Estate Tax Planning for 2017 Tax Reform

Major tax reform legislation was signed into law late last year that impacts not only the federal income tax but also other taxes potentially affecting your estate plan (such as the estate, gift, and generation skipping transfer taxes).

The new legislation doubles the estate and gift tax exclusion amount and the GST exemption to $10 million (to be adjusted for inflation), effective for decedents dying and transfers made after 2017 and before 2026. After 2025, the exclusion amount will decrease to the amount calculated under the old law ($5.49 million for 2017).

Additional changes to individual, corporate, and pass-through entity taxation provisions will also impact many estate plans. Some of the provisions included in the law that may affect your plans include:

  • Increase in charitable contribution limit for cash donations – the legislation increases the amount of cash contributions to charitable organizations that may be deducted from 50% of a taxpayer’s income to 60% of income for tax years after 2017 and before 2026.
  • New deduction for certain business income earned through pass-through entities – the legislation creates a new deduction for individuals, generally equal to 20% of the qualified business income received by the individual from a pass-through business. Certain service businesses (such as law, accounting, investment management, etc.) are excluded, and there are other income limits and conditions placed on the receipt of the deduction.
  • Partner loss limitation – Partners will no longer be able to deduct losses in excess of their basis in their partnership interest.
  • Extension of the holding period for “carried interest” – the legislation prevents individuals holding a so-called carried interest in private equity or hedge funds or similar investment vehicles from claiming long-term capital gain treatment on gains realized from the disposition of such an interest until the interest has been held for three years (compared to the one-year holding period required for other capital assets).

In light of the numerous changes made by the legislation, we recommend a review of your estate plan to make sure that it continues to satisfy your tax- and family-related objectives while remaining as flexible as possible.

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Business Tax Planning For 2017 Tax Reform

Major tax reform legislation was signed into law late last year and resulted in sweeping changes to the tax code for the first time in about 30 years. Businesses should be aware of the provisions that have changed and plan now for how they affect them moving into 2018.

The corporate rate cuts are significant. The new law provides for a 21% flat corporate tax rate. Businesses conducted as sole proprietorships, partnerships, or S corporations may be entitled to a special 20% deduction beginning in 2018.

The 2017 tax act also significantly reforms international tax rules. This has made planning more difficult, particularly for businesses that must consider the impact of international taxes.

Below are highlights of the 2017 tax act.

Business Deductions and Credits

Section 179 Expensing:

The expensing limitation is increased to $1 million and the phase out amount to $2.5 million. The new limitations are to be adjusted for inflation. The act further expands the definition of §179 property and the definition of qualified real property for improvements made to nonresidential real property.

Research and Development Credit:

The research and development credit is preserved.

Deductions for Income Attributable to Domestic Production Activities:

Beginning in 2018, the deduction for income attributable to domestic production activities is repealed.

Entertainments Expenses Deductions:

Beginning in 2018, no deduction is allowed generally for entertainment, amusement, or recreation; membership dues for a club organized for business, pleasure, recreation, or other social purposes; or a facility used in connection with any of the above.

NOL Deduction:

Beginning in 2018, the limit on the NOL deduction is 80% of the taxpayer’s taxable income. Unused losses can be carried forward indefinitely.

Corporations

Corporate Tax Rate:

Beginning in 2018, there is a 21% flat corporate tax rate; there is no special tax rate for personal service corporations.

Pass-Through Entities

Pass-Through Tax Rate:

Beginning in 2018, generally a 20% deduction for qualified business income is provided in lieu of tax rate changes. Special rules apply when computing the deduction and for services businesses. The deduction expires after December 31, 2025.

Please contact us to discuss tax planning opportunities in preparation for the new rules that are generally going into effect for 2018.

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