IRS to open filing season Monday with some extra warnings

The Internal Revenue Service is getting ready to open the tax filing season on Monday, Jan. 29, as it gears up to handle the new tax law.

This year, tax season will close on Tuesday, April 17, when individual tax returns and payments are due to the IRS.

The IRS advised tax professionals in an email Friday to bookmark the link to Basic Tools for Tax Professionals for filing instructions, access to forms, publications and reference materials, and information on power of attorney, transcripts, representation, due diligence, professional responsibility and more.

On Friday, the IRS marked the 12th annual Earned Income Tax Credit (EITC) Awareness Day with more than 250 total outreach events and activities promoting EITC Awareness around the country. The campaign aims to reach millions of low- and moderate-income workers who may be missing out on this significant tax credit. 

The IRS is particularly encouraging tax professionals who have clients with disabilities, or whose clients are parents of children with disabilities, to let them know they may be eligible for the EITC. Help them claim it if they qualify. Publication 4808 contains additional information.

In addition, victims of last year’s hurricanes, especially those who lived in areas affected by hurricanes Harvey, Irma, and Maria may also qualify for the EITC.

Like last tax season, the IRS is also planning to delay refunds for tax returns claiming the EITC or the Additional Child Tax Credit, subjecting them to extra scrutiny to safeguard against identity theft and tax fraud. Clients who are claim the EITC or ACTC can expect their tax refunds to arrive starting Feb. 27. A new YouTube video provides more details.

The IRS is also warning tax professionals that wage statements and independent contractor forms must be filed with the government by Jan. 31. The date applies to both electronic and paper filers. Federal law requires employers file their copies of Form W-2 and Form W-3with the Social Security Administration by the end of January and others who paid compensation file Form 1099-MISC with the IRS to report non-employee compensation.

In addition, the IRS plans to warn tax professionals Monday to safeguard data security this tax season. “Filing season has now arrived and we thank you for all you will do for taxpayers and tax administration,” said the IRS. “Over the last two months, we have shared information about the importance of protecting your systems and client data from cyber intruders and identity thieves. Today, we want to provide a little information on what to do if the worst happens— your client information is compromised or your data system is breached. “We hope you never experience a data compromise—whether by cybercriminals, theft or accident—but if it happens there are certain steps you should take. These include notifying law enforcement, your local IRS stakeholder liaison, the Federation of Tax Administrators (who will assist in notifying all the states in which you prepare state returns), your clients, your insurer, the credit bureaus, and others. (For those who have employers or hold franchises, please ensure you know what is required by your employer or your contract.) For a complete list of who to contact, visit IRS.gov, keyword: Data Theft Information for Tax Professionals. For a list of local stakeholder liaison contacts, search: Stakeholder Liaison Local Contacts. Wishing you a productive, successful and safe filing season!”

Source: Accounting Today

Michael Cohn

Michael Cohn, editor-in-chief of AccountingToday.com, has been covering business and technology for a variety of publications since 1985.

Tax reform and cash management considerations for clients

The New Year is here and the Tax Cuts and Jobs Act bill is now law, the most significant reform of the U.S. tax code since 1986.

The first few months of 2018 are a critical time for tax, legal and accounting advisors to speak with business clients regarding how the new law will affect their cash flow. This year it will be extremely important for businesses to keep their tax advisors in the loop regarding transactions to ensure they are structured in a way that will save money.

If ever advisors needed to use their emotional intelligence and listening skills, this year would be a good time. Tax organizers and checklists can only disclose but so much. Advisors will have to hone in on what clients and business management want to accomplish throughout the year, in the near future and next seven years, and truly understand what keeps them up at night and what they are passionate about.

Casual advice will not work, as people often dismiss and do not act upon free, informal advice given during the tax preparation process. Advisors will have to be proactive and get engaged to prepare new tax plans, strategies and positions for business management.

With so many changes and factors, where do advisors start?

Legal and accounting firms, bar and state accounting associations, continuing education providers and publishers have been busy providing articles, webinars and training. Advisors will have to pay attention to the individual facts and circumstances of each party they serve and determine what additional services they can provide on a periodic basis to add value to and save clients and business management tax money. In any planning, cash management and cash flow must be taken into account, to ensure there is enough money to cover ongoing expenses and operations and to fund any additional expenses taxpayers chose to incur in order to take advantage of tax changes.

Looking at the bottom line is not enough in times of change; one must also make sure on a monthly basis that basic necessities are met and the lights stay on. Additionally, advisors will have to take into account which changes are permanent, temporary and due to increase or decrease between now and 2025.

How will the states react to tax reform?

In the past, many states piggybacked on the federal tax regulations. Some states such as New York have already announced plans for changes in the state tax laws. In due time, we will learn more about what states plan to do. Any additional differences will have to be taken into consideration when preparing estimated tax payment calculations and projections. With some states increasing the minimum wage and providing paid family leave, there will be a lot of changes.

How will the alternative minimum tax enter the equation?

The AMT has to be taken into account in planning for individuals and corporations. The individual phase-out threshold has increased to $1 million. For individuals who prepaid real estate taxes for 2018 that were already assessed in 2017, the AMT exemptions from 2017 may yield less or no tax savings.

Should advisors be consulted before couples get married?

Some advisors may be hopeless romantics, happily married, etc. Being an advisor does not make one immune from feeling compassionate when clients say they are getting married or divorced. With alimony no longer being deductible and caps on itemized deductions, advisors may take this opportunity to speak up and help clients save heartache and money down the road.

Legal advisors and others can assist clients in preparing prenuptial agreements, setting up simple trust funds to set aside assets for young children and aging parents, and setting up retirement accounts and plans that can make fair resources available to each spouse. Additionally, advisors can advise engaged couples on how to time their home and investment property purchases to maximize deductions before marriage, and set up joint ownership for real estate ventures.

What business do advisors have discussing medical procedures with clients?

We have all heard the saying that health is wealth. Advisors often know personal information about the people they work with. People love to save money. This can be a good opportunity to suggest clients consult their doctors and see if major medical procedures that require large out of pocket costs, such as dental work, be performed in 2018. The threshold for the itemized deductions for medical expenses will stay at 7.5 percent in 2018 but will increase to 10 percent thereafter.

How can advisors help maximize business expense deductions and ensure employees are not adversely affected by loss of deductions?

Advisors are often consulted when companies want to update employee handbooks and other policies. With some taxpayers losing their ability to itemize deductions due to the increased standard deduction, unreimbursed employee expenses and professional development out-of-pocket expenses may not yield a tax savings benefit to some employees. Additionally, employees will no longer be able to deduct home office expenses.

Employers should review their employee reimbursement plans and make sure these plans are fair and cover all expenses that employees are expected to incur on behalf of the company. Companies should consider either paying outright for uniforms, safety gear, professional development materials and workshops, or giving employees pay increases to make these out of pocket expenses more affordable to employees. Additionally, companies can use this as an opportunity to make sure expense reimbursement processes are fully automated and that polices require employees to make prompt reimbursement requests. Employers should make sure reimbursement plans are accountable, so that reimbursements do not end up being reported as wages on form W-2.

What are some things that advisors should discuss with parents?

Parents will benefit from the $400 increase in the refundable child tax credit. The standard deduction was increased and personal exemptions were eliminated. This change may be confusing to some parents. Parents will be able to use 529 plans to send children to elementary school.

Advisors can help families leverage caps on real estate and tax deductions with education expenses. Some parents purchase homes in counties they can barely afford in order to send their children to schools in better school districts. Some of these parents will no longer benefit from the tax savings they were accustomed to when they were able to deduct their real estate and state taxes. Advisors can help parents determine how contributions to educational savings accounts can lower their taxable income and save them money on taxes.

How can advisors help clients with retirement-related issues?

Advisors will have to help clients access their current and future earnings and tax expectations, to ensure a Roth IRA conversion is best for them. Roth IRA conversions will no longer be reversible.

What's the story with estate planning?

Advisors may have a challenging time discussing complex trusts that have become irrelevant, yet are irrevocable and still incur fees. They say the only certain things in life are death and taxes. The new tax law has doubled the estate and gift tax exemptions to an inflation-adjusted $11.2 million for descendants dying and gifts made in 2018. These exemptions will be adjusted annually for inflation until 2025, when they sunset and revert to an inflation-adjusted $6.5 million.

How will the gig economy make out with tax reform?

Since some people may lose their ability to deduct professional development expenses as itemized deductions due to the higher standard deduction, some taxpayers may decide to be more active in their side gigs and form an LLC to build a business while maximizing business deductions. Advisors can help clients set up businesses they actively participate in.

How can advisors help clients with real estate investment issues?

With the caps on deduction of property and real estate taxes, mortgage interest, business interest expenses, advisors can help clients figure out what the best structure is for real estate investments. Some clients who have previously shied away from partnerships may find such entity structures more favorable or feasible.

How will entrepreneurial business owners make out with tax reform?

Business owners should be open with their advisors on what their strategic plan for the year is, how much they plan to grow and what their operating budget includes. Discussions should include which entity type is most beneficial, how the business owner can receive compensation and benefits to save taxes, and how much money the business owner needs to cover basic operations and living expenses on a monthly basis.

As of 2018, tax preparation fees will no longer be deductible as an itemized deduction on Schedule A, so small business owners should ensure their advisors or tax preparers provide detailed and/or separate bills for personal and business-related tax return preparation to obtain the amount that is business related.

How can advisors help pass-through entities that are service providers?

Advisors can assist high-earning service-providing businesses set up compensation and benefits that can reduce income and increase tax savings, yet provide future benefits to business owners.

How will tax reform affect nonprofit organizations?

With the increased standard deduction, some people will no longer be able to itemize, and will no longer see a tax savings from making charitable donations. People may become more particular about which organizations they will support. With some nonprofits struggling financially, advisors will be able to provide input to both donors and nonprofits.

Executive compensation changes will particularly be something nonprofits will have to address. The tax reform calls for a 21 percent excise tax on compensation of any covered employee in excess of $1 million. Donors, funders, boards and other stakeholders will look at compensation in a new light. With potentially decreasing donations, stakeholders would prefer to see more money going to causes and programs as opposed to executive pay.

Endowments will be affected by tax reform as well, with a new excise tax of 1.4 percent on the net investment income of applicable educational institutions. Investment and other advisors will have to work with educational institutions that have large endowments to ensure the organizations strategize about what to spend and what to save for the future. Additionally, large donations will have to be structured or timed in ways that save on taxes and extend the benefits to the educational institutions.

Will corporate tax cuts actually create jobs?

The tax cuts sure will create work (at least for accountants). Advisors of large privately held and publicly traded corporations will have their work cut out for them.

However, net operating loss carrybacks are no longer allowed and losses carried forward are now limited to 80 percent of taxable income. The domestic production activities deduction (section 199) has been eliminated.

The corporate alternative minimum tax has been eliminated. Net interest expense deduction will be limited to 30 percent of earnings before interest, taxes, depreciation and amortization (EBITDA) for four years and 30 percent of earnings before interest and taxes (EBIT) thereafter.

Financial analysts will have some extra work to do when analyzing results. Investors may benefit from corporations potentially having more earnings, EBIT or free cash flow.

What advice would you give to advisors?

Advisors should quickly learn about the changes and educate their clients, business management and owners as to which changes apply to them specifically and what services advisors can provide during this time of change and on a continuous basis. Finally, advisors should assess their personal circumstances and determine what changes they should make to make sure they save money on taxes due to their service providing business and to the increased revenue and salaries that they will earn as they help clients and business management save money on taxes and grow their businesses, portfolios, families and cash flow.

Source: Accountingtoday.com

Tax reform leaves private foundations in a strong position

While the Tax Cuts and Jobs Act made some changes to the charitable giving provisions in the Tax Code, the climate for giving to private foundations is as strong or stronger than it has ever been, according to Jeffrey Haskell at Foundation Source.

Haskell, who heads a team of accountants and attorneys providing services to private foundations, noted that there had been talk during the long tax reform process of flattening the foundation excise tax rate.

“Under the current regime, the full tax rate is 2 percent,” he explained. “Under certain conditions that rate is cut in half, to 1 percent. It’s cut when the foundation makes grants to a certain level, as a reward. There was a proposal to simplify this by having a flat rate of 1.4 percent, but that didn’t make it into the final bill. And the other thing that might have impacted private foundations was a narrow exception to the excess business holdings rule, which generally puts a limit on the stake that a foundation and insiders collectively have in a business enterprise. That would have relaxed the rules, but it didn’t happen either.”

The fact that the final bill contained no negative targeting of private foundations was reassuring to his private foundation clients, according to Haskell. And in a positive move, the TCJA increases the adjusted gross income limit on cash contributions to public charities from 50 percent to 60 percent.

“To the extent that an exempt organization or charity pays more than a million dollars in compensation to one individual, there will be an excise tax, but this generally applies to only the biggest charities like hospitals and universities,” he said. “None of our private foundation clients – which number over 1,400 – pay compensation anywhere near those levels.”

A private foundation is a Section 501(c)(3) organization other than a public charity. It typically manages its own investments, which are normally funded by an initial donation from an individual or business.

“High-income individuals who tend to fund private foundations with significant donations are probably not itemizing their deductions,” noted Haskell. “But when they contribute, they will itemize. The tax rate is still high for high-income people at 37 percent. And the charitable deduction has not been impaired or limited in any way. There were past proposals that would have capped the charitable deduction, but they were never enacted. And the Pease limitation, which had the potential to erode up to 80 percent of itemized deductions [by reducing their value as the taxpayer’s income rose], has been repealed. So the climate for making donations is stronger than ever.”

To be sure, people are motivated by non-tax considerations, Haskell noted. “In many cases, a family has a commitment to their local community to build a park or a skating rink or a food pantry. Those people won’t care, at the end of the day, about the tax ramifications. They have a commitment to society and want to set an example for their children.”

Large public charities are typically supported by private foundations, Haskell noted. “To the extent that they are hurting because of a downturn in donations from the public, private foundations can step up and fill that gap,” he said. “The need for private foundations is stronger than ever to make up any shortfall that public charities experience in receiving donations. Private foundations are committed to supporting charities in their community or regions, or in their area of interest.”

“Moreover, some corporations are seeing the lowering of the corporate tax rate as a possible opportunity to give back more to their community,” Haskell said. “There are lush years and lean years, and charities expect to receive more support from corporations in lush years. The lowering of the corporate tax rate will make for more lush years, and generate a more favorable climate for charitable giving by corporations.”

Source: Accounting Today

Mnuchin doesn’t rule out delaying tax cut for corporations

Treasury Secretary Steven Mnuchin isn’t ruling out delaying the start of a corporate tax rate cut, but emphasized the administration’s “strong preference” is for the relief to start in 2018.

“The longer we wait, the worse it is for the economy and making companies competitive,” Mnuchin said in an interview Wednesday with Bloomberg TV in Washington. Mnuchin declined to say that a phase-in of corporate tax cuts was completely off the table.

“The president’s strong preference—he feels very strongly that he wants to start this right away,” Mnuchin said. “But having said that, we’ll have to look at the entire Senate package.”

The Washington Post reported late Tuesday that Senate tax writers were considering a one-year delay in implementing a 20 percent corporate rate. The House tax legislation unveiled last week calls for an immediate and permanent 20 percent corporate rate. Before the bill was released, House tax writers were said to have been considering a gradual phase in of the rate to ensure their plan would comply with congressional budget rules.

Mnuchin was said to resist a gradual phase in of the proposed 20 percent corporate rate out of concern the move wouldn’t boost economic growth as much as anticipated—he’s said higher GDP from the corporate rate cut would offset its cost. A slow reduction of the corporate rate from its current 35 percent would also make the U.S. less competitive, as other countries cut their rates faster and foreigners delay investments in the U.S.

‘Right Direction’

The House tax-writing committee is in the third of what’s expected to be four days of work to hammer out details of the Republican tax plan—a plan intended to overhaul the tax code for the first time in more than three decades. President Donald Trump has charged Mnuchin and National Economic Council Director Gary Cohn with the job of shepherding it through Congress and onto his desk to sign by December.

Trump left for a 12-day trip to Asia on Friday, leaving Mnuchin and Cohn behind to “remain vigilant” on tax reform, the president said before his departure. “So if I have any problems, I will be blaming Mnuchin and Cohn. Believe me, they’ll be hearing from me.”

Last weekend, Mnuchin spent time in California selling the tax plan. He also participated in a press conference Tuesday with Senate Republicans to discuss the tax effort. Later that afternoon, Cohn met with a group of Senate Democrats and Trump called in to make a personal pitch for the tax-cut plan being worked on by Republicans.

Mnuchin on Wednesday signaled support for the House’s measure this week to limit the carried interest tax break, widely utilized by private-equity managers, venture capitalists, certain real estate investors and hedge-fund managers.

Carried interest is the portion of an investment fund’s profit—usually a 20 percent share—that is paid to investment managers. Currently, tax authorities treat that income as capital gains, making it eligible for a rate of 23.8 percent—on gains from assets held for a year or more. The top individual income tax rate is 39.6 percent.

House Republicans now plan on attaching a three-year holding period to carried interest. Trump targeted the tax break in his populist presidential campaign. The House’s move is “absolutely a step in the right direction,” Mnuchin said.

Obamacare Rollback

Republicans may be considering repealing the Obamacare requirement that most Americans carry health insurance, as a way to help pay for the tax code revamp. Rolling back the coverage rule would save the government $388 billion over 10 years, according to a Congressional Budget Office report released Wednesday.

That is a smaller benefit than previously projected for a plan favored by the White House. Previous CBO estimates of the policy have found that millions of Americans would lose or drop their insurance coverage without the mandate. And repealing it as part of tax legislation—especially after efforts to rollback Obamacare have failed twice in Congress—could complicate the debate.

“The appeal of putting that in is one, it gets rid of a very unfair tax on people who can’t afford it, and it frees up a lot of money that would go toward a middle income tax cut, Mnuchin said. “Whether that’s included or not included, we are determined that we get the tax cuts passed.”

He reiterated his confidence that Trump will sign the legislation in December.

“Gary and I are very comfortable being accountable, this is the president’s most important domestic agenda item and we’re going to get this passed,” Mnuchin said.

—With assistance from Michael McKee

Source: Accounting Today

Multinationals scurry to defuse House tax bill’s ‘atomic bomb’

Multinational companies including Apple Inc., Pfizer Inc. and Ford Motor Co. would face a new tax on payments they make to offshore affiliates under the House Republicans’ tax bill—a surprise provision that has stunned tax experts.

The new 20 percent tax is “the atomic bomb in the draft” legislation, said Ray Beeman, co-leader of Ernst & Young’s Washington Council advisory services group. “We’re trying to get our arms around the implications.”

So far, many big U.S. companies have kept quiet on the proposal. But already, House Ways and Means Chairman Kevin Brady has tweaked the provision to lessen its impact, part of a package of changes the tax-writing panel adopted Monday night. The committee will continue debating the bill Tuesday.

House tax writers say the proposed excise tax is aimed at preventing U.S. companies from shifting their earnings offshore to subsidiaries in tax shelters—and it moved into the spotlight this week amid a series of global investigative reports on corporate tax avoidance. But tax practitioners say the provision has far larger implications for consumer prices on a range of goods.

“It’s a very big gorilla in the living room,” said Gary Friedman, a tax partner at Debevoise & Plimpton. Tech companies, pharmaceutical makers, automakers and reinsurers are the companies most likely to be concerned, he said.

A Pfizer spokeswoman said it was premature to comment, and an Apple spokesman declined to comment. Ford did not respond to requests for comments.

The tax would apply to billions of dollars in intellectual-property royalties that technology and pharmaceutical firms make to their overseas affiliates each year—payments often linked to tax-avoidance strategies. But it would also hit U.S. companies’ imports of generic drugs, cars and other products from their affiliates. Global insurers would incur the levy on the cost of “reinsurance” they buy from foreign affiliates.

‘Trade War’ Concern

The provision, which is estimated to raise $154 billion over a decade, “could trigger a trade war,” Friedman said—stirring other countries to tax their companies’ imports from U.S. units.

For investors, the impact would appear as higher overall expenses in corporate financial statements across a range of industries—potentially depressing earnings, said Robert Willens, an independent tax and accounting expert.

For consumers, the result might be higher prices for imported goods and insurance premiums—a message that various lobbying groups have been eager to share with House tax writers.

“We expected significant feedback there, and it’s exactly what we got,” Brady told reporters Monday. He added: “Insurance is an industry where I think there are some unintended consequences from the first draft. I am re-examining those provisions to make sure we got it right.”

The Coalition for Competitive Insurance Rates, a lobbying group that includes the U.S. arms of Zurich Re, Allianz Re and Swiss Re, came out swinging after the bill appeared.

Insurers’ Complaints

In the wake of recent hurricanes that ravaged Puerto Rico, Texas and Florida, “it is unfathomable” that the bill proposes “a measure that will shrink competition in the insurance marketplace and increase the cost of insurance for consumers,” it said in a Nov. 2 statement. Large global insurers, not smaller U.S.-only ones that wouldn’t face the tax, typically insure against most major disasters.

House tax writers envisioned the 20 percent tax as a way to shore up the U.S. corporate tax base, which has been eroded for years by companies sending their earnings overseas. As part of a tax overhaul that would cut the U.S. corporate tax rate to 20 percent—down from 35 percent—the House bill would also remake the U.S. approach to international business taxation.

Unlike most other developed economies, the U.S. taxes companies on their global earnings, but it allows them to defer paying taxes on overseas earnings until they’re returned to the U.S. As a result, companies have stockpiled an estimated $3.1 trillion offshore, beyond the reach of U.S. corporate taxes.

The House bill would end that practice, apply a cut-rate tax to the stockpiled earnings and use the new excise tax to try to keep more U.S. income at home in the first place.

‘Border-Adjusted’ Redux

The excise tax would apply to many payments that U.S. based companies make to foreign affiliates—be they subsidiaries, sister companies or parent companies. That would include royalties, but also payments for inventory later sold to consumers—essentially, any payment to a foreign affiliate on which the U.S. company could take a tax deduction immediately or over time.

The tax wouldn’t apply to payments between two U.S. affiliates of the same U.S. company. And it wouldn’t apply to interest payments—another method companies use to send profit overseas that would be curbed under a separate bill proposal.

Because the tax would apply to payments for inventory, some have compared it to the controversial “border-adjusted tax,” or BAT, that House Speaker Paul Ryan proposed last year. That proposal would have placed a 20 percent tax on companies’ domestic sales and imports, while exempting their exports. Ryan gave up on the idea after retailers and others argued that it would raise consumer prices.

“Our concern is that the tax ends up getting passed on to consumers and winds up being a consumption tax, similar to the border-adjustment tax,” said Levi Russell, a spokesman for Americans for Prosperity, a group backed by billionaire industrialists Charles and David Koch that also opposed the BAT.

International Automakers

Here for America, a lobbying coalition of international automakers including Honda, Toyota and Volvo, all with manufacturing, R&D and sales operations throughout the U.S., said in a Nov. 5 statement that the tax was “discriminatory” against global companies. The current tax bill, it said, “is flawed and disadvantages companies that are a backbone of American manufacturing and job creation.”

The bill does contain an escape hatch, of sorts—a way for companies to cut the amounts they’d pay under the excise tax.

Companies can either pay the 20 percent excise tax on the payments they make to an overseas affiliate—or they can make the affiliate itself subject to a tax on its net profit.

Choosing the second option might be more beneficial for most companies, tax experts said, because most U.S. companies pay their foreign affiliates a premium—a price that includes profit.

Consider a case in which the U.S. company pays its foreign affiliate $100 for a particular good. If it chooses to pay the excise tax on the payment, that’s a tax bill of $20.

But let’s say it costs the affiliate $60 to produce the good in question. Its profit would be $40, and its tax would be just $8. The company could cut its potential tax bill in half—but there would be a different kind of price to pay: It would have to disclose more to investors—and therefore, perhaps, to competitors—about its profits on particular product lines.

Currently, companies tend to make such disclosures on broad segments of the products they offer, not particular lines. “This bill allows the IRS to define what a product line is,” said Seth Green, a principal in KPMG’s Washington National Tax practice.

Choosing the extra disclosure and the lower tax bill is the better option, said Michael Mundaca, co-director of Ernst & Young’s National Tax practice—even if it does subject foreign affiliates to more scrutiny from the IRS.

“Neither choice is good,” he said, “but the second one is better, even with increased reporting.”

Source: Accounting Today

AFWA announces 2017 'Women Who Count Awards' winners

The Accounting & Financial Women’s Alliance announced the recipients of its 2017 Women Who Count Awards during the organization's annual Women Who Count Awards luncheon, held October 30 in Alexandria, Virginia.

The annual award ceremony recognizes female leaders in the profession who not only set examples in their "companies and communities," but who have also "earned the trust and respect of their clients and peers," according to the Alliance.

“Our members succeed as we encourage and empower them to take on challenges for personal and professional growth," said AFWA national president, Lori Kelley, per a statement. "I could not be more proud to celebrate these brilliant women. Their work exemplifies the values that define our organization, and the impact we as women hope to make in the profession.”

The 2017 Women Who Count Awards recipients are as follows:

• Emerging Leader: Jennifer Brodmann - PhD candidate/dissertation fellow, the University of New Orleans, New Orleans, La.
• Industry Professional: Grace Staten - marketing director, MassMutual, San Diego, Calif.
• Public Practice Professional: Kelly Haden - manager, Ericksen Krentel, New Orleans, La.
• Woman of the Year: Dr. Marilyn Willis - professor emeritus, University of Tennessee at Chattanooga, Chattanooga, Tenn.

Source: Accounting Today

A juicy tax break—and the rules to keep everyone from taking it

House Republicans say they’re determined to simplify the U.S. tax code. A long-awaited provision in the massive tax bill they unveiled Thursday, a special rate for “pass-through” businesses, could do exactly the opposite.

“The tax code was already overly complicated, and this is going to make it worse,” said Anjali Jariwala, a CPA and financial planner at FIT Advisors in Redondo Beach, Calif., who specializes in doctors.

For the wealthiest taxpayers, the provision could create big savings by slashing top rates from 39.6 percent to 25 percent on some income. The vast majority of U.S. businesses—from dry cleaners and sports teams to law firms and even many of President Donald Trump’s personal holdings—are set up as pass-through businesses, in which profits pass through to owners untaxed and then are reported as income on their individual returns. A regular corporation pays its own corporate taxes; shareholders pay another round of taxes on any dividends they receive.

The House bill could prompt many more Americans to consider setting up a pass-through business. Along with cutting corporate tax rates, it reduces rates for pass-through businesses to a new maximum of 25 percent. Millions of well-paid workers who pay a top federal rate of 39.6 percent might have an incentive to stop earning a salary and start hiring themselves out as contractors to get the lower rate.

The bill’s authors have tried to head off a flood of new pass-through businesses and limit the provisions’ costs to the U.S. Treasury. Under the bill, many service providers—doctors, lawyers, accountants, and people in fields like financial services and the performing arts—are assumed to be excluded from the pass-through rate. Other pass-through businesses would have 70 percent of their income classified as wages, subject to a higher federal rate and to Social Security and Medicare payroll taxes. Just 30 percent of their income would get the low pass-through rate.

Business owners could hire accountants to challenge these assumptions. A business could prove to the Internal Revenue Service that it deserves to pay the lower rate on its pass-through income based on how much capital it has invested.

This is where the complications come in. The bill offers a series of formulas to determine how much of a business’s income is subject to the pass-through rate, and they’re already making accountants’ heads swim.

“It’s way too complicated at this point,” said Johanna Fox Turner, a CPA and financial planner at Fox & Co. Wealth Management in Kentucky who also specializes in doctors. “I just cannot figure out how they’re going to get all that to work.”

House Republican leaders cite the example of a lawn care business owned by a married couple that brings in $500,000 in profits a year. The pass-through provision, along with the elimination of the alternative minimum tax, should allow this couple to cut its current tax bill of $128,000 by about $25,000, according to a statement issued by the House Ways and Means Committee.

While the bill’s writers try to exclude professionals, such as doctors and lawyers, from the pass-through rate, these taxpayers have every incentive to find a way around the rules. For someone paying an effective tax rate of 33 percent, reclassifying even a small percentage of income at the 25 percent rate can save a lot of money, Jariwala noted.

Middle-income business owners, meanwhile, won’t get much benefit, if any, from the new pass-through rate. An unmarried person earning less than $91,900 already pays a top marginal tax rate of 25 percent.

That’s why the National Federation of Independent Business, a small-business lobbying group, says it opposes the House bill. “We think the benefits [of the new pass-through rate] should extend to all small businesses,” said spokesman Jack Mozloom. In addition to offering lower preferential rates for smaller businesses, Mozloom said, the bill shouldn’t make distinctions between professional service providers and other pass-through businesses.

“We think that’s bad policy, picking winners and losers based on what they do,” he said. “We certainly want manufacturers to get a tax break, but we want their accountants to try to get a tax break too.”

Those accountants are now busy poring over the new law, figuring out ways they and all their clients could save the maximum in taxes. Meredith Tucker, a CPA at Kaufman Rossin based in Ft. Lauderdale, Florida, asks, for example, whether a law firm, now organized as a pass-through partnership, could reorganize as a management company to grab the new, lower corporate tax rate of 20 percent?

“We’re all going to get our pencils out and figure out how to legally push the envelope,” Tucker said. “That’s what we do.”

Source: Accounting Today