1. TAXES & ENTITY CONSIDERATIONS
For: Austin Area Translators & Interpreters Association
September 8th
2018

2. About Us From Scotland – moved to Austin in 1995
Iain Howe, CPA –
From Scotland – moved to Austin in 1995
Worked in corporate tax at Temple-Inland & Freescale
16 years combined corporate/public accounting experience
University of Texas at Austin grad (MPA/PPA)
Avid cyclist; owns a kilt; Scotch aficionado
David Romero, CPA –
From Laredo – moved to Austin in 2013
Worked in public accounting in Laredo, San Antonio & Austin
11 years public accounting experience
Texas A&M International University grad (MBA)
Basketball enthusiast; has worn a kilt; “borrows” my Scotch!

3. ENTITY TYPE Available Options
Sole Proprietor (Sched C) – easy; one tax return; all net profit subject to self-employment tax; Single member or husband/wife joint venture; can be LLC or dba
Partnership (Form 1065) – default if more than one owner; separate tax return required; partners considered self-employed; all income subject to self-employment
S Corp (Form 1120S) – elect to file under Sub S to be treated as quasi-corporation; flow-through treatment & corporate benefits; owner receives salary; wages subject to payroll tax but remaining earnings distributed as shareholder distributions not subject to payroll/self-employment tax
C Corp (Form 1120) – separate filing; entity taxed on profit then shareholders also taxed on profits when distributed as dividends; normally for larger entities.

4. 2018 Tax Brackets All Tax Brackets Reduced under Tax Reform Rate
Individuals
Married Filing Jointly
10%
Up to $9,525
Up to $19,050
12%
$9,526 to $38,700
$19,051 to $77,400
22%
38,701 to $82,500
$77,401 to $165,000
24%
$82,501 to $157,500
$165,001 to $315,000
32%
$157,501 to $200,000
$315,001 to $400,000
35%
$200,001 to $500,000
$400,001 to $600,000
37%
over $500,000
over $600,000

5. Tax Reform Changes Prior Law New Law
Below are a few of the major changes as a result of Tax Reform:
Prior Law
New Law
Deduction for self, spouse, dependents at $4,050 each
Standard deduction = $6,350 ($12,700 MFJ)
Property taxes and sales/state taxes deductible
Pease limitation - $261,500 ($313,800 MFJ)
Child credit = $1,000 per child <17 (MAGI<$110K MFJ)
Meals & Entertainment deductible at 50%
Unreimbursed employee expenses deductible (subj. to 2%)
Moving expenses deductible if >50 miles for new job
Personal exemption deduction eliminated
Standard deduction = $12,000 ($24,000 MFJ)
Combined property/sales/state deduction limit $10,000
Pease limitation eliminated
Child credit = $2,000 per child <17 (MAGI $140K MFJ)
Only Meals deductible at 50%; Entertainment non-ded.
Unreimbursed EE expenses no longer deductible
Moving expenses no longer deductible

6. Start-up Costs What/When can you Deduct?
Costs are deductible in the year your business begins
Business begin date is not necessarily the date you “open your doors”
Organizational Costs (legal fees/formation) & Start-up Costs (creating or investigating) – deduct up to $5K in first year if combined not over $50K; amount over $5K is amortized over 15 years
If you don’t start business, start-up costs are not deductible (used to be Sch A Misc. Deduction before Tax Reform)
Hobby Loss Rules
Moving expenses no longer deductible under Tax Reform

7. Business Expenses Potentially Deductible Items
Section 162(a) allows a deduction for “Ordinary and Necessary” business expenses
Key is “Are you self-employed or are you an employee?”
Self-employed allows for deductions against Form 1099-MISC/cash/check income
As an employee, you should submit employee expense reimbursement requests to your employer, even if that employer is you!
Phone & Internet expenses
Home office deductions
Travel
Meals out-of-town or for business (vs. personal)
Car mileage (purchase vs. lease) – mileage rate 54.5 cents per mile
100% bonus depreciation for assets acquired after September 27, 2017 ($18K for autos)
Section 179 – allows write-off up to $1 million (phase-out if total assets exceed $2.5 million)
De minimis “safe harbor” - $2,500 or under can fully expense but must make election

8. Retirement Plans Options to Fund & Defer Taxes
SEP IRA – up to $55K (20% of self-employment income or 25% of wages)
Solo 401(k) – up to $55K only if solo (but can employ spouse which allows spouse to contribute $18,500 elective and company to make 25% profit-share contribution based on wages)
Traditional 401(k) if multiple employees (admin fees expensive)
Defined Benefit Pension Plan - $220,000 contribution limit for 2018 (actuarial comp needed)
Traditional IRAs - $5,500 (phase-out begins $63K to $73K ($101K to $121K MFJ)
Roth IRAs - $5,500 (phase-out begins $120K to $135K ($189K to $199K MFJ)

9. Capital Gains 0% Tax Rate
If 2018 taxable income < $38,599 ($77,199 MFJ), tax rate on cap gains and qual dividends is 0%
MFJ $77,199 + $24,000 addback standard deduction = $101,199 ~Adjusted Gross Income
If have capital gains and can keep below this amount with cap gains income, sell before year-end

10. Energy Credits Changes for 2018
$7,500 credit still available for purchase of electric cars (phased-out based on # manufactured)
Solar energy credits still available:
30% credit based on cost of equipment and install available until end of 2019
26% in 2020; 22% in 2021; 0% after 2021 (for residential – 10% still available for commercial)
10% residential energy credit expired at the end of 2017 (doors, windows, HVAC, etc.)

11. Texas Franchise Texas Franchise Tax Filing
Not required for dba but is required for LLCs and most other businesses registered in Texas
No Tax Due if revenue is under $1,130,000 BUT still must file report
Due May 15th each year – if late, $50 penalty and can have registration forfeited
Revenue apportioned to Texas based on where services performed, generally, but may be able to exclude revenue earned for sales of tangible property out-of-state
Annual and Final franchise report due if business closes (within 60 days of closing)
5% penalty if tax paid late 1-30 days; 10% penalty if tax paid late >30 days (interest after 60 days)
Quill decision will complicate sales tax calculations

12. Foreign Taxes How is foreign income taxed?
How are resident and non-residents taxed?
U.S. taxes worldwide income
Applies to U.S. citizens wherever they live, and to U.S. tax residents
Forms 1099-MISC required for contractors unless all work performed overseas (W-8BEN)
Corporate tax rate down to 21% but repatriation of overseas income required on 2017 tax return (moving toward territorial system for businesses)

13. QUESTIONS AND ANSWERS

14. THANK YOU! Iain Howe, CPA David Romero, CPA 512-695-1231
Phone