ptruber@uhy-us.com
(314) 615-1250 (314) 615-1359
UHY Advisors MO, Inc.
15 Sunnen Drive, Suite 100, St. Louis, MO 63143
www.uhy-us.com The next level
of serviceTHANK YOU
Thank you for joining us today! We
appreciate your feedback, please take the
short survey that follows.
Join us next month on November 18th for
our next Executive Briefing, focusing on
challenges & opportunities within a remote
workforce. Look for your email invitation
soon.
An independent member of UHY internationalYou can also read
