1. Impact of the Tax Cuts and Jobs Act on Law Firms

2. Presenters: Jessica Mastropietro, CPA – Tax Partner at Baker Tilly
James K. Green, CPA – Shareholder at Dembo Jones

3. Objectives
* Examine and discuss how tax reform impacts law firms * Discuss issues and planning opportunities that may exist under the act * Learn about changes that may impact individual partners * Share insights regarding sourcing of revenue changes related to service income

4. Tax Reform Numerous drafting issues with this Act
Many more ambiguities and uncertainties
Expect Congress will attempt to pass technical correction bills
Expect IRS to issue numerous regulations

5. Tax Reform

6. Tax Reform Depreciation Changes:
100% cost recovery of qualifying business assets
Increased expensing of qualified property under Code Section 179

7. Tax Reform Entertainment Expenses Meals Employee Fringe Benefits
New Credit for Employer-Paid Family and Medical Leave

8. Tax Reform C corporation specific items: Reduction in tax rate
Corporate AMT
Net Operating Loss (NOL) carryback
Limitation of business interest (could impact partnerships)

9. Tax Reform IRC Section 199A
In general, owners of pass-through entities are eligible to receive a deduction of up to 20% of qualified business income (“QBI”), subject to limitations
Deduction generally is not available to specified service businesses
Taxable income limitation exception ($315,000 MFJ, $157,500 others)
List out the 3 items

10. Tax Reform
Deduction for pass-through income - Example

11. Tax Reform Other Planning Considerations
Conversion to a C corporation?
Making a S election?
Separate profit centers?
List out the 3 items

12. Tax Reform Individual tax changes Tax rate changes
Standard Deduction/Personal Exemptions
Itemized Deductions
Moving Expenses
AMT

13. Nexus
Nexus is the quality and quantity of business connections that must exist between a political jurisdiction and a taxpayer before the jurisdiction can impose a filing requirement for either sales or income tax.
…In simpler terms, Nexus = Presence.
Two tests that establish nexus:
Physical presence
Economic presence

14. Sourcing of Revenues Two Methods: Cost of Performance
Market Based Sourcing

15. All or nothing approach
Sourcing of Revenues
Cost of Performance Method: Where the work is performed
Cost of Performance
All or nothing approach
Pro rata approach

16. Where is the benefit received?
Sourcing of Revenues
Market Based Approach
Where is the benefit received?
At the corporate headquarters
At the manufacturing site
At the research facility
At the location of person who hired the service provider
In multiple locations

17. Questions?