Understanding the Impact of Tax Reform Chris and Supriya – 20 min

Overview of the impact on: Individuals Stanford Chris – 10 min Financial Management Services September 18, 2019

Impact on Individuals Current Tax Law New Tax Law Personal tax rates Seven tax brackets: 10%, 15%, 25%, 28%, 33%, 35%, 39.6% Seven tax brackets: 10%, 12%, 22%, 24%, 32%, 35%, 37% Standard deduction Married filing jointly: $12,700 Head of household: $9,350 Single: $6,350 Married filing jointly: $24,000 Head of household: $18,000 Single: $12,000 Child tax credit $1,000 per child $2,000 per child (refundable to $1,400 per child); $500 for non-child dependents Personal exemption $4,050 Repealed State income, sales & property tax Itemized deduction, no limit Property tax and either income or sales tax limited to $10,000 Mortgage interest Deductible on up to $1.1 million debt; interest on second home deductible Deductible on up to $750,000 of debt (including second home); no home equity interest deduction Chris – 10 min include disclaimer Alternative minimum tax (AMT) rules have been greatly eased Financial Management Services September 18, 2019

Impact on Individuals Rate For Unmarried Individuals, Taxable Income Over For Married Individuals Filing Joint Returns, Taxable Income Over For Heads of Households, Taxable Income Over 10% $0 12% $9,525 $19,050 $13,600 22% $38,700 $77,400 $51,800 24% $82,500 $165,000 32% $157,500 $315,000 35% $200,000 $400,000 37% $500,000 $600,000 Chris – 10 min Financial Management Services September 18, 2019

Impact on Individuals Itemized deductions subject to 2% floor repealed Exclusion for qualified moving expenses reimbursement and deduction suspended Elimination of exempt employee achievement awards Exclusion for qualified bicycle commuting reimbursement suspended Alimony relating to divorces after 12/31/18 is not deductible Casualty losses can only be taken in a declared disaster area Medical expenses in excess of 7.5% of gross income are deductible in 2018. Exclusion rises to 10% in 2019 Chris – 10 min Financial Management Services September 18, 2019

Impact on Individuals 50% AGI limitation for charitable contributions increased to 60% for gifts of cash to specified organizations 20% of net income exclusion is available for many small businesses (proprietorships and S-corporations) 529 education saving plan funds up to $10,000 per year may be used to pay for K-12 school tuition and contributions may be made on behalf of a pre-born child The Pease rule, which reduces itemized deductions by 3 cents for every dollar of gross income in excess of $313,000, is eliminated The estate tax exclusion doubles to nearly $11 million per person ($22 million per couple) Chris – 10 min Financial Management Services September 18, 2019

Impact on Stanford Excise Tax on Investment Income 1.4% tax on net investment income of the University and controlled entities Includes interest, dividends, rents, & royalties from all sources Effective date: 9/1/2018 Supriya – 10 min more details to come on how this will be impact overall funding and endowment payout process Financial Management Services September 18, 2019

Impact on Stanford Excise Tax on Excess Executive Compensation 21% tax on Stanford for remuneration over $1M paid to covered employee Covered employee = Top 5 highest paid during the tax year and once a covered employee, always a covered employee Effective date: 9/1/2018 Supriya 10 min Example “Coach Shaw” Financial Management Services September 18, 2019

Impact on Stanford Unrelated Business Taxable Income (UBTI) to be Separately Computed for each Trade or Business UBTI is income from a trade or business that is regularly carried on and not substantially related to the university’s mission Unrelated business income from one activity cannot be offset by loss from another activity Effective date: 9/1/2018 Supriya 10 min Examples (Alumni magazine, Golf Course) Financial Management Services September 18, 2019

Impact on Stanford Tax on Certain Fringe Expenses 21% Tax on Stanford for expenses incurred in providing employees with qualified transportation benefits and use of athletic facilities maintained substantially for employees. Effective date: 1/1/2018 Supriya 10 min Financial Management Services September 18, 2019

Any Questions? Financial Management Services September 18, 2019