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Summing It Up

Keeping you ahead of the curve with timely news & updates.


Do You Need to Include the Sec. 965 Transition Tax on Your April 17, 2018 Tax Return or Extension?

Use this handy guide from the international tax experts at Freed Maxick to pinpoint your Sec 965 compliance requirements re: foreign earnings

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Included in the Tax Cuts and Jobs Act of 2017, Sec. 965 requires US shareholders to pay a transition tax on certain, specified foreign earnings as if those earnings had been repatriated. 

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Sally P. Schreiber, J.D, writing in The Tax Advisor blog states that, “Sec. 965 applies to the last tax year of certain specified foreign corporations beginning before Jan. 1, 2018, and the amount included in income is includible in a U.S. shareholder’s year in which or with which such a specified foreign corporation’s year ends.”

Consequently, some taxpayers have discovered they are responsible for paying this transition tax when filing their 2017 tax returns.

Our team made a closer examination of who is required to comply with the Sec 965 transition tax on their April 2018 return or extension. We put our findings into a decision tree that will help you understand and discuss your obligations with your tax advisor.

You can download this complementary tool by clicking on the button.

Sec 965 Tax Reform Assistance

Our international tax team is available to answer any questions about Sec 965 tax reform or other international tax compliance obligations you might have because of the new tax act.

Call me at 716.847.2651, or contact me via form, here.

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Historic Tax Reform Bill Will Benefit Many Companies

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Author: Lindsey Miller

There’s no secret that the new tax plan approved by Congress and sent to President Trump is very generous to many different types of companies and industries, including those that have foreign income producing activity.

In 2018, both small and large businesses will see significant change to their tax situation, and will need to do planning early in the year to maximize tax benefits throughout the year.

Key Changes in the New Tax Plan for Companies

The 500-page bill includes the following key changes for US based companies with domestic and foreign operations:

1. Corporate tax rate     

  1. Cut from 35% to 21%
  2. Repeals the corporate AMT

Freed Maxick Insights

With the new rate beginning in 2018, it gives corporations very little time to push through deductions at the higher rate. With such a drastic decrease to the corporate rate (40%), it could result in pass-through entities converting to C corporations.

2. Pass Through businesses   

  1. Establishes a 20% deduction of certain business income, but deductions are limited once the income reaches $157,500 for singles and $315,000 for joint. 

Freed Maxick Insights

As mentioned above, it is possible to see pass-through businesses convert to C corporations with the new corporate tax rate.

But be careful, this provision does not apply to all pass through businesses. Certain specified service trade or businesses are excluded.

 

3. Deductions and Credit

  1. Numerous deduction and credits eliminated including Domestic Production Activities, non-         real property like kind exchanges and others
  2. Research and development expenses are now amortized over five years, beginning in 2023
  3. Rehabilitation credit remain but have been modified
  4. Interest expenses limited to 30% of modified taxable income number 

Freed Maxick Insights

With a 40% decrease in the corporate tax rate, the effect of losing these deductions or credits could increase your effective tax rate. Tax credits are still available, so if your business largely relies on tax credits, it will be important to understand the impact and what remains. 

 

4. Bonus Depreciation

  1. Increased from 50% to 100% deduction of costs of depreciable assets can be taken in one year but equipment must be purchased after September 27, 2017, and before January 1, 2023

Freed Maxick Insights

This will be a huge planning opportunity for many businesses; with no taxable income limitation on bonus depreciation (unlike Section 179 expensing), businesses will be able to take advantage of fully expensing acquisitions (new or used!) in the year placed in service.

 

5. International Tax

  1. Current "worldwide" tax system changed to a territorial system where corporations will not         be taxed on foreign profit
  2. Companies can repatriate cash held overseas by paying a one-time mandatory tax, based on foreign earnings and, at a tax rate of 15.5% on cash and 8% on property 

Freed Maxick Insights

With the new tax on deemed repatriation, it may be great time for businesses to bring money back and invest in the U.S.

Of course, if you have any questions or concerns, call the Freed Maxick Tax Team at 716.847.2651 to discuss your tax situation. Or, connect with us here to schedule a Tax Situation Review.

For more insight, observations and guidance on the new Tax Cuts and Jobs Act, visit our Tax Reform webpage.

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Upcoming Tax Reforms and Their Impact on Commercial Real Estate Companies and Owners

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The incoming administration in Washington and the majority in Congress—both from the same political party for the first time in years—indicate that massive tax reform will be a topic of discussion, if not a reality, in 2017. What does this mean for the commercial real estate industry?

Stage is Set for Tax Reform

Members of both parties in Congress have recently highlighted tax reform plans, even working overtime into the legislative break. Many lawmakers have long held that reform is overdue—a badly needed simplification and redesign of the U.S. Tax Code.

U.S. House Ways and Means Committee chief tax counsel, Barbara Angus, has gone on record saying that tax reform legislation is being crafted to be ready in early 2017, a bill expected to be derived from the House GOP “Better Way” tax reform blueprint released last summer.

Senate Majority Leader Mitch McConnell (R-KY) has said that Republican lawmakers anticipate two budget resolutions in 2017: the first concerning repeal of the Patient Protection Affordable Care Act, the second addressing tax reform.

The Current (December 2016) Tax Reform Agenda

At this point, no one can say how tax reform will shake out and what details of various aspects of any reform will affect different taxpaying individuals and entities. In terms of overall effect, the looming reform has been likened to the tax reform of 1986—which was a bit of a nightmare.

Some general points of any likely reform:

  • Simplified total number of tax brackets, from the current seven to about three
  • Increase in standard individual deduction
  • Elimination or capping of most individual tax deductions
  • Repeal of estate and gift taxes

Possible reform measures that would impact the commercial real estate industry:

  • Full and immediate expensing on the purchase price of a building, instead of taking depreciation deductions on a building’s cost over many years
  • Limitation or elimination of the business interest expense deduction
  • Section 1031 may not be preserved
  • A single tax rate for business pass-through income

Tax Change Intensifies Need for 2016 Cost Segregation Study

Given that reform items under discussion include changes to depreciation and expensing for building purchases, there’s a chance that the tax year 2016 may be the best year for commercial property owners to take advantage of doing a cost segregation study.

The upshot: tax savings accruing from accelerating depreciation may be taken off the table as a tax minimization strategy in future years.

Future Unclear

We stress again: All speculation about specifics of the coming tax reform is just that, speculation. It does seem that the commercial real estate industry and other businesses will see some more generous tax rates—but, when they factor in the proposed broadening of the tax base and loss of deductions, certain businesses and their owners may realize limited tax savings or possibly a tax increase.

It also seems that cost recovery might soon become an even more highly complicated process, especially when you factor in how each individual state will seek to either conform or decouple from the federal rules.

(One note: Tax reform discussion also has yet to engage the commercial real estate industry and professionals who serve that industry.)

Though specifics remain unclear right now, looming tax reform only intensifies the importance of performing a cost segregation study for the 2016 tax year, or for prior tax years, and recognize the tax savings now.

Contact us or call Don Warrant, CPA at 716.847.2651 to discuss the tax savings opportunities that are available for commercial real estate owners for the 2016 tax year.Tax Situation Review

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