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CHOICE OF ENTITY
CONSIDERATIONS
Tuesday, April 24, 2018
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With you today
JERRY SEADEInternational Tax Services
Principal
713-548-0877
DOUG PFEFFERKORNTax Managing Director
713-548-0909
PLANNING FOR TAX REFORM – CHOICE OF ENTITY CONSIDERATIONS3
BDO’s national presenceFor more than 100 years, BDO USA has been recognized as a premier accounting, tax, and advisory organization for our exceptional client service;
experienced, accessible service teams; focus on quality and efficiency; and our ability to adapt to, and navigate successfully in, a changing
marketplace.
Founded as Seidman & Seidman in New York City in 1910, the firm has grown to serve clients through over 60 offices and more than 550
independent alliance firm locations nationwide. Today, BDO USA, LLP, a Delaware limited liability partnership, is the U.S. Member of BDO
International Limited, a UK company limited by guarantee, which forms part of the international BDO network of independent member firms.
Statistics as of and for the year ended 6-30-17.
PLANNING FOR TAX REFORM – CHOICE OF ENTITY CONSIDERATIONS4
Statistics as of and for the year ended 9-30-17.
BDO is represented in dark shaded countries.
BDO’s global reach
PLANNING FOR TAX REFORM – CHOICE OF ENTITY CONSIDERATIONS5
Choice of Entity Considerations:Introduction
Choice of entity is among the most important decisions taxpayers can
make when doing business.
Determination is FACTS DRIVEN
Aside from special purpose/industry vehicles (e.g., REITs), the
following entities are selected based on a number of factors discussed
herein.
Sole Proprietorships/Disregarded Entities
Partnerships
S corporations
C corporations
Changing entity classification may carry an immediate tax burden but
future tax reductions may offset the cost of conversion.
PLANNING FOR TAX REFORM – CHOICE OF ENTITY CONSIDERATIONS6
Choice of Entity Considerations:Top Marginal Rates
Old Law
C Corporation Shareholder Corp Rate (35%) + Dividend (20%) + NII Rate (3.8)
Partner/S Corp SH Ind. Rate (39.6) + NII Rate (3.8.%)*
Under TCJA
C Corporation Shareholder Corp Rate (21%) + Dividend (20%) + NII Rate (3.8)
Partner/S Corp SH with no QBI Individual (37%) + (3.8%)*
Partner/S Corp SH with QBI 199A Deduction (20%); Individual (37%) + (3.8%)
* The additional 3.8% NII rate applies to passive owners of the flow-through interests. It could also apply to
active members of a partnership in the form of the Medicare tax on members or partners.
PLANNING FOR TAX REFORM – CHOICE OF ENTITY CONSIDERATIONS7
Choice of Entity Considerations:Rate Reduction for Pass-Through Entities
Section 199A provides a deduction of up to 20% of “qualified business
income” generated through a partnership
The Section 199A deduction can create an effective maximum rate of
29.6% (down from the highest statutory rate of 37%)
Significant limitations may result in an inability to achieve the
reduced 29.6% tax rate
Calculation of the Section 199A deduction requires careful analysis
and application of entirely new terms & concepts
Qualified Trade or Business; Specified Services Business; Qualified
Business Income; Qualified Investment Property; Complicated Deduction
Limitation Calculations
Partner-specific factors will impact the ultimate effective tax rate
borne by individual partners (e.g., active vs. passive, phase-out)
PLANNING FOR TAX REFORM – CHOICE OF ENTITY CONSIDERATIONS8
Choice of Entity Considerations:International and Business Tax Considerations
Tax Reform: International Tax Matters
Participation Exemption (100% dividends received deduction)
Global Intangible Low-Taxed Income (GILTI)
Foreign-Derived Intangible Income (FDII)
Base Erosion and Anti-Abuse Tax (BEAT)
Tax Reform: Business Tax Matters
NOL modifications
AMT Repeal (corporate only)
Limitation on deduction of interest (Code Sec 163(J))
PLANNING FOR TAX REFORM – CHOICE OF ENTITY CONSIDERATIONS9
US Business Operations
Partnership or Corporation???
Jerry Doug
US Tax
Partnership
Jerry Doug
US Corp
OpCoOpCo
Federal Tax Rates -
37% or 29.6%* 23.8%**
0% 21%***
0% **
** Effective rate: 18.8% or (39.8% combined)
*** Assumes parent pays 21% rate in consolidation
* May also include self-employment taxes
PLANNING FOR TAX REFORM – CHOICE OF ENTITY CONSIDERATIONS10
“Offshore” Business Operations
Partnership or Corporation???
Jerry Doug
US Tax
Partnership
Jerry Doug
US Corp
Foreign OpCoForeign OpCo
Federal Tax Rates -
37% 23.8%**
(FTC)*
0% 0% or 10.5%**
(FTC)
###% ###%
** Effective rate: 21.3% or (32% combined)
*** Assumes US Corp is merely a holding company
* Foreign tax credit limitations
PLANNING FOR TAX REFORM – CHOICE OF ENTITY CONSIDERATIONS11
US and “Offshore” Business Operations
Federal Tax Rates -
US Operations Foreign Operations
37% or 29.6% 23.8%**
0%
0% 0% or 10.5%**
(FTC)
###%
Jerry Doug
Foreign
OpCo
US Tax
Partnership
US OpCo US Corp
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Thank You!
Jerry Seade Doug Pfefferkorn
713-548-0877 713-548-0909
[email protected] [email protected]
Ed Klein
713-407-3162