Exit Planning Under the New Tax Cuts and Jobs Act
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While the Tax Cuts and Jobs Act (TCJA) impacts every corner of the US economy and everyone in it, the new law impacts business owners perhaps more than anybody. The new law also reshapes how owners must approach their exit planning.
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Exit Planning Under the New Tax Cuts and Jobs Act
- 1. Exit Planning Under the New Tax Cuts and Jobs Act (TCJA) January 23, 2018 Patrick Ungashick CEO, NAVIX Consultants Elizabeth A. Salvati, CPA, CFP Chairman of the Board, HLB Gross Collins, P.C. Rhys T. Wilson, JD, LLM Partner and Co-Chair, Mergers & Acquisitions Group, Nelson Mullins
- 2. Patrick A. Ungashick CEO NAVIX Consultants About Patrick Ungashick • Founder and CEO • More than 25 years working with owners toward successful exits • Author of two books: Dance in the End Zone and A Tale of Two Owners • Speaker to 50+ audiences per year About NAVIX • National team of Certified Consultants • Apply a proven, proprietary exit planning process • Our sole focus is helping owners achieve successful exits
- 3. Today’s Agenda • Key take-aways from the new tax laws? • The answers to seven most important questions for business owners and CEOs preparing for a future exit • Additional resources to learn more © NAVIX. All rights reserved. 3
- 4. Elizabeth A. Salvati, CPA, CFP Chairman of the Board, HLB Gross Collins, P.C. About Elizabeth Salvati • Joined HLB Gross Collins, P.C. in 1983 • Real Estate Practice Leader • Shareholder & Chairman of the Board • Focus on integrating financial and tax planning for best results About HLB Gross Collins, P.C. • Founded in 1969 • Top 25 CPA Firm in Atlanta • Member of HLB International • Tax, Audit & Assurance, Business Advisory, & Financial Planning Services
- 5. Rhys T. Wilson, JD, LLM Partner and Co-Chair, Mergers & Acquisitions Group, Nelson Mullins About Rhys Wilson • Co-Chair of the Firm's Mergers & Acquisitions Group • The Best Lawyers in America® • Georgia Super Lawyer® in M&A • Former Senior Executive of a Private Equity Firm and President of a Healthcare Staffing Firm • Vistage CE Member since 1996 About Nelson Mullins • Founded in 1897 • Among the 100 largest U.S. law firms • 550 attorneys located in 17 cities • More than 45 practice areas – litigation & corporate
- 8. © NAVIX. All rights reserved. 8 Basic Limitations Entity Limitations • Lesser of 20% of Qualified Business Income (QBI), OR • Greater of 50% of wages paid by the entity, or • 25% of the wages paid plus 2.5% of the cost of qualified property Individual Limitations • Calculate tentative QBI deduction from each separate trade or business. • Add together separate QBI deductions including negative deductions • Compare and take the lesser of the above and 20% of excess of taxable income over net capital gains Note: The W-2 wages/qualified property limit does not apply if the taxpayer’s taxable income for the tax year is equal to or less than a $157,500 threshold amount ($315,000 for taxpayers filing a joint return).
- 9. Qualified Business Income (QBI) • Short-term capital gain • Long-term capital gain • Dividend income • Interest income What is QBI? • Income from business that is regular, continuous and substantial • Rental income 9 What is not QBI? Note: Be careful of any existing grouping elections! Trade or Business Tentative Qualified Business Deduction A $100,000 B ($50,000) C $25,000 Tentative deduction before other individual limitations $75,000 © NAVIX. All rights reserved.
- 12. Selling a Business with International Operations © NAVIX. All rights reserved. 12 • 100% Participation exemption deduction for foreign- source dividends received by a US C-corporation. • 2017 Mandatory inclusion of not previously taxed earnings and profits of subject to a reduced tax rate of 15.5% or 8%. • Location of IP: • Foreign-Derived Intangible Income will be taxed at lower rates. • Global Intangible Low-Taxed Income included immediately in gross income at marginal rates.
- 13. What is Not in the New Tax Act? • Maximum long-term capital gain remains at 20% • Net investment income tax (NIIT) remains at 3.8% • Pass-through income from S-corporations remains not subject to self- employment tax 13© NAVIX. All rights reserved.
- 24. www.navixconsultants.com 24 Winners and Losers Under the New Tax Act Winners • Real estate • Manufacturers • Architects • Engineers Losers • Accountants • Lawyers • Doctors • Performing artists • Broker services • Financial services • Consultants
- 37. Effective Strategies for Transferring Business • Doubles the amount of transfers to heirs • Increase from $5,600,000 to $11,200,000 • Transfers from 2018 through 2025 • BE CAREFUL UNTIL CLAWBACK IS DETERMINED 37© NAVIX. All rights reserved. Note – new method for calculating the inflation adjustment
- 38. Effective Strategies for Tax-free Transfers to Heirs • Dynasty Trust • Grantor Trust • Grantor Retained Annuity Trust 38© NAVIX. All rights reserved.
- 44. Begin with the End in Mind! • Make sure that you are clear about your Exit Plan • NAVIX can help! • Make sure that all of your advisers are clear about your Exit Plan and its timing • Will have a major impact on how you structure and run your business • Remember that today’s rates & deductions are temporary – either intentionally (phase-outs) or unintentionally (change of party in power) • Don’t let the tail (today’s taxes) wag the dog (your Exit Plan) © NAVIX. All rights reserved. 44
- 46. www.navixconsultants.com Additional Resources • Visit www.navixconsultants.com for: • In-depth articles on how the new tax laws impact various exit strategies • This Thursday we release an “At a Glance” infographic summarizing the new tax laws and the impact to your exit planning © NAVIX. All rights reserved. 46
- 48. Elizabeth A. Salvati, CPA, CFP Shareholder, Chairman of the Board www.hlbgrosscollins.com 3330 Cumberland Boulevard #900 Atlanta, Georgia 30339 Phone: 770-433-1711 esalvati@grosscollins.com Member of HLB International since 1989 --- Local in Touch, Global in Reach