2016 BUSINESS tax update Saturday, January 28, 2017

Today’s presenter Kate Spinnato Private Client Services Senior Manager, Houston Kate.Spinnato@rsmus.com

Agenda Topic Minutes Business Tax & Legislative Updates 30 Business Tax Reform & Planning Strategies 15 Q & A 5 Total 50

BUSINESS TAX & LEGISLATIVE UPDATES

2016 corporate income tax rates Tax Brackets 15% $0 - $50,000 25% $50,001 - $75,000 34% $75,001 - $100,000 39% $100,001 - $335,000 $335,001 - $10,000,000 35% $10,000,001 - $15,000,000 38% $15,000,001 - $18,333,333 Over $18,333,333

Filing deadlines have changed for 2016 returns Calendar year business returns Entity Return Prior due date New due date If extended due date C Corporation Form 1120 March 15 April 15 September 15 S Corporation Form 1120-S Partnership Form 1065

New filing dates for W-2s and 1099-MISC (box 7) Forms W-2 must be filed with Social Security Administration by January 31 Forms 1099-MISC (box 7) must be filed with the IRS by January 31 Forms W-2 and 1099-MISC must be furnished to the employee or independent contractor by January 31 Increased penalties for failure to file timely or failure to furnish timely

Affordable Care Act Update The Affordable Care Act (ACA) is now fully in effect Large employers must offer minimum essential health coverage to substantially all (95%) of it’s employees and their dependents or be assessed a shared responsibility payment by the IRS To determine which employers owe the penalty, the IRS requires large employers to file Forms 1095-C and 1094-C

Filing/furnishing dates for Forms 1094 and 1095 Affordable Care Act information returns Provide Form 1095 to employees by January 31, 2017 File Form 1094 and 1095 with IRS by: Paper filing: February 28, 2017 Electronic filing: March 31, 2017

Penalties for incorrect information returns Pre-2011 2011-2015 After 2016 Standard penalty per failure $50 $100 $260 Discounted penalty for correction within 30 days $15 $30 Discounted penalty for correction before Aug. 1 $60 Intentional disregard penalty $250 $530 Annual maximum $250,000 $1,500,000 $3,193,000 Annual maximum if gross receipts $5 million or less $100,000 $500,000 $1,064,000 Double these amounts if the IRS and recipient copies are both incorrect

Foreign Bank Account Report (FBAR) Due date for the FBAR (Form 114) has changed from June 30 to April 15 Must be filed electronically with Financial Crimes Enforcement Network (FinCEN) Form 114 is available only through the BSA e- Filing System Website

Tax Provisions Made Permanent Research and development tax credit Section 179 expensing limit of $500,000 and phaseout amount of $2 million, indexed for inflation 15-year recovery period for qualified leasehold improvements, qualified restaurant property and qualified retail improvements Exclusion of gain on certain small business stock Stock basis adjustments for S corporations making charitable contributions of property Five-year built-in gain period for S corporations

Tax Provisions Extended Through 2019 Bonus Depreciation Look-through treatment of certain payments between related controlled foreign corporations Work Opportunity Tax Credit

Tax Provisions Extended Multiple Years 30 percent investment tax credit for qualified solar property is fully extended through 2019, with a 26 percent credit available in 2020 and a 22 percent credit available in 2021 Renewable electricity production tax credit and election to claim 30 percent investment tax credit related to qualified wind property are phased out over five years, with full credit for 2015 and 2016, 80 percent for 2017, 60 percent for 2018, and 40 percent for 2019

Tax Provisions Expiring at the End of 2016 Section 179D energy efficient commercial building deduction Renewable electricity production tax credit The energy investment credit $0.50 per gallon alternative fuel credit and alternative fuel mixture credit The $1 per gallon biodiesel and renewable diesel credit The section 45L new energy efficient homes credit in the amount of $1,000 or $2,000 per unit

Partnership Audit Rules Repealed and Replaced Returns filed for partnership taxable years beginning after 2017 are subject to a centralized system for audit, adjustment, and collection of tax that applies to all partnerships, except those eligible partnerships that have filed a valid election out The changes are effective for partnership tax years beginning after December 31, 2017. Under the centralized system, the audit of a partnership takes place at the partnership level

BUSINESS TAX REFORM & PLANNING STRATEGIES

Make up of Congress in 2017 114th Congress 115th Congress Change House Senate Republican 247 54 241 52 -6 -2 Democrat 187 44 194 46 +7 +2 Independent 2 18

Business tax reform themes Proposal Donald Trump Comprehensive tax reform Lower rates for all types of businesses Encourage investment in capital (tangible and intangible) End inversions Tax foreign earnings as earned – eliminate deferral House Republicans Comprehensive tax reform proposal Discourage debt Restructure taxation of foreign earnings Level the trade playing field 19

Business tax reform: Rates – corporate Donald Trump 15% House Republicans 20% 20

Business tax reform: Rates – pass-through entities Proposal Donald Trump 15% Large pass-throughs would also pay “dividend taxes” House Republicans Ordinary income rates on reasonable compensation +25% on the remainder 20

Business tax reform: Depreciation Proposal Donald Trump Choice between: Current law or Immediate expensing for tangible and intangible property (not land) with no deduction for interest expense House Republicans Immediate expensing – tangible and intangible (not land) 20

Business tax reform: Interest deductions Proposal Donald Trump No deduction if immediate expensing is elected House Republicans Limited to interest income 20

Business tax reform: Last-in, first-out (LIFO) Proposal Donald Trump No proposal House Republicans Retained 20

Business tax reform: Research and development (R&D) credit Proposal Donald Trump Retained House Republicans 20

Business tax reform: Corporate AMT Proposal Donald Trump Eliminates House Republicans 20

Business tax reform: Other business deductions Proposal Donald Trump ‘Eliminates corporate tax expenditures’ (unspecified) House Republicans Repeal certain business deductions (unspecified other than domestic production activities deduction (DPAD)) 20

Business tax reform: Carried interest Proposal Donald Trump Eliminate House Republicans No proposal 20

Planning Strategies – Tangible Property De minimis Notice 2015-82 Effective Jan. 1, 2016 Increased $500 to $2,500 Consider next year’s amount Partial dispositions Full dispositions Extension of waiver of five-year eligibility limitation on making automatic method changes – tax years beginning before January 1, 2017

Planning Strategies – Method Changes Automatic procedures UNICAP Requirement Percentage completion method no longer automatic Federal credits may disqualify from automatic consent change eligibility Non-automatic procedures Fee $8,600 In year of change so calendar year taxpayers must file Form 3115 by Dec. 31, 2016

Planning Strategies – Common Method Changes Decrease in taxable income Deferral method of accounting for advance payments Bad debts Incurred but not reported Software developments costs Depreciation/amortization Inventory valuation – lower of cost or market (LCM) and subnormal goods Self-developed UNICAP method Prepaids 12-month rule Increase in taxable income Generally improper to proper method changes Specific item cash to accrual Accrued bonuses not fixed at year-end Workers compensation liabilities LIFO termination Simplified UNICAP method

Planning Strategies – Considerations for Pass-Through Entities Look for ways to create basis Consider deferring interest payments on shareholder-partner loans Defer capital transactions Defer tax payment distributions Bonus accruals Start considering the implications of conversion to C Corporation status Defer a Subchapter S election

Q&A