Saranto Calamas C.P.A., P.C.

1. Saranto Calamas C.P.A., P.C. Presents: Tax Cuts and Job Act (TCJA) 2018 Tax Year Live Webinar Saranto Calamas C.P.A., P.C., (TEL) 631-928-0002 (FAX) 631-928-1492

2. A Quick Note: We are presenting the information as it is available at this time. Some information is still unclear or not available. We will do our best to help you navigate the new law and how it will affect you. Also, keep in mind, every situation is different. The information provided is general and though we will try and address most scenarios, your scenario may differ. Any questions we do not answer this evening will be answered the next day or the following business day. Saranto Calamas C.P.A., P.C., (TEL) 631-928-0002 (FAX) 631-928-1492

3. New Income Tax Rate Table There is also a separate Head of Household Status with different income brackets. This table is not available at the time of this webinar. Saranto Calamas C.P.A., P.C., (TEL) 631-928-0002 (FAX) 631-928-1492

4. Standard Deduction/Personal Exemption • Increases the standard deduction to $12,000 for single filers, compared to $6,500 under previous law. • Increases the standard deduction to $18,000 for head of households, compared to $9,550 under previous law. • Increases the standard deduction to $24,000 for joint filers in 2018, compared to $13,000 under previous law. • However, eliminates the personal exemptions for you and dependents and spouses (was $4,050 EACH previously). • Child Tax Credit increased to $2,000 per child (families making up to about $400,000 get to take the credit). Saranto Calamas C.P.A., P.C., (TEL) 631-928-0002 (FAX) 631-928-1492

5. Deductions Part 1: • The biggest hit for Long Islanders is the State and Local Income Tax (SALT) and Real Estate taxes (Combined) are limited to $10k only, no matter how much you pay. • No more expensing of job expenses. The unreimbursed employee business expenses deduction has been eliminated. • Medical Expenses are deductible for the amounts over 7.5% of your income. (Example: If you make $100,000 in income, only amounts in excess of $7,500 will be deductible) Saranto Calamas C.P.A., P.C., (TEL) 631-928-0002 (FAX) 631-928-1492

6. Deductions Part 2: • The Moving Expense Deduction has been eliminated. • Home Equity Loan Interest is no longer deductible. • The Home Mortgage interest deduction as been limited to the first $750,000 of the loan for mortgages after 12/14/17. Saranto Calamas C.P.A., P.C., (TEL) 631-928-0002 (FAX) 631-928-1492

7. Deductions Part 3: • Up to $2500 of student loan interest this is a still deductible ( subject income limitations not available at this time) • teachers can still deduct $250 for classroom supply purchases • 529 educational plans have been expanded to include not just college but up to $10,000 a year in distributions that Can include public, private, or religious schools. • The American Opportunity Credit and the Lifetime Learning Credit remain the same. Saranto Calamas C.P.A., P.C., (TEL) 631-928-0002 (FAX) 631-928-1492

8. Comparison of Tax Cuts and Job Act and Prior Law Saranto Calamas C.P.A., P.C., (TEL) 631-928-0002 (FAX) 631-928-1492

9. Prepaying Real Estate Taxes Strategy Issues • Careful if subject to Alternative Minimum Tax (AMT) • If Real Estate Taxes are being paid through your escrow account, remember to coordinate with the bank. • Real Estate Taxes must be assessed (See Following Slides) Saranto Calamas C.P.A., P.C., (TEL) 631-928-0002 (FAX) 631-928-1492

10. IRS Advisory: Prepaid Real Property Taxes May Be Deductible in 2017 if Assessed and Paid in 2017 • The IRS has received a number of questions from the tax community concerning the deductibility of prepaid real property taxes. In general, whether a taxpayer is allowed a deduction for the prepayment of state or local real property taxes in 2017 depends on whether the taxpayer makes the payment in 2017 and the real property taxes are assessed prior to 2018.  A prepayment of anticipated real property taxes that have not been assessed prior to 2018 are not deductible in 2017.  State or local law determines whether and when a property tax is assessed, which is generally when the taxpayer becomes liable for the property tax imposed. Saranto Calamas C.P.A., P.C., (TEL) 631-928-0002 (FAX) 631-928-1492

11. IRS Advisory: Prepaid Real Property Taxes May Be Deductible in 2017 if Assessed and Paid in 2017 • Example 1: Assume County A assesses property tax on July 1, 2017 for the period July 1, 2017 – June 30, 2018.  On July 31, 2017, County A sends notices to residents notifying them of the assessment and billing the property tax in two installments with the first installment due Sept. 30, 2017 and the second installment due Jan. 31, 2018.   Assuming taxpayer has paid the first installment in 2017, the taxpayer may choose to pay the second installment on Dec. 31, 2017, and may claim a deduction for this prepayment on the taxpayer’s 2017 return. Saranto Calamas C.P.A., P.C., (TEL) 631-928-0002 (FAX) 631-928-1492

12. IRS Advisory: Prepaid Real Property Taxes May Be Deductible in 2017 if Assessed and Paid in 2017 • Example 2: County B also assesses and bills its residents for property taxes on July 1, 2017, for the period July 1, 2017 – June 30, 2018. County B intends to make the usual assessment in July 2018 for the period July 1, 2018 – June 30, 2019.  However, because county residents wish to prepay their 2018-2019 property taxes in 2017, County B has revised its computer systems to accept prepayment of property taxes for the 2018-2019 property tax year.  Taxpayers who prepay their 2018-2019 property taxes in 2017 will not be allowed to deduct the prepayment on their federal tax returns because the county will not assess the property tax for the 2018-2019 tax year until July 1, 2018. Saranto Calamas C.P.A., P.C., (TEL) 631-928-0002 (FAX) 631-928-1492

13. Individual Mandate Repealed • – Individual Mandate Repealed. After being proposed mid-way through the drafting process, the final TCJA legislation does repeal the individual mandate for health insurance. Notably, though, the individual mandate (and the potential tax penalty) does remain in place for the 2018 tax year. The repeal will not take place until 2019. Saranto Calamas C.P.A., P.C., (TEL) 631-928-0002 (FAX) 631-928-1492

14. Alimony Treatment Is Reversed • – Alimony Treatment Is Reversed. Under existing law, alimony payments are deductible to the individual paying the alimony (usually higher income), and reported as taxable income to the alimony recipient (usually lower income), unless the divorce decree or separation agreement stipulated otherwise. Under the TCJA legislation, alimony payments would no longer be deductible by payors, nor reportable by recipients, effectively eliminating the tax bracket arbitrage between the two. However, this provision will only apply to divorce agreements after December 31st of 2018 (or for prior agreements that are explicitly modified to adopt this provision in 2019 and beyond). Saranto Calamas C.P.A., P.C., (TEL) 631-928-0002 (FAX) 631-928-1492

15. 1031 Exchanges Limited • – 1031 Exchanges Limited To Real Estate. Most financial advisors know IRC Section 1031 as the rules that allow a “1031 exchange” of like-kind real estate for other real estate. However, 1031 exchanges are not exclusive to just real estate, and have been used for other types of “investment property” such as classic cars or airplanes or boats. Under the new rules, though, 1031 exchanges (occurring after 12/31 of 2017) will apply only to real estate. Saranto Calamas C.P.A., P.C., (TEL) 631-928-0002 (FAX) 631-928-1492

16. Increased Depreciation For Business Cars • – Increased Depreciation For Business Cars. Claiming vehicles as business expenses has long been a controversial area, and led years ago to the creation of IRC Section 280F that explicitly limits the deductibility of “luxury automobile mobiles”. However, a provision in the Senate version of TCJA, which was adopted in the final form, significantly increases the deductibility for business cars beginning in 2018, and may even make buying a new automobile in the business more appealing than leasing (as is commonly done today given the 280F limitations). Saranto Calamas C.P.A., P.C., (TEL) 631-928-0002 (FAX) 631-928-1492

17. Crackdown On Business Entertainment Expenses • – Crackdown On Business Entertainment Expenses. Current law permits businesses to claim deductions for 50% of entertainment expenses directly related to the business (e.g., meals and entertainment for people the business may be doing business with). However, TCJA will limit these rules starting in 2018 by barring any deduction for “an activity generally considered to be entertainment, amusement, or recreation” (even if they directly relate to or are associated with the business). Although the 50% deduction for food and beverage expenses associated with the business remains. Saranto Calamas C.P.A., P.C., (TEL) 631-928-0002 (FAX) 631-928-1492

18. Flexibility To Roll Over 401(k) Loans After Termination • – Flexibility To Roll Over 401(k) Loans After Termination. One of the big “risks” of taking a loan from a 401(k) plan is that many plans require that the loan be immediately repaid if the employee separates from service (or face adverse tax consequences). And may even require repayment if the plan terminates (e.g., the employer goes out of business). Under TCJA, though, a “qualified plan loan offset” amount for a terminated 401(k) loan is eligible for rollover within 60 days, essentially providing an (ex-)employee more time to repay the loan (directly into a rollover IRA) to avoid the tax consequences of non-repayment. Saranto Calamas C.P.A., P.C., (TEL) 631-928-0002 (FAX) 631-928-1492

19. Employer Tax Credit For Paid FMLA • – Employer Tax Credit For Paid FMLA. Under the Family & Medical Leave Act, employers must provide certain employees with the option for up to 12 weeks of unpaid, job-protected leave per year (and must maintain group health benefits during the leave). To incentivize employers to further support FMLA, though, the TCJA legislation provides employers a business credit equal to 12.5% of wages paid to employees during leave (as long as the employee is paid at least 50% of their normal wages), and the credit phases in to as much as 25% of wages if the employer provides 100% continuing wages (up to the 12-week maximum). Saranto Calamas C.P.A., P.C., (TEL) 631-928-0002 (FAX) 631-928-1492

20. C-Corp Business Taxes • The C-Corporate tax rate is lowered to 21%. This will not help most small businesses, as C-Corps are still subject to double taxation. This means the profits are taxed at 21%, but if you (The Owner) take out any profit, it is also taxed on your individual return at your individual rate. Saranto Calamas C.P.A., P.C., (TEL) 631-928-0002 (FAX) 631-928-1492

21. Pass Through Income Under Threshold Tax Cuts and Job Acts: S-Corps • The new law wants to help small business. C-Corps are getting their tax rate cut, what about S-Corps (and LLC’s)? Most of our clients are organized as S-Corps. S-Corps themselves, (the corporation) do not pay any tax on their profits. The profits “pass through” to the owner and are only taxed on the owners personal tax return at their rate. • S-Corps are mostly “specified service trades”. This means doctors, lawyers, consultants, financial planners, and any business that relies on the skill of the owner (Except for engineering and architecture services which are specifically excluded) • The law is designed to make sure that the lower tax rates are not abused, to accomplish this they have added income limitations. Keep in mind that if you sell a product, you do not have to worry about the income limits. Saranto Calamas C.P.A., P.C., (TEL) 631-928-0002 (FAX) 631-928-1492

22. Pass Through Income Under Threshold • If your income is under the threshold amount ($157k for single filers and $315k for married filing jointly) then the calculation is simple. The deductible amount for your businesses is simply 20% of your QBI (Qualified Business Income) with respect to each business. QBI is the profit with the W-2 of the owner added back into business expenses). • Example: If your income is $100,000, your salary is $60,000, and your QBI is $40,000, then your deduction is $8,000 (or 20% of your QBI). Saranto Calamas C.P.A., P.C., (TEL) 631-928-0002 (FAX) 631-928-1492

23. Pass Through OVER Threshold Tax Cuts and Job Acts:Pass Through with income over the threshold • If your income is over the threshold amount ($157k for single filers and $315k for MFJ), then the calculation gets more complicated. • Explanation: If you are a specified service business (consultant, doctor, lawyer, a skilled based business) and your taxable income exceeds the threshold amount plus the phase in range ($207,500 for individual taxpayers and $415,000 for married taxpayers filing jointly), then you lose the deduction completely. • If not a service business then you get a deduction based on a formula. Saranto Calamas C.P.A., P.C., (TEL) 631-928-0002 (FAX) 631-928-1492

24. Pass Through Income OVER Threshold • In that case, the old pass-through rules apply. You pay tax using your individual tax rate. • This calculation only applies to single taxpayers with income between $157k-$207,500 and married taxpayers with income $315k-$415k. • This calculation only applies to a select few, because of this we will not spend a lot of time going through the calculation. If you look at your prior year return and fit into this, please feel free to call the office and we will assist you. Saranto Calamas C.P.A., P.C., (TEL) 631-928-0002 (FAX) 631-928-1492

25. Pass Through Income OVER the Threshold • For S-Corp owners who are single taxpayers with income between $157k – 207,500, or married taxpayers with income of $315k-415k: Here's how it works: • Formula A: Figure 20% of your QBI • Formula B: The greater of; • (a) 50% of W-2 wages with respect to your trade or • (b) business or the sum of 25% of W-2 wages + 2.5% of the unadjusted basis, immediately after acquisition, of all qualified property.  • Don't forget to take into account the applicable percentage rate - 100% less the excess of the taxable income over the threshold amount divided by the range amount or in more simple terms, it's pro-rated for the amount you're over the threshold. Saranto Calamas C.P.A., P.C., (TEL) 631-928-0002 (FAX) 631-928-1492

26. Crackdown on Deferred Compensation • – Crackdown on Deferred Compensation. A proposal from the House GOP plan that remained in the final TCJA legislation will crack down on nonqualified deferred compensation plans, triggering taxation as soon as there is “no substantial risk of forfeiture” (i.e., when it becomes vested, regardless of when it is paid). And the new rules would extend to a wider range of stock options and stock appreciation rights under new “Qualified Equity Grant” rules. Expect to see a lot of revising to various deferred compensation plans in the coming year. Saranto Calamas C.P.A., P.C., (TEL) 631-928-0002 (FAX) 631-928-1492

27. Sexual Harassment Settlements Not Deductible If Subject To An NDA • – Sexual Harassment Settlements Not Deductible If Subject To An NDA. An interesting addition to the final Tax Cuts and Jobs Act legislation is a Senate provision that denies a business any tax deduction for any settlement, payout, or attorney fees related to a sexual harassment or sexual abuse claim, if the payments are subject to a nondisclosure agreement. Which effectively means that businesses will now have to choose whether to require an NDA, or receive a tax deduction for the costs associated with a sexual harassment or abuse lawsuit… an interesting way to apply tax leverage against businesses that try to hide such settlements in the future? Saranto Calamas C.P.A., P.C., (TEL) 631-928-0002 (FAX) 631-928-1492

28. Thank You for Attending our Live Webinar Please contact us with any questions Telephone: (631) 928-0002 Fax: (631) 928-1492 E-Mail: Info@Saranto.com Website: www.Saranto.com Saranto Calamas C.P.A., P.C., (TEL) 631-928-0002 (FAX) 631-928-1492

29. Presented By: Saranto Calamas C.P.A. Saranto received his Bachelors and Masters in Business Administration from New York University. He was employed with Ernst & Young, LLP right out of college, before starting his own firm in Port Jefferson, where he grew up. Saranto has over 20 years in public accounting experience as a CPA. Saranto Calamas C.P.A., P.C., (TEL) 631-928-0002 (FAX) 631-928-1492