The Tax Cuts and Jobs Act is a reality. Find out what that means to you in this informative presentation. Presented by Brian Kempf, Christopher Axene, Cindy Kula and Inez Bowie, this presentation focuses on the various business related provisions, individual provisions, international concerns and implications to estates and trusts. Listen to the explaination behind the slides. Watch the full recording of this free webinar here --> https://register.gotowebinar.com/register/7354592984523668995

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4. Agenda
• International provisions (Chris Axene)
• Business provisions (Brian Kempf & Chris Axene)
• Pass-through entity provisions (Brian Kempf & Chris
Axene)
• Individual provisions (Cindy Kula)
• Estate, gift & trust provisions (Inez Bowie)

5. Chris Axene, CPA
International provisions, business provisions, pass-through entity
provisions

6. Brian Kempf
Business provisions, pass-through entity provisions

7. Cindy Kula, CPA, PFS, CFP
Individual provisions

8. Inez Bowie, CPA, CSEP
Estate, gift & trust provisions

9. Lesley Mast, CPA, Macc – Taxation
Moderator

10. Let’s start the show!

11. International Provisions

12. International Provisions – 10 Sec Tour
Deemed Repatriation Tax
• Applies to all 10% or greater shareholders in foreign
corporation (i.e. individuals, corps, partnerships, etc.)
• One-time special tax on balance of “earnings” not
previously returned to U.S. shareholders in the form of
dividends.
– Applies whether or not cash is actually “brought home”
• Two rates of tax based on foreign entity’s balance sheet:
– 15.5% on cash/cash equivalents (e.g. A/R net of A/P)
– 8% on all other assets
• Tax can be paid in installments over 8 yrs

13. Deemed Repatriation Tax – Take-Aways
• Has client been tracking foreign earnings (review 5471
filings)?
• Do we have access to foreign balance sheet to calculate
the tax?
• Foreign corporations with 12/31/17 year-end. Do we
have first installment due by 4/17/18?
• S-corporations and REITs allowed to defer payment of
tax.
• Individuals may want to take advantage of special
election to be taxed as a Corporation for purposes of this
tax.

14. Other International Provisions
• There are other provisions included in “International Tax
Reform” that are beyond the scope of this presentation
– 100% dividend received deduction (DRD)
– Global Intangible Low-Tax Income (“GILTI”)
• Could be really bad answer for anyone other than C-corps
– Foreign Derived Intangible Income (“FDII”) deduction
• Only applies to corporations
• WTO likely to object
– Base Erosion Avoidance Tax (“BEAT”)
• Only applies to Corps with gross revenue $500M or larger
– Outbound transfers of tangible personal property to foreign
corporations

15. Questions?
Chris Axene, CPA
Principal, Dublin office
chris.axene@reacpa.com
614-889-8725

16. Business Provisions

17. Business Tax Reform: Corporate
• Graduated corporate rate structure eliminated
• 21% corporate tax rate, including PSC
• Rate effective for taxable years beginning after Dec. 31,
2017
• Note corporations with taxable income of $90,400 or
more will pay a lower tax. Tax under old rates =
$18,986, @ 21% flat rate = $18,984
• Alternative Minimum Tax (AMT) repealed for tax years
beginning after Dec. 31, 2017

18. Business Tax Reform: Corporate
• Fiscal year end
• Prorated tax rates
– March 31, 2018
• 35% / 12 months x 9 months = 26.25%
• 21% / 12 months x 3 months = 5.25%
• Blended rate = 31.25%

19. Business Tax Reform: Corporate
• Dividend Received deduction for corporations changed
• Dividend received from other taxable domestic
corporations are allowed a deduction
• 70% deduction is reduced to 50%
• 80% deduction is reduced to 65%
• Effective for taxable years beginning after Dec. 31, 2017

20. Business Tax Reform: Bonus Depreciation
• Expands qualified property to include used property
• Increases bonus depreciation from 50% to 100%
• For property acquired and placed in service after Sept.
27, 2017
• Phase-down after Dec. 31, 2022 (2023 for long
production period property and aircraft)

21. Business Tax Reform: Bonus Depreciation
• Bonus Depreciation Property acquired before
Sept. 28, 2017, and placed in service after Sept. 27, 2017

22. Business Tax Reform: Bonus Depreciation

23. Business Tax Provisions: 280F
• Depreciation limitations under section 280F that apply to
listed property are increased
• For passenger automobiles placed in service after
Dec. 31, 2017, and for which bonus depreciation is not
claimed the maximum amount of depreciation is as
follows:
– First Year $10,000
– Second Year $16,000
– Third Year $ 9,600
– Fourth and Later Years $ 5,760

24. Business Tax Reform: Real Property
Improvements
• The separate definitions of qualified leasehold
improvement, qualified restaurant, and qualified retail
improvement property are eliminated
• Above property is replaced with a reference to qualified
improvement property (QIP)
• Effective for property place in service after Dec. 31, 2017

25. Business Tax Reform: Real Property
Improvements
• Qualified improvement property is any improvement to
an interior portion of a building this is nonresidential real
property if the improvement is placed in service after the
date the building was first placed in service, except for
any improvement for which the expenditure is
attributable to:
– Enlargement of the building
– Any elevator or escalator
– The internal structural framework of the building

26. Business Tax Reform: Section 179
• Sec. 179 annual dollar limit increased to $1 million
• Phase-down threshold increased to $2.5 million
• Effective for property placed in service in tax years
beginning after Dec. 31, 2017
• The $1 million, $2.5 million and the $25,000 SUV
limitation are indexed for inflation for tax years beginning
after 2018

27. Business Tax Reform: Section 179
• The definition of Sec. 179 property is expanded to
include:
– Any of the following improvements to nonresidential real
property placed in service after the date such property was
first place in service:
• Roofs
• Heating, ventilation, and air-conditioning property
• Fire protection and alarm systems
• Security systems

28. Business Tax Reform: Accounting Method
• Expands the taxpayers that may use the cash method of
accounting
• The gross receipts test is changed to allow taxpayers
with annual average gross receipts that do not exceed
$25 million for the three prior taxable-year period (the
“$25 million gross receipts test”) to use the cash method
• The $25 million amount is indexed for inflation for
taxable years beginning after 2018
• The exceptions for the required use of the accrual
method for qualified personal service corporations and
taxpayers other than C corps are retained

29. Business Tax Reform: Accounting Method
• The provision expands the exception for small taxpayers
from the uniform capitalization rules
• Any producer or reseller that meets the $25 million gross
receipts test is exempted from the application of section
263A
• The provision retains the exemptions from the uniform
capitalization rules that are not based on a taxpayer’s
gross receipts

30. Business Tax Reform: Accounting Method
• The provision expands the exception for small
construction contracts from the requirement to use the
percentage-of-completion method
• Contracts within this exception are those contracts for
the construction of improvement of real property if the
contract:
– is expected, at the time such contract is entered into, to be
completed within two years of commencement of the contract
– is performed by a taxpayer that for the taxable year in which
the contract was entered into meets the $25 million gross
receipts test

31. Business Tax Reform: Accounting Method
• A taxpayer fails the $25 million gross receipts test would
not be eligible for any of the exceptions, that is
– from the accrual method
– from applying the uniform capitalization rules
– from using the percentage-of-completion method for such
taxable year

32. Business Tax Reform: Interest Deduction
• Every business is generally subject to a disallowance of a
deduction for net interest expense in excess of 30% of the
business’s adjusted taxable income.
• For tax years beginning after Dec. 31, 2017, and before
Jan. 1, 2022.
• Adjusted taxable income is computed without regard to
deductions allowable for depreciation, amortization, or
depletion and without the former code section 199 deduction.
• An exemption from these rules applies for taxpayers,
other than tax shelters, with average annual gross
receipts for the three year period ending with the prior tax
year that do not exceed $25 million

33. Business Tax Reform: Interest Deduction
• Real property trades or businesses can elect out of the
provision if they use ADS to depreciate applicable real
property used in a trade or business
• Farming businesses can also elect out if they use ADS to
depreciate any property used in the farming business
with a recovery period of ten years or more
• An exception from the limitation on the business interest
deduction is also provided for floor plan financing (i.e.,
financing for the acquisition of motor vehicles, boats or
farm machinery for sale or lease and secured by such
inventory)

34. Business Tax Reform: Net Operating Loss
Deduction
• For NOL’s arising in tax years ending after Dec. 31, 2017,
– the two year carryback and the special carryback provisions are
repealed,
– but a two-year carryback applies in the case of certain losses
incurred in the trade or business of farming
• For losses arising in tax years beginning after Dec. 31,
2017, the NOL deduction is limited to 80% of taxable
income, determined without regard to the deduction
• Doesn’t apply to property and casualty insurance
companies,
• NOLs can be carried forward indefinitely

35. Business Tax Reform: Like-Kind Exchanges
• Generally effective for transfers after Dec. 31, 2017, the
rule allowing the deferral of gain on like-kind exchanges
is modified to allow for like-kind exchanges only with
respect to real property that is not held primarily for sale
• Under a transition rule, pre-Act like-kind exchange rules
apply to exchanges of personal property if the taxpayer
has either disposed of the relinquished property or
acquired the replacement property on or before
Dec. 31, 2017

36. Business Tax Reform: DPAD
• The domestic production activity deduction (DPAD) is
repealed for tax years beginning after Dec. 31, 2017

37. Business Tax Reform: Entertainment
• No deduction is allowed with respect to (1) an activity
generally considered to be entertainment, amusement or
recreation, (2) membership dues with respect to any club
organized for business, pleasure, recreation or other social
purposes, or (3) a facility or portion thereof used in
connection with any of the above items
• This is a repeal of the exception to the deduction
disallowance for entertainment, amusement, or recreation
that is directly related to or associated with the active
conduct of a taxpayer’s trade or business
• Effective for amounts incurred or paid after Dec. 31, 2017

38. Business Tax Reform: Entertainment
• The 50% deduction limit is expanded to meals provided
through an in-house cafeteria or otherwise on the
premises of the employer. (Formerly exempt as de
minimis fringe and for the convenience of the employer.)
• For amounts incurred and paid after Dec. 31, 2017, and
until Dec. 31, 2025
• Amounts incurred and paid after Dec. 31, 2025, are not
deductible

39. Meals & Entertainment
2017 – Old Rules 2018 – New Rules
Office Holiday Parties 100% deductible 100% deductible
Entertaining Clients-Meals 50% deductible 50% deductible
Entertaining Clients-
Entertainment
Event tickets, 50% deductible for
face value of ticket; anything
above face value is non-
deductible. Tickets to qualified
charitable events are 100%
deductible.
No deduction for
entertainment expenses
Employee Travel Meals 50% deductible 50% deductible
Meals Provided for
Convenience
of Employer
100% deductible provided they
are excludible from employees’
gross income as
de minimis fringe benefits;
otherwise, 50% deductible
50% deductible
(nondeductible after 2025)

40. Business Tax Reform: R&D Credit
• Reduced credit rate will increase from 13% to 15.8%
• After 1/1/2021 R&D costs will need to be capitalized and
amortized over 5 years instead of being expensed
– Much lobbying to change this provision will continue to years
to come

41. Possible Planning Opportunities under New Tax
Act
• Businesses:
– Evaluate entity choices
– Explore Research and Development Credit
– Explore benefits of cost segregation with QIP
– Cost segregation study for 2017 at higher rates
– Review assets placed into service in 2017
– Evaluate cash basis accounting

42. Questions?
Chris Axene, CPA
Principal, Dublin office
chris.axene@reacpa.com
614-889-8725
Brian Kempf, CPA
Principal, Millersburg office
brian.kempf@reacpa.com
330-674-6055

43. Pass-through Entity
Provisions

44. Qualified Business Income (QBI) Deduction
• New code section (section 199A)
• Eligible - individuals with ownership in partnerships, S-
corporations, or sole-proprietorships that conduct trade or
business
– Trusts and estates also eligible for deduction
• 20% deduction of pass-through income on individual
owner’s personal tax return
• Limits for professional service type business (e.g.
lawyers, doctors, accountants, etc.)

45. Qualified Business Income (QBI) Deduction
• Not applicable to:
– Investment management/advisory/trading type businesses
excluded from eligibility
– Portfolio/investment income (e.g. investment interest,
dividends, short-term and long-term capital gain income
• Effectively makes top tax bracket 29.6% for qualified
pass-through income
– 37% x 80% = 29.6%

46. QBI Deduction: Definitions
• Qualified business income – the net amount of qualified items of
income, gain, deduction, and loss with respect to any qualified trade
or business of the taxpayer; does not include any qualified REIT
dividends, qualified cooperative dividends, or qualified publicly
traded partnership income
• Qualified items of income, gain, deduction, and loss – income,
gains, deductions, and losses to the extent they are related to
activities in the US and used in determining taxable income
(exceptions: capital gains, interest, dividends, et al)
• Combined qualified business income – an amount equal to:
– the sum of the amounts determined under paragraph (2) (lesser of 20%
of QBI or wage/property limitations) for each qualified trade or business
carried on by the taxpayer, plus
– 20 percent of the aggregate amount of the qualified REIT dividends and
qualified publicly traded partnership income of the taxpayer for the
taxable year

47. QBI Deduction: Definitions
• Qualified trade or business – any trade or business other than –
– a specified service or trade business (excluding architects or
engineers), meaning – any trade or business involving the performance
of services in the field of health, law, accounting, actuarial science,
performing arts, consulting, athletics, financial services, brokerage
services, or any trade or business where the principal asset of such
trade or business is the reputation or skill of 1 or more of its employees
– the trade or business of performing services as an employee
• W-2 wages – any wages paid to employees, does not include
guaranteed payments or payments to independent contractors
• Qualified property – tangible property being depreciated and used
in a trade or business, depreciation period is the latter of the regular
depreciation period or 10-years (excludes land)
• Unadjusted basis – equal to basis immediately after acquisition,
not adjusted for depreciation
• Taxable income – taxable income shall be computed without regard
to the deduction allowable under this section

48. QBI Deduction: Limitations
• Service related businesses
– Limited if taxable income is more than $315,000 (MFJ)
– Phased out completely if taxable income more than $415,000
• Non-services related businesses
– No taxable income phase out

49. QBI Deduction: Limitations
• If taxable income is below $315k ($157.5k), the
deduction is the lesser of:
– 20% of qualified business income
– Combined QBI
– 20% of total taxable income less capital gains (modified
taxable income)

50. QBI Deduction: Service Limitation
• If taxable income exceeds $315k ($157.5k), the following
formula is used:
• Once taxable income exceeds $415k ($207.5k), the
deduction is no longer available

51. QBI Deduction: Non-Service Limitation
• If taxable income exceeds $315k ($157.5k), the QBI
deduction will be:
– 20% of QBI
– Minus:
• 20% of QBI minus, the greater of
– 50% of W-2 wages from pass-through entity
– 2.5% of cost of unadjusted basis plus 25% of W-2 wages
• Multiplied by:

52. QBI Deduction: Non-Service Limitation
• If taxable income exceeds $415k ($207.5k), the QBI
deduction will be:
– lesser of:
• 20% of QBI; or
• Greater of:
– 50% of W-2 wage income from pass-through entity (not
applicable to sole proprietorships)
– 2.5% of cost of qualified business assets plus 25% of W-
2 wage income.
• Deduction cannot exceed 20% of modified taxable
income (service and non-service)
– Modified taxable income = taxable income less net capital
gain income

53. QBI Deduction: Example: Phase-In
• A and B are married. A has K-1 income of $300,000 from
an S corporation. A's share of the W-2 wages paid by the
S corporation is $40,000. A's share of the unadjusted
basis of qualified property held by the S corporation is
$0. B earns wages from her job, so that taxable income
for A and B in 2018 is $375,000
– 20% of QBI = $300k * 20% = $60k
– W-2 limitation = $40k * 50% = $20K
• Additional deduction = $60k – $20k = $40k
– Limitation ratio = (375k – $315k)/$100k = 60%
• Reduction in additional deduction = $40k * 60% = $24k
– Final deduction = $60k – $24k = $36k*

54. QBI Deduction: Example: Above Phase-In
• John owns an office cleaning company and has taxable
income of $500,000
• The cleaning company:
– Generates $100,000 of QBI
– Pays W-2 Wages of $50,000
– Has a nominal amount of Qualified Property
• John’s 199A deduction is:
– $20,000 [$100,000 x 20%]
– It is not limited by the wage test [$50,000 x 50% = $25,000]

55. QBI Deduction: Example: Real Estate
• John and Melissa also own two homes they rent to others
• The first:
– Generates $7,000 of QBI for a deduction of $1,400 [$7,000 x 20%]
– Property is fully depreciated
– No employees
– Therefore, the QBI deduction is $0
• The second:
– Generates $10,000 of QBI for a deduction of $2,000 [$10,000 x 20%]
– Property is not fully depreciated and was purchased for $100,000 (less
land)
– No employees
– Therefore, the QBI deduction is $2,000
– Lesser of: (A) $2,000 or (B) greater of: (i) $0 ($0 W-2 wages x 50%) or (ii)
$2,500 ([$0 W-2 wages x 25%] + [$100,000 property x 2.5%])

56. QBI Deduction: Additional Information
• All calculations, including the wage and unadjusted basis
limitation are all on an entity by entity basis
– Rental properties (non-entities) are grouped together
• Losses carried over from prior years must be applied
when calculating QBI
• Partner/shareholder must use their allocable share for all
calculations
• 10% accuracy penalty for taxpayers who claim the
deduction but are ineligible
• Net Investment Income Tax is unaffected

57. Possible Planning Opportunities under New Tax
Act
• Pass-through Entity Deduction:
– Increase W-2 wages (employees or S corp election)
– Increase qualified property
– Spin-out applicable entity within a service entity to take
deduction
– Move independent contractors to employees

58. QBI Deduction: Take-Aways
• We need additional guidance from the IRS regarding:
– What truly constitutes as a service business?
– Clearly defining “trade or business”
– Additional definitions and clarifications

59. Questions?
Chris Axene, CPA
Principal, Dublin office
chris.axene@reacpa.com
614-889-8725
Brian Kempf, CPA
Principal, Millersburg office
brian.kempf@reacpa.com
330-674-6055

60. Individual Provisions

61. Overview
• Changes under the new tax law, the Tax Cuts and Jobs Act
(TCJA), impact individual taxation:
– Generally effective for the 2018 tax year
– Most are temporary and due to expire after Dec. 31, 2025.
– With the changes to the standard deduction, many taxpayers
will now opt not to itemize deductions.
– Overall, individuals in higher taxed states with higher incomes
will see higher taxes.

62. Tax Rate Changes
• Lower individual tax rates – 10%, 12%, 22%, 24%, 32%,
35% and 37% (expire after 2025)
• Capital gains and qualified dividends retain present-law
maximum rates of 15% and 20% plus the 3.8% surtax,
where applicable.

63. Tax Rate Changes (cont)
• Simplifies the tax on unearned income of children by
applying ordinary and capital gains rates applicable to
trust and estates to the net unearned income of the child
instead of at the parent's marginal rate. Taxable income
attributable to earned income is taxable under the rates
for single individuals.

64. Standard Deduction
• The standard deduction is increasing across the board
for the filing statuses and is indexed for inflation for years
after Dec. 31, 2018. The additional deduction for the
elderly and the blind, remains intact. The increased
standard deduction amounts are set to sunset after Dec.
31, 2025 and are effective beginning after Dec. 31, 2017.
– Married Filing Joint (MFJ) - $24,000
– Head of Household (HOH) - $18,000
– Single - $12,000

65. Itemized Deductions
• The new bill repealed the Pease Limitation which
currently applies an overall limitation on itemized
deductions for certain upper income taxpayers. In the
past the amount of allowable itemized deductions was
reduced by three percent of the amount by which the
Adjusted Gross Income (AGI) exceeded a specified
threshold amount.
• The suspension of the overall limit on itemized
deductions doesn’t apply to tax years beginning after
Dec. 31, 2025.

66. Itemized Deductions – Medical Expenses
• Under the new law, for 2017 and 2018, medical
expenses are deductible to the extent they exceed
7.5% of adjusted gross income for all taxpayers
• Previously, the AGI “floor” was 10% for most taxpayers

67. Itemized Deductions – Home Mortgage
Interest
• Only mortgage interest to acquire, construct or
substantially improve a principal residence or second
home is included in the calculation of the deduction. The
acquisition indebtedness is limited to no more than
$750,000 ($375,000 MFS). This is in effect for new
acquisition indebtedness after Dec. 15, 2017 and applies
to tax years after Dec. 31, 2017.
• Taxpayers are no longer able to deduct interest paid on
home equity indebtedness.

68. Itemized Deductions – Taxes
• Combined state and local taxes, real estate taxes,
foreign taxes, and personal property taxes are now
limited to $10,000 ($5,000 for MFS) in total.
• Sales tax is still allowed as an alternative.
• This deduction is not allowed for foreign real property.

69. Itemized Deductions – Gambling Losses
• Limitation on Wagering Losses: The limitation on losses
from wagering applies not only to actual costs of wagers,
but also to expenses incurred by the individual in
connection with the conduct of the gambling. The
deduction is limited to the amount of winnings.

70. Itemized Deductions – Charitable
Contributions
• The percentage limitation for contributions of cash to
public charities is increased to 60% (from 50%) of the
AGI.
• Denies the deduction for college athletic event seating
rights – this is now nondeductible.
• Is effective from Jan. 1, 2018-Dec. 31, 2025.

71. Itemized Deductions – Miscellaneous Itemized
Deductions Subject to 2% Floor
• Repealed- This category included items such as tax
preparation costs, investment expenses, union dues,
and unreimbursed employee business expenses.
• Effective Jan. 1, 2018 – Dec. 31, 2025

72. Alternative Minimum Tax
• The AMT is calculated using a different set of tax rules than
those used for regular tax.
• The taxpayer is liable for either the AMT or regular income
tax, whichever is higher.
• The “rules” for the calculation of the individual AMT are for
the most part unchanged from prior law.
• What changed are the exemption amounts and thresholds
for phase-out.

73. Casualty Losses
• In accordance with the intent to simplify and reform tax
deductions the TCJA has for the most part repealed the
deduction for personal casualty and theft losses. The
law follows the Senate amendment which allows the
taxpayer to claim a personal casualty loss only if the loss
was attributable to a disaster declared by the President.
• The effective date for this change is for losses incurred
from January 1, 2018 through December 31, 2025.
• As in prior law, the losses are only deductible if the loss
exceeds $100 per casualty and also exceed 10% of the
taxpayer’s adjusted gross income. The deductible loss
is added to the standard deduction for regular tax but not
AMT.

74. Personal Exemptions
• Personal exemptions are repealed and the filing
threshold requirements for filing are modified so you
don’t need to file until your gross income for the year
exceeds the standard deduction. This change is effective
for tax years beginning after Dec. 31, 2017, and before
Dec. 31, 2025.

75. Tax Credits Update
• The Child Tax Credit/Family (Dependent) Tax Credit
– The phase-out threshold has been increased. For 2017, the Child
Tax Credit begins to phase out (decrease in value) at an adjusted
gross income of $75,000 for Single Filers and Head of
Household, $110,000 if Married Filing Joint, and $55,000 if
Married Filing Separate. The thresholds are increased to
$400,000 MFJ and $200,000 for all other taxpayers for years
beginning after Dec. 31, 2017.
Pre-2018 Post-2017
Child Tax Credit $1,000 per child
(up to $1,000 refundable)
$2,000 per child
(up to $1,400 refundable)
Other Dependents No credit $500 per dependent

76. Tax Credit Changes
• Additional credits remaining intact:
– Earned income credit
– Credit for the elderly and permanently disabled
– Plug-in electric drive motor vehicles credit
– American opportunity credit
– Lifetime learning credit
– Adoption credit

77. Miscellaneous Provisions
• 529 Savings Plans continue to be withdrawn tax-free if
used for higher education expenses. A new provision
allows up to $10,000 per year to be used for elementary
and high school tuition for education at private and
religious schools. This provision does not expire.
• The above-the-line deduction for educator expenses up
to $250 was not repealed.
• Like-kind exchanges are limited to real property that is
not held primarily for sale. This provision does not
expire.

78. Miscellaneous Provisions (cont)
• The following deductions were eliminated:
– Moving expenses other than those for the Armed Forces on
active duty who move pursuant to a military order included in
a permanent change of station.
– Exclusion for employee achievement awards other than
tangible personal property (limited array of pre-selected items
are still eligible).
– Alimony payments effective for any divorce or separation
agreement executed or modified after Dec. 31, 2018. (Thus
the income is not taxable to the recipient.)
– Domestic Production Activities Deduction.

79. Miscellaneous Provisions (cont)
• The amount of the individual shared responsibility
payment under the Affordable Care Act is reduced to
zero for all months after Dec. 31, 2018. This repeal is
permanent.
• Carried Interest-Holding period for long-term capital
gains is increased to three years with respect to certain
partnership interests transferred in connection with the
performance of services.
• Estate tax exemption increased to $11,180,000.

80. Miscellaneous Provisions (cont)
• New 20% deduction for qualified business
income from a pass-through entity-partnership,
S corporation, rental properties, or sole
proprietorship
• New excess business loss limitation
• New rules apply to net operating losses
• New measure of inflation provided and made
permanent

81. Conclusion
• Many details in the tax reform need clarification and examples.
• State of residence, income type (wages versus business income) and
mortgage interest will be important to help determine if we are better or
worse off under the Tax Cuts and Jobs Act.
• Probable Tax Act “Winners”:
– Corporations in the current 25%+ tax brackets
– Families with children under age 17
– High wage earners
– Recipients of new alimony agreements (post 12/31/18)
– Portion of AMT population
• Probable Tax Act “Losers”:
– Corporations in the current 15% tax bracket
– Families with children over 16
– Taxpayers with high state and local taxes

82. Questions?
Cynthia M. Kula, CPA/PFS, CFP®
Senior Manager, Tax; Cleveland office
cindy.kula@reacpa.com
216.573.2330

83. Estate, Gift and Trust
Provisions

84. Estate & Gift Provisions
• Estate and Gift lifetime exclusion amount and GST
exemption doubled…..Temporarily
– Went from $5 million, indexed for inflation to $10 million, indexed
for inflation.
– $11.2 million per person in 2018
– $22.4 million per married couple in 2018
– Reverts to 2018 pre-tax reform amounts on January 1, 2026
(which was $5.6 million per person)
– “Step up” in basis at death is still applicable – no changes.

85. Estate & Gift Provisions
• Clawback
– Unlikely, but not impossible
– It is anticipated that there will be no “clawback” of the
increased applicable exclusion amount or GST exemption
that a donor uses if the donor dies after the expiration of the
increased applicable exclusion amount.

86. Estate & Gift Provisions
• Portability of the deceased spouse’s unused exemption
(DSUE) Maintained
– Must still file a Form 706 and elect portability at the first spouse’s
death.
– Unclear as to how the IRS will treat the DSUE if the first spouse
dies before 2026, when the exemption amounts revert back to
original 2018 rules.

87. Estate & Gift Provisions
• Take aways:
– You still need an estate plan even if your assets will never
exceed the exemption amount.
– Regardless of the size of your estate, existing plan documents
should be revisited to see how it is impacted by the new tax
reform. Old documents may not property reflect the impact of the
new high exemption amounts.
– In the event that the estate tax exemption sunsets, consider
additional gifting transactions starting in 2018 to take advantage
of the doubled exemption amount.
– Keep in mind that inherited property gets a step up in basis but
gifted property takes a carryover basis.

88. Fiduciary Income Tax
• Fiduciary Income Taxation Changes
– Highest tax rate is 37%, same as individuals.(Note that the rates
revert back to the pre-law changes in 2026).
– Rate structure remains quite compacted.
– New income tax rates are:
If taxable income is: Then income tax equals:
Not over $2,550 10% of the taxable income
Over $2,550 but not over $9,150 $255 plus 24% excess over $2,550
Over $9,150 but not over $12,500 $1,839 plus 35% excess over $9,150
Over $12,500 $3,011.50 plus 37% excess over $12,500

89. Fiduciary Income Tax
• Trust and Estates Retain Personal Exemptions
– Estate $600
– Complex trust $100
– Simple trust $300

90. Fiduciary Income Tax
• Trust Income Taxation Changes
– The Treasury Department is aware of the need for guidance to
address the elimination of miscellaneous itemized deductions
and how that provision applies in the trust and estate context.
– The new act eliminated all miscellaneous itemized deductions
affecting individuals under tax code Section 67.
– Section 67(e) provides an exception to the 2% floor when
computing the adjusted gross income of a trust or estate if the
deduction relates to costs that wouldn’t have been incurred if the
property weren’t held in a trust or estate
– New law doesn’t touch Section 67(e) leaving us to wonder if
those fees are still deductible.

91. Fiduciary Income Tax
• Take aways
– Even with the reduced tax rates, Trusts and Estates may face
higher income taxes as a result of eliminated deductions.
– If you are not likely to have a taxable estate due to the increased
exemption, consider changing your estate plan to take
advantage of the step-up in basis for income tax purposes.

92. ESBT Provisions
• Electing Small Business Trusts (ESBTs) changes
– A nonresident alien individual is now allowed to be a potential
current beneficiary of an ESBT, effective Jan. 1, 2018.
– Charitable contribution deductions are no longer determined by
rules applicable to trusts, but are determined by rules applicable
to individuals. In other words, the charitable contribution
deduction is limited to 60% of adjusted gross income and the
carryforward provisions apply.
• Take aways
– If you have an ESBT (or current planning documents allow for an
ESBT) and steps were taken to exclude a nonresident alien from
becoming a beneficiary, you should revisit the planning
document.

93. Questions?
Inez Bowie, CPA, CSEP
Senior Manager, Marietta office
inez.bowie@reacpa.com
740.373.7423

94. Upcoming webinars
• Wed., Feb. 13 | A closer look for business owners
• Thurs., Feb. 14 | Individual tax planning insight
• Fri., Feb. 15 | Considerations for nonprofits
• Learn more or register at www.reacpa.com/taxreform