Some tax practitioners have alerted churches and other non-profits of the risks of allowing employees to park on church property as a fringe benefit. This in the language of the act could create unrelated business income where none exists and create a tax to the church. Many are asking for a legislative fix. The amendment to Section 512 is specifically targeted to qualified transportation benefits and qualified parking. The Act refers to Section 132 (the section which provides exclusion for fringe benefits). Section 132 is a laundry list of exclusions from income for benefits given to employees. Among them are “no cost added” benefits (which are not unrelated business income). Specifically listed in the regulation are transportation benefits (free air fare for airline employees who fly stand-by). Reg. 1.132-2T. The other problem is that the Section 132 analysis speaks to the value of the qualified parking. Except for urban churches (who rent out their parking lots on weekdays), most churches have free open parking lots used by commuters on rainy days when they catch a bus, parking to talk on a cell phone or to eat lunch, smooching with your love on a dark evening, drinking Ripple so mom and dad don’t see you. In other words the value of the parking is zero. Further, it’s also a “no cost added” fringe benefit in that the parking lot is not used. Additionally with most suburban churches, the cost of street parking is free as well. So, you are not saving anyone anything by allowing them to park there.

So, this section applies only to churches that essentially already have unrelated business income from charging for their parking or who pay the parking of their employees or pay their bus fare and the like. It does not apply in my view to churches that simply have acres of parking which are never filled to capacity and never rented.

The Supreme Court ruled that states can now collect sales taxes on internet sales. So, how is a small business person with an internet business going to survive?
45 states have a sales tax regime. 24 of them have passed legislation to opt into the Streamlined Sales and Use Tax Agreement. See, http://www.streamlinedsalestax.org/. Some states have exemptions for small sales. Some states have exemptions for “occasional sales” but when you look at the definition of occasional sales, the exemption invariably only applies to charity sales, garage sales, and bulk sales of business inventory.
So, small internet businesses have to now make a few tough choices. (1) They can limit states they sell to (for example only those state who have signed the streamlined sales tax agreement); (2) They can apply to pay sales tax in each jurisdiction; or (3) lobby hard with Congress to write a law. The problem for small internet businesses is that there are small brick and mortar businesses which are also lobbying Congress to make sure these internet businesses pay taxes. Stay tuned for more as events occur.

Some people lend money to other people and do so often. How you structure that investment could make a difference. For example, if you set up a single member LLC and have it loan money to others, the interest income could be income from lending. The rub is that it would also be earned income incurring a self-employment tax. However, if your other earned income is in excess of the social security threshhold, $128,700, then only about .5% of it is taxed for self employment tax. By calling income earned in lieu of investment or interest income, you qualify for the 20% reduction in income from small business activities. So, if you have a side set of investments which includes loaning money to third parties, or selling tangible personal property, you too can benefit from this use. Even if your earned income does not exceed $127,800, you’re still about 13% to the good if you use this.

In the 2017 Tax Act, Miscellaneous itemized deductions were denied for years 2018 through 2025. This impacts Trusts and Estates in that investment expenses are miscellaneous itemized deductions under Section 67(e) of the Internal Revenue Code. Thus, they are no longer deductible. This creates phantom income to the Trust upon which the Trust will pay tax. The Supreme Court in Knight v. Commissioner (2008) ruled that these fees are miscellaneous itemized deductions. Thus, the new law makes them non-deductible. You may want to discuss with your investment advisor/broker about moving back to old commission based system. At least commissions are added to basis for the purpose of computing capital gains whereas investment advisory fees will be lost.

Tax Brackets:

Tax brackets are 7 in number, and the rates for most taxpayers are reduced. Lowest is 10% highest is 37%.

The top marginal rate for individual taxpayers was reduced to 37%, but the threshold of income to which the rate applies was dropped from $1M to $600,000 for taxpayers that are Married Filing a Joint return (MFJ). These rates do not apply to tax years beginning after December 31, 2025.

Small Business

The pass-through income deduction was reduced from 23% to 20% and retains the limitations on specified service businesses, with a reduction on the levels of income that could qualify to $315,000 MFJ and $157,500 for an individual taxpayer filing Single. The Explanatory Statement issued with the bill provides, “the conferees expect that the reduced threshold amount will serve to deter high-income taxpayers from attempting to convert wages or other compensation for personal services to income eligible for the 20-percent deduction”. THIS WILL NOT AFFECT THE SELF-EMPLOYMENT TAX, BUT WILL CLEARLY IMPACT YOUR BOTTOM LINE. THIS IS EFFECTIVE STARTING IN 2018.

However, S Corporation owners will now face reductions in this deduction if they were not paid reasonable compensation.

Corporate rates:

The corporate tax rate is reduced from 35% to 21% with no special rate for personal service companies and no expiration of these provisions. In addition, the corporate alternative minimum tax (AMT) is repealed.

The bill retains the full ability to expense qualified property acquisitions (not including structures) of new and used property placed in service after September 27, 2017 and before January 1, 2023, with a phase down by 20% per year for property placed in service after December 31, 2022 and before January 1, 2026.

All entertainment related expenses will be fully disallowed for amounts paid or incurred after December 31, 2017.

The 50% deduction for food and beverages is maintained, and expanded to include expenses of the employer associated with providing meals to employees through an eating facility that meets the requirements for minimum fringes and for the convenience of the employer. After December 31, 2025, these amounts will no longer be deductible. Business owners will now have to ensure that caterers and restaurants where parties are held qualify.

Individual Deductions and Credits

Individuals receive a larger standard deduction of $12,000 (single) and $24,000 (join) and $18,500 for head of household. These are doubled for elderly. Thus, a person over the age of 65 can receive an exemption of $24,000 (single) and $48,000 for a couple. However, you lose the exemptions of $4,050 per person.

Child Tax Credit will be enlarged to $2,000 (with maximum of $1,400 for more than one child). Children who qualify are 17 and under. Qualifying income levels are raised from $75,000 for single taxpayers to $200,000 and $110,000 for married to $400,000 for married. This credit is refundable. There is a non-refundable credit of $500 for non-child dependents. To qualify for the full credit the child must have a social security number (not an ITIN).

Fewer will need to itemize, and there are some huge changes in deductions.

No more casualty or theft losses unless you are in a disaster area declared so by the President.
No more Miscellaneous itemized deductions. That means payment to your tax preparer, or for investment guidance or for that safe deposit box are not longer going to be deductible.
Reduced state and local tax deductions to a cap of $10,000 combined. Individual taxpayers will be allowed to deduct state income, property and sales taxes, up to an aggregate cap of $10,000 ($5,000 for a married taxpayer filing a separate return). This cap expires for tax years beginning after December 31, 2025. The bill also makes clear that the prepayment of any state income taxes related to a year beginning after December 31, 2017 will not be deductible in 2017.

The deduction for mortgage interest will be limited to mortgages not exceeding $750,000 for new mortgages incurred after December 31, 2017. For mortgages incurred prior to that date, the limitation is $1M ($500,000 in the case of married taxpayers filing separately). The interest expense deduction for home equity loans has been suspended for tax years beginning after December 31, 2017. The suspension will lift for tax years beginning after December 31, 2025.

Alimony will not longer be deductible nor will it be income to the spouse receiving it.

The individual exclusions and phase-out thresholds for Alternative Minimum Tax are increased, but neither is fully eliminated in the final bill.

Depreciation

Useful lives for calculation have been compressed.
Greater ability to write off entire purchase at time of purchase.

Estate and Gift Taxes

The estate and gift tax exemption is doubled to $10MM (indexed for inflation) for estates and gifts made after December 31, 2017 and before January 1, 2026. This allows $20mm per couple.

POSSIBLE 2017 STRATEGIES:

1. Defer income to 2018.
2. Pay Tax preparer early for 2018 tax return. (Don’t think you should try for years further out).
3. Pay 2018 real estate taxes before 2018.
4. Pay your state estimated taxes before 1/1/18.
5. Buy a new home.