TAX UPDATE 2018 – BUSINESSES

GEORGE JOHNSON & COMPANY

2018 Year-End Tax Planning – For Businesses

Dear Friends,

Dear Friends,
 
Businesses of all sizes, across all industries, have been impacted by the monumental changes to the federal tax code. To maximize tax savings and ensure compliance with the new rules, businesses need to engage in year-end planning conversations now. Certain tax savings opportunities may apply regardless of how your business is structured, while others may apply only to a particular type of business organization. No matter the type of business entity you operate, year-end tax planning should consider all possibilities to effectively lower your total tax liability.
This 2018 Year-End Tax Planning for Businesses Letter (Tax Letter) is organized into sections discussing year-end and year-round tax-saving opportunities for:
* All businesses
* Partnerships, limited liability companies, and S corporations
* C corporations
Comprehensive tax planning for businesses also requires consideration of tax consequences impacting their individual owners. We recommend you also review our Tax Letter entitled 2018 Year End Tax Planning for Individuals.
This Tax Letter primarily discusses federal tax planning. State taxes also should be considered as the tax laws of many states do not follow the federal tax laws, and particularly in the wake of the landmark decision in South Dakota v. Wayfair (Wayfair).
On December 22, 2017, President Trump signed sweeping federal tax reform into law. Tax reform has significantly changed the U.S. tax system for both individuals and businesses. Some of the most impactful measures from tax reform impacting businesses include:
* The corporate rate was permanently reduced from 35 percent to 21 percent
* The availability of cash method accounting has been expanded to small businesses
* The corporate alternative minimum tax (AMT) was eliminated
* The Section 199A deduction for pass-through business owners
* The bonus depreciation rules grant full expensing and have been expanded
* The U.S. international tax landscape has changed significantly
* The Federal Research Credit is more valuable than ever
A complete summary of the tax legislative proposals under consideration is beyond the scope of this letter. As circumstances warrant, additional updates will be provided.
We hope you enjoy this edition of the GJC Advisor. As always, if you have any questions, feel free to contact us.
Sincerely,
George Johnson & Company
Tax Saving Opportunities for All Businesses
2018 VERSUS 2019 MARGINAL TAX RATES
Whether you choose to accelerate taxable income into 2018 or defer it until 2019 depends, in part, on the marginal tax rate for each year projected for your business. Generally, unless your 2018 marginal tax rate will be significantly lower than your 2019 marginal tax rate, you should defer taxable income to 2019.
The marginal tax rate is the rate applied to your next dollar of income or deduction. Projections of your business’s 2018 and 2019 income and deductions are necessary to determine the marginal tax rate for each year.
Read more about Tax Savings for the following:
  • CASH VERSUS ACCRUAL METHOD OF ACCOUNTING
  • REVENUE RECOGNITION
  • ADVANCE PAYMENTS
  • RELATED-PARTY TRANSACTIONS
  • UNRELATED PARTY COMPENSATION
  • NONQUALIFIED DEFERRED COMPENSATION
  • DEDUCTIBLE VERSUS CAPITALIZABLE INTANGIBLE COSTS
  • START-UP AND ORGANIZATIONAL EXPENDITURES
  • CORPORATE AMT REPEALED
  • SECTION 199A DEDUCTION FOR QUALIFIED BUSINESS INCOME
  • INTEREST EXPENSE DEDUCTION LIMITATION
  • DEPRECIATION DEDUCTIONS
  • APPLICATION OF BONUS DEPRECIATION TO PARTNERS AND PARTNERSHIPS
  • QUALIFIED IMPROVEMENT PROPERTY
  • SECTION 179 EXPENSING ELECTION
  • PERSONAL PROPERTY VERSUS REAL PROPERTY
  • TANGIBLE PROPERTY REGULATIONS
  • INTERNATIONAL TAX PROVISIONS UNDER TAX REFORM
  • FEDERAL RESEARCH CREDIT
  • WORK OPPORTUNITY TAX CREDIT
  • EMPLOYEE RETENTION CREDIT FOR EMPLOYERS IN FEDERAL DISASTER ZONES
  • PAID FAMILY LEAVE CREDIT
  • NEW MARKETS TAX CREDIT
  • OPPORTUNITY ZONE PROGRAM
  • PASSIVE LOSSES
  • RENTAL REAL ESTATE
  • INVENTORIES
  • RESCINDING A TRANSACTION
Tax Obligations and Opportunities under Wayfair
On June 21, the Supreme Court of the United States issued its widely anticipated decision in Wayfair, allowing states to impose a tax payment or tax collection obligation on out-of-state business, regardless of whether the business has a physical presence in the state. While Wayfair dealt with remote seller sales and use tax collection obligations, states may now tax a business even if the business has no in-state physical presence. Overnight, remote sellers, licensors of software, financial services, franchisors, and other businesses that provide services or deliver their products to customers from a remote location must start complying with state and local taxes. Left unchecked, these state and local tax obligations and correlated liabilities from tax, interest, and penalties will grow over time. A business is likely impacted by Wayfair if any of the following apply:
Tax Saving Opportunities for Partnerships, Limited Liability Companies, and S Corporations
PARTNERSHIPS
Regulations governing the allocation of partnership income and loss can sometimes lead to unanticipated results. The allocation of losses may be particularly sensitive to routine changes in partnership liabilities. Even if these changes do not affect allocations, they may trigger income to the partners in certain circumstances. Contributions, distributions, and interest transfers can also present income recognition issues. Many of these issues depend on the position of the partnership at the end of its taxable year. Therefore, unforeseen tax consequences can often be mitigated with year-end planning. For example, the implementation of loan guarantees or indemnification agreements can sometimes prevent tax problems related to partnership liabilities.
Tax Saving Opportunities for C Corporations
RETENTION OF CORPORATE EARNINGS
The new 37 percent top rate for individuals exceeds the marginal corporate tax rate. The disparity may be even greater if the combined effect of the additional hospital insurance tax on high wage-earners and the 3.8 percent tax on net investment income of high-income individuals are all considered. In this case, it may be desirable to retain corporate income by deferring compensation to employee-shareholders.
 
Conclusion
Business tax planning is very complex. Careful planning involves more than just focusing on lowering taxes for the current and future years. How each potential tax saving opportunity affects the entire business must also be considered. In addition, planning for closely-held entities requires a delicate balance between planning for the business and planning for its owners.
This 2018 Year-End Tax Letter for Businessescannot cover every tax-saving opportunity that may be available to you and your business. Inasmuch as taxes are among your largest expenses, we urge you to meet with your advisor. We can provide a comprehensive review of the tax-saving opportunities appropriate to your particular situation.

Long-term Capital Gains and Qualified Dividends
Long-term capital gains and qualified dividends tax rates remain unchanged. The following rates are applied, based on the taxpayer’s taxable income:


SPOTLIGHT

George Johnson & Company is pleased to announce the promotion of  David Esshaki to Senior Manager, and Ben Wicks to Senior Accountant!
Their hard work, initiative and level of commitment to their work and serving our clients, make them deserving of their promotions. Please join us in congratulating David and Ben!
Let’s get to know more about our new newly promoted team members with a little Q&A!
Name/Title:  David Esshaki,  Senior Manager

Hometown: Livonia, MI

1. How long have you been with George Johnson & Company?
Since January 2014

2. What drew you to a career in the accounting field?
I took some accounting classes in high school and did very well. I enjoyed the courses as well and when I saw that I could have a bright future as a CPA, I pursued a career in accounting.

3. What do you find most rewarding about your work?
I enjoy working with many different clients and the constant change in the work. There is always something unique and interesting happening. I also enjoy solving problems encountered by clients.

4. What’s the best part of being a member of the GJC team?
Everyone is always interested in learning. We have a lot of opportunities to take on assignments that we wouldn’t have the chance to if we worked at a larger CPA firm.

5. Name one item on your “bucket list”:
Vacation in Hawaii

6. What is your favorite restaurant in Metro Detroit?
Pegasus in Greektown

7. Favorite sports team:
Detroit Red Wings

David Esshaki
Senior Manager,
and
Ben Wicks to Senior Accountant!

David Esshaki


Name/Title :  B en Wicks,  Senior Accountant
Hometown:  Allen Park, MI
1. How long have you been with George Johnson & Company?
I have been with GJC (George Johnson & Company) since February 23, 2016.

2. What drew you to a career in the accounting field?
As a young kid, the subjects I enjoyed most were always Math and Science. I suppose that that early inclination took up permanent residence and evolved into a career in accounting.

3. What do you find most rewarding about your work?
Being able to travel to different clients, interact with high ranking executives, and tackle what is generally considered to be difficult work provides great reward to me.
4. What’s the best part of being a member of the GJC team?
To me, the best part of being a GJC team member is the people. I am surrounded by a network of colleagues who maintain competence and professionalism that have not sacrificed their sense of humor and friendliness.

5. Name one item on your “bucket list”:
I would love to take a trip to a tropical island.

6. What is your favorite restaurant in Metro Detroit?
My favorite restaurant near Detroit is an Italian establishment called Magdaleno in Wyandotte, MI.

7. Favorite sports team:
Despite their history of misery, I’ve always been an avid Detroit Lions fan.

Ben Wicks 

Senior Accountant

Ben Wicks


COMMUNITY

2018 America’s Thanksgiving Day Parade

On November 22nd, The Parade Company’s annual festivities of the America’s Thanksgiving Day Parade began with the early morning Turkey Trot 10K Race through historic downtown Detroit. This year marked the 35th year of the race. It was sponsored by Strategic Staffing Solutions.

This is the second consecutive year that our principal, Gloria Zhao has run the race. Previously, Gloria served as a Distinguished Clown Corps. member for seven years!
Below is a capture from 2014 with George and Gloria clowning around!

During the America’s Thanksgiving Day Parade, over 2,000 members of the Distinguished Clown Corps lined the streets waving and passing out goodies to children of all ages! This year, our team member Diamond Reynolds dressed up as an Emoji Clown! As you can imagine, her costume was a hit amongst the children! This is Diamond’s second year volunteering as a Distinguished Clown Corps. member.

Parade co logo