Armanino webinar-tax-reform-is-here-what-you-need-to-know-010118

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Tax Reform Is Here:
What You Need to Know as a Board Director
The webinar presentation will begin in a few moments
NOTE: Participants will receive an email within 48 hours with a link to the slide deck and recording.

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• Review the impact of the TCJA overall
• Discuss examples specific to issues most relevant to board members
• Evaluate next steps for individuals and companies as we enter 2018
Learning Objectives

Welcome & Speaker Introductions
Dennis Wu

About the Presenters
Dennis Wu
Chairman, NACD Northern California Chapter
Managing Partner and Co-Founder, WuHoover & Co., LLP
• 37-year career at Deloitte & Touche
• Founding national partner of Deloitte's Chinese Services Group
• Chair of the Board of Recology
• Previously served on two NASDAQ listed companies
• Chair of the San Francisco Chapter of the Asian Pacific Islander American
Public Affairs Association (APAPA)
• Member of the Board of Directors of the Committee of 100

Dean Quiambao, CPA
Partner, Armanino LLP
• 12+ years as an auditor in Armanino's audit department
• Transitioned to "Chief Relationship Builder"
• Helps numerous companies address their tax, audit and outsourced
accounting needs
• American Institute of Certified Public Accountants (AICPA)
• California Society of Certified Public Accountants (CalCPA)
• Graduate of the University of California, Davis

Gerry Clancy, CPA
• 25+ years of experience
• Specializes in taxation and business advisory services for individuals,
families and businesses
• Works with clients in manufacturing, distribution, technology, retail, service
and construction and real estate
• Experience: Deloitte, PwC
• Attended California Polytechnic State University

Scott Borgia, CPA
• 17 years with Big 4 and 3 years with a multi-national corporate tax
department
• Specializes in consulting on complex tax and business issues, including
income tax accounting matters and tax compliance
• Works with technology companies both among the public and private sectors
• Master’s in Taxation, Brigham Young University

Tom Bondi, CPA
• Work with technology companies
• Focus on Tax, Business Advisory Services, Stock Options, Funded
Technology Companies, Negotiating Transactions
• Advisory board member for client companies
• Co-founder of a software development company and CFO from its start-up to
its acquisition
• Bachelor of Science, Santa Clara University

Most Significant Tax Change Since 1986
Most Significant Change Since 1986

Impact to Individuals & Families

• Lowers individual taxes and sets rates at 0%, 10%, 12%, 22%, 24%, 32%, 35%, and 37%
• Significantly increases the standard deduction – from $6,350 and $12,700 under current
law to $12,000 and $24,000 for individuals and married couples, respectively.
• Continues to allow people to write off the cost of state and local taxes – just like current
law – up to $10,000. Gives individuals and families the ability to choose among sales,
income and property taxes to best fit their unique circumstances.
• Increases the exemption amount from the Alternative Minimum Tax (AMT) for millions.
• Eliminates individual mandate penalty tax – providing families with much-needed relief
and flexibility to buy the health care that’s right for them if they choose.
Individuals

• Provides relief for expensive medical bills by expanding the medical expense deduction
for 2018 and 2019 for medical expenses exceeding 7.5% of AGI, and rising to 10% in 2020.
• Continues and expands the deduction for charitable contributions so people can
continue to donate to their local church, charity or community organization.
• Provides immediate relief from the Death Tax by doubling the amount of the current
exemption to reduce uncertainty and costs for many family-owned farms and businesses
when transitioned to the next generation.
Individuals

Preserves the mortgage interest deduction – providing tax relief to current and aspiring
homeowners.
• For all homeowners with existing mortgages that were taken out to buy a home, there will
be no change to the current mortgage interest deduction.
• For homeowners with new mortgages on a first or second home, the home mortgage
interest deduction will be available up to $750,000.
• No deduction for interest on home equity loans in 2018
Mortgage Interest Deduction

• Offering a first-ever 20% tax deduction that applies to “qualified business income (QBI)”
from a partnership, S corporation, or sole proprietorship, defined as the net amount of items
of income, gain, deduction, and loss with respect to your trade or business.
o Business must be conducted within the U.S.
o Specified investment-related items are not included (e.g., capital gains or losses, dividends, and
interest income) unless the interest is properly allocable to the business.
o Does not include reasonable compensation received from an S corporation, or a guaranteed
payment received from a partnership for services provided to a partnership's business
Passthroughs

New limitations on “excess business loss”
• An excess business loss for the tax year is the excess of aggregate deductions of the
taxpayer attributable to the taxpayer's trades and businesses, over the sum of aggregate
gross income or gain of the taxpayer plus a threshold amount. The threshold amount for a
tax year is $500,000 for married individuals filing jointly, and $250,000 for other individuals,
with both amounts indexed for inflation.
• In the case of a partnership or S corporation
o Provision applies at the partner or shareholder level
o Each partner's or shareholder's share of items of income, gain, deduction or loss is taken into
account in applying the above limitation for the tax year of the partner or shareholder
Passthroughs

Corporations

• Reduces 35% corporate rate to 21% beginning January 1, 2018, with no graduated rate
structure.
• Blended rate in effect for fiscal year companies.
• Great opportunity to achieve permanent tax savings where possible to accelerate deductions
or defer income in 2017
• Deferred taxes will need to be remeasured at the new rate
• State deferred taxes will be higher as the federal benefit is reduced
Reduction in Corporate Tax Rate

• Of the states that impose corporate income tax, a significant number automatically conform
to IRC amendments on a “rolling” basis
• Remaining states only conform to the IRC in effect as of a specific date and some of those
lag in conformity for multiple years
• Even with specific enactment date, overall impact depends on whether the state leverages
the federal taxable income as a starting point or incorporates the actual federal provision into
its own laws
State Conformity

• The corporate AMT has been repealed for tax years beginning after December 31, 2017
• Taxpayers may claim a refund on any AMT credit carryforwards
o Use AMT credits to offset any regular income tax liability in years 2018 through 2020, with 50
percent of remaining AMT credits refunded in each of the 2018, 2019, and 2020 tax years and all
remaining credits refunded in tax year 2021.
Repeal of Corporate AMT

• Limits deduction to 80% of taxpayer's taxable income (determined without regard to the NOL
deduction) for losses arising in tax years beginning after 2017. Pre-2018 NOL’s allowed to
offset 100% of taxable income
• Allows NOLs to be carried forward indefinitely for losses arising in tax years ending after
2017
• Repeals the two-year carryback and special carryback provisions for losses arising in tax
years ending after 2017 (with limited exceptions)
Net Operating Loss

• Allows 100% expensing of cost of qualified property acquired and placed in service after
September 27, 2017 and before January 1, 2023
• Phases down after 2022 with:
o 80% expensing for property placed in service during 2023
o 60% for property placed in service during 2024
• Companies in net operating losses should still consider taking bonus depreciation in 2017 as
this would convert to a 100% use NOL vs. 80%
Business Expensing

• The Tax Cuts and Jobs Act repeals one interest expense limitation (i.e earnings stripping
rules) and replaces them with a limitation on the deduction of business interest
• Under this limitation, the deduction allowed for business interest for any tax year can't
exceed the sum of:
1. the taxpayer's business interest income for the tax year;
2. 30% of the taxpayer's adjusted taxable income for the tax year.
Adjusted taxable income is computed before deductions for depreciation, amortization and NOLs.
• Any disallowed interest can be carried forward indefinitely
• Small business exception where average gross receipts for prior 3 years < $25M.
Interest Limitations

• Expands definition of publicly traded companies that are subject to Section 162(m) which
limits compensation deduction to $1M for covered employees
• Expands definition of covered employee to include CFO (along with CEO and three most
highly paid officers)
• Once a covered employee, continue to be a covered employee
• Repeals exception for performance-based compensation and commissions
• Applies transition rule to compensation paid pursuant to a plan under a written binding
contract that is in effect on November 2, 2017 and which was not modified in any material
respect after such date.
• Strongly recommend legal counsel be involved in determination of subjected compensation
Section 162(m) Limitation

Covering areas including:
• Stock Grants
• Restricted Stock Units (RSUs)
• Non-Qualified Statutory Options (NSOs)
• Incentive Stock Options (ISOs)
• Accelerations of Vesting upon exit transactions
• 83(b) Elections
• 83(i) Election (new)
• Carried Interest in Funds
Stock Options & Equity Grants

• Repeals 50% deduction for entertainment, amusement or recreation activities, or facilities
(including membership dues), even if directly related to active conduct of taxpayers trade or
business
• Repeals deduction for qualified transportation fringe benefits or for any reimbursement of
employee commuting costs (except if necessary for employee safety)
• Reduces deduction to 50% after 2018 and before 2026 for meals provided at an employer-
provided eating facility or for the convenience of the employer for tax years
Meals and Entertainment Expenses

• US shareholder is required to include in US gross income amount of its “global intangible
low-taxed income” (GILTI) which is the excess of the tested income over a deemed allowable
investment return on tangible property used to produce such income
• Taxed at 21% after applying a 50% deduction
• Not necessarily dependent upon having intangibles but more driven by a foreign subsidiary’s
(1) absence of substantial depreciable tangible property and (2) effective foreign tax rate
being less than 10.5%
• A domestic corporation is provided a low tax rate on foreign-derived intangible income (FDII)
which replaces other US export dependent benefits (such as Section 199 domestic
production deduction). Eligibility more driven from high-margin foreign sales. Effective tax
rate of 13.125%
International – GILTI & FDII

• 100% dividend received deduction (exemption) from specified 10% owned foreign
corporations by domestic corporations that are US shareholders
• No future foreign tax credit or deduction for taxes paid with respect to such dividend
• One-time mandatory inclusion of untaxed foreign earnings:
1. Tax applies to earnings & profits applied on a cumulative, aggregate basis for all foreign
subsidiaries
2. Effective tax rate is 15.5% on cash assets and 8% on the remainder
3. Foreign tax credits or NOLs may be used to reduce the net tax due
4. Taxpayer may elect to pay such one-time tax over a period of up to 8 years
International – Transition to Territorial System

• New tax on corporations that file a US tax return (1120 or 1120F) that makes significant
deductible payments to certain foreign related parties
• In principal, similar to AMT in that it is aimed at taxpayers that are reducing their US tax
liability via payments to related foreign parties
• BEAT erosion minimum tax amount
1. 5% for 2018
2. 10% for 2019 through 2025
3. 12.5% for 2026
• Taxpayer (including overall controlled group) not subject to BEAT unless they have both:
1. Average annual gross receipts of $500M or more for the preceding 3 year period and
2. A base erosion percentage of less than 3%
International – Base Erosion and Anti-abuse Tax (BEAT)

• Q4 effect of change in tax law as enacted and signed by President on December 22, 2017
• Multiple tasks for many companies to complete for Q4 earnings release
• Still some uncertainty on application of new tax law as regulations still to come that will
explain much more of the actual application as well as help with some of the unforeseen
consequences
• SAB 118 – SEC issued 12/22/2017 to provide guidance on situations where the financial
statement tax accounting is not complete due largely to the necessary information not yet
being available, prepared or analyzed
1. Use of reasonable estimate
2. Exclusion of the amount where no reasonable estimate yet available
Financial Statement Reporting

During today’s webinar, we have:
• Reviewed the impact of the TCJA overall
• Discussed examples specific to issues most relevant to
board members
• Evaluated next steps for individuals and companies as
we enter 2018
In Conclusion

Closing Comments
Dennis Wu

• Membership of 1400 individual members and 75 full board companies
• Programs throughout the year in Capital Valley (Sacramento), San Francisco, and Silicon
Valley
• Providing members with timely forums and programming for best board practices, emerging
governance issues, and peer-to-peer networking opportunities
• This is our first webinar in Northern California and also our first program of the year
• Please check out our website: NorthernCalifornia.NACDonline.org for programming including
our upcoming event on January 31st in Palo Alto
Northern California Chapter

Hosted by WilmerHale in Palo Alto
January 31, 2018
5:00 p.m. – 7:30 p.m.
Register Now at northerncalifornia.nacdonline.org
Join us at a special event for corporate directors in Silicon Valley. This event program will highlight the
2018 Consumer Electronics Show (CES) and its impact on boards.
Key takeaways to bring back to your boardroom will include:
• New technologies that could disrupt industries and impact the creation of shareholder value
• A brief CES® video clip of the NACD CES® Experience
• How boards are dealing with the potential impacts of multiple new technologies
• The key questions directors should be asking outside the annual strategy meetings
• Considerations for disclosures about the impact of new technologies
Boardroom Insights From CES® 2018

CONTACT US
Gerry Clancy, CPA Tax Partner Gerry.Clancy@armaninoLLP.com
Scott Borgia, CPA Tax Partner Scott.Borgia@armaninoLLP.com
Tom Bondi, CPA Tax Partner Tom.Bondi@armaninoLLP.com
Dean Quiambao, CPA Partner Dean.Quiambao@armaninoLLP.com

Armanino webinar-tax-reform-is-here-what-you-need-to-know-010118

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