Employee Benefits Blog

Posts tagged Tax Cuts & Jobs Act

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State impact

Most states base their tax structures on the federal rules – but do so in different ways. About a third of the states use “rolling conformity,” which means their rules automatically adopt federal law changes like the Tax Act, with no action needed by their legislatures to accomplish it. (Often certain carve-outs are not conformed, though, so if the rule changes involve those areas, conformity is not complete.) Slightly more states conform to the federal rules as written as of a certain date, and those states will have to decide whether to conform or not – until they do, any changes to the federal rules are ignored. A few states’ tax structures are not based on federal income at all – they make their own rules.

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Reminder – Repatriation tax deadline

The deadline for the first payment of tax resulting from the new “deemed dividend repatriation tax” is April 16, 2018. By this date, 8% of the total tax is due; the balance is deferred and payable in various percentages over the next 7 years.

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Are C Corporations More Attractive Now that the Rates Have Dropped?

(How the 2017 Tax Cuts and Jobs Act impacts choice of entity)

After the Tax Cuts and Jobs Act (Act) was signed into law on December 22, 2017, many business owners have been concerned about the potential impact of the Act on them and their businesses, and many took a renewed interest in whether their current entity type still makes sense. The Act generated a lot of publicity surrounding the large tax rate reduction for C Corporations, which was reduced from graduated rates topping out at 35% to a flat rate of 21% for tax years starting after 12/31/2017. With the top individual rate at 37%, taxpayers may assume that C Corporations now hold a tax advantage, and believe they should take action to have their S Corporations, partnerships, and LLCs taxed and treated as C Corporations for federal income tax purposes going forward. While every taxpayer’s set of facts and circumstances differ, the remainder of this article will try to shed some light on this assumption and the true effect of the Act on businesses going forward. It will discuss all of the most common forms of business, but focus heavily on S Corporations vs. C Corporations.

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AICPA seeks clarification of 20% pass-through income deduction

Internal Revenue Code Section 199A, which houses the Tax Act’s new 20% deduction of certain pass-through income, is riddled with ambiguities. (For example, a common question as basic as “is rental income eligible for the deduction?” has not been clearly addressed.) The American Institute of Certified Public Accountants (AICPA) recently send a letter to the Treasury Department, requesting clarification on a number of Sec. 199A issues. A copy of that letter may be found here. Hopefully this will lead to Treasury Regulations, at least in proposed form, before we get too far into 2018.