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HLB International Appoints New Member in Cameroon, Democratic Republic of Congo and Central African Republic

HLB International, one of the leading global accountancy networks with presence in 140 countries, continues its growth with the recent signing of a new member firm in Cameroon, Democratic Republic of Congo and Central African Republic – Audit Consult Plus.

Audit Consult Plus is based in Douala, the economic capital city of Cameroon. Established in 2012, the firm provides Audit and Accounting Services, General Consulting including Advisory, Corporate Governance, Fiduciary and Payroll, as well as Tax and Legal Services in Cameroon, Democratic Republic of Congo and Central African Republic.

André Mang, Managing Partner of Audit Consult Plus, one of the founding partners, commented: “With our presence in Central Africa, our position in the region allows us to be close to our customers and provide them with great and tailored solutions. Samuel Kotto, Partner – Advisory Services, and I are excited to be joining HLB International and see this as an excellent opportunity to assist our local and international clients to achieve their goals.”

Audit Consult Plus will work closely with other HLB members and makes a great addition to our coverage across Africa.

Tax Cuts and Jobs Act: House Bills versus Senate Bill

 

Both the House bill and Senate bill would impact virtually every individual and business on a level not seen in over 30 years. As with any tax bill, however, there would be “winners” and “losers.” Both versions call for lowering the individual and corporate tax rates, repealing countless tax credits and deductions, enhancing the child tax credit, boosting business expensing, and more. The White House has signaled its support for tax legislation before yearend.

Many of the changes to the Internal Revenue Code in the Senate bill are temporary. The House bill, in contrast, calls for permanent changes to the Internal Revenue Code. This important difference between the two bills will be high on the agenda of any conference to iron out a final bill. The proposed changes in both the House bill and the Senate bill are forward-looking (after 2017) for the most part.

INDIVIDUALS
Tax Rates
The House bill proposes four tax rates: 12, 25, 35, and 39.6 percent after 2017. The Senate bill calls for seven rates: 10, 12, 22, 24, 32, 35, and 38.5 percent after 2017. Under current law, individual income tax rates are 10, 15, 25, 28, 33, 35, and 39.6 percent.

Proposed House Bill Brackets

RateJoint ReturnIndividual Return
12%$0 - $90,000$0 - $45,000
25%$90,000 - $260,000$45,000 - $200,000
35%$260,000 - $1 million$200,000 - $500,000
39.6%over $1 millionover $500,000

Proposed Senate Plan Brackets

RateJoint ReturnIndividual Return
10%$0 - $19,050$0 - $9,525
12%$19,050 - $77,400$9,525 - $38,700
22%$77,400 - $140,000$38,700 - $70,000
24%$140,000 - $320,000$70,000 - $160,000
32%$320,000 - $400,000$160,000 - $200,000
35%$400,000 - $1 million$200,000 - $500,000
38.5%over $1 millionover $500,000

Neither the House nor the Senate bill changes the current tax treatment of qualified dividends and capital gains. The House bill and the Senate bill do not repeal the Affordable Care Act’s taxes. Left untouched are the net investment income (NII) tax, the additional Medicare tax, the medical device excise tax, and more.

Standard Deduction
The House bill calls for a near doubling of the standard deduction to $24,400 for married filing jointly and $12,200 for single filers, as adjusted for inflation using a chained CPI for 2018. Heads-of-households could claim a standard deduction of $18,300. Similarly, the Senate bill calls for these amounts to be $24,000, $12,000, and $18,000, respectively, but only temporarily.

Both the House bill and the Senate bill eliminate the deduction for personal exemptions and the personal exemption phase-out.An enhanced child and family tax credit is positioned to make up some of the difference, being scored at saving taxpayers between $584 million and $640 million for the Senate and House bills, respectively.

Deductions and Credits
Both the House bill and Senate bill would make significant changes to some popular individual credits and deductions. The changes in the Senate bill, however, generally would be temporary, expiring after 2025 in order to keep overall revenue costs for the bill within budgetary constraints.

For most debt incurred after the proposed effective date of November 2, 2017, the current $1 million limitation would be reduced to $500,000 under the House bill.

Property taxes up to $10,000 could be deducted under the House bill. The Senate bill also provides a carve-out for property taxes. The House bill repeals the medical expense deduction. The Senate bill preserves the medical expense deduction and temporarily lowers the AGI threshold to 7.5 percent (the pre-ACA threshold).

COMPARISON OF HOUSE AND SENATE BILLS

Comparison of House and Senate Bills

Family Incentives
Under the House bill, the child tax credit would increase to $1,600 from its current $1,000 level and expanded to children under the age of 17. A temporary credit of $300 would be allowed for non-child dependents. The Senate bill would temporarily increase the child tax credit to $2,000 (of which $1,000 would be refundable), expand it to children under the age of 18, and allow a $500 credit for non-child dependents.

Education
The House bill would consolidate the American Opportunity Tax Credit (AOTC) and Lifetime Learning Credit after 2017. The Senate bill makes no changes to these education credits.

Retirement
The House bill generally retains the current rules for 401(k) and other retirement plans. However, the House bill would repeal the rule allowing taxpayers to recharacterize Roth IRA contributions as traditional IRA contributions and the rule allowing conversion of a traditional IRA to a Roth IRA.

Federal Estate Tax
The House bill calls for first doubling the federal estate tax exemption and later eliminating the estate tax after 2024. The Senate bill would keep the federal estate tax but would temporarily double the current exemption through 2025. The current maximum federal estate tax rate is 40 percent with an inflation-adjusted $5 million exclusion ($5.49 million in 2017), which married couples can combine for a $10 million exclusion ($10.98 million in 2017).

Alternative Minimum Tax
The House bill, but not the Senate bill, abolishes the individual AMT. The Senate bill retains it but with higher exemption amounts.

Affordable Care Act
The Senate bill repeals the Affordable Care Act (ACA) individual shared responsibility requirement after 2018, making the payment amount $0. The House bill makes no changes to the ACA’s individual mandate.

BUSINESSES
Corporate Taxes
The House bill calls for a 20-percent corporate tax rate beginning in 2018. The Senate bill calls for a 20-percent corporate tax rate beginning in 2019. Both bills make the new rate permanent. The maximum corporate tax rate currently tops out at 35 percent. Under the House bill, the 80-percent and 70-percent dividends received deductions under current law are reduced to 65-percent and 50-percent, respectively. Under the House bill, the alternative minimum tax (AMT) on corporations would be repealed. The Senate bill would retain it.

Business Tax Benefits
A number of proposed changes to various business incentives are in the House bill and Senate bill. Chief among them is bonus depreciation and Section 179 expensing.

Bonus Depreciation
Both the House and Senate would increase bonus depreciation to 100 percent but for different time frames.

Vehicle Depreciation
The Senate bill would raise the cap placed on depreciation write-offs of business-use vehicles.

Section 179 Expensing
The House bill would also enhance Section 179 expensing, raising it from the current $500,000 level with a $2 million phase-out threshold to $5 million and $20 million thresholds, respectively. The Senate version would increase the maximum Section 179 expensing to $1 million, with a $2.5 million phase-out threshold, but would be permanent.

Interest Deductions
Both the House bill and Senate bill would cap the deduction for net interest expenses generally at 30 percent of adjusted taxable income, among other criteria.

Pass-Through Businesses
Currently, owners of partnerships, S corporations, and sole proprietorships – as “pass-through” entities – pay tax at the individual rates, with the highest rate at 39.6 percent. The House GOP bill proposes a 25-percent tax rate for certain pass-through income after 2017, with a nine-percent rate for certain small businesses. The Senate bill generally would allow a temporary deduction in an amount equal to 23 percent of qualified income of pass-through entities, subject to a number of limitations and qualifications. In both bills, the remaining portion of net business income – subject to a variety of anti-abuse rules – would be treated as compensation subject to ordinary individual income tax rates.

For example, both bills either restrict or eliminate the reduced rate/temporary deduction for any trade or business involving the performance of services in the fields of health, law, engineering, architecture, accounting, actuarial science, performing arts, consulting, athletics, financial services, brokerage services, or any trade or business where the principal asset of such trade or business is the reputation or skill of one or more of its employees.

INTERNATIONAL
The House and Senate bills would create a dividend-exemption system for taxing U.S. corporations on the foreign earnings of their foreign subsidiaries when the earnings are distributed. The foreign tax credit rules would be modified as would the Subpart F rules. The look-through rule for related controlled foreign corporations would be made permanent, among other changes.

Repatriation
A portion of deferred overseas-held earnings and profits (E&P) of subsidiaries would be taxed at a reduced rate. Under both bills, foreign tax credit carryforwards would be fully available and foreign tax credits triggered by the deemed repatriation would be partially available to offset the U.S. tax.

December/January Dates to Remember

December 15

Employers. For Social Security, Medicare, withheld income tax, and nonpayroll withholding, deposit the tax for payments in November if the monthly rule applies.

Corporations. Deposit the fourth installment of estimated income tax for 2017.

January 16

Individuals. Make a payment of your estimated tax for 2017 if you did not pay your income tax for the year through withholding (or did not pay enough in tax that way). Use Form 1040-ES. This is the final installment date for 2017 estimated tax. However, you don’t have to make this payment if you file your 2016 return and pay any tax due by January 31, 2018.

Employers. For Social Security, Medicare, withheld income tax, and nonpayroll withholding, deposit the tax for payments in December 2017 if the monthly rule applies.

Year-End Thank You Gifts from Business Owners

 

During the holiday season, it is natural for business owners to think about giving something to key individuals. On your list might be your employees, customers, suppliers, or others who helped your business during 2017. If you haven’t already made plans, do so quickly so the gifts may be distributed before year-end.

Lavish gifts may make an excellent impression, but you probably don’t want to go overboard by spending too much. You should have a budget for these gifts and stick to it. You also should know the tax consequences of your generosity.

Employee gifts

Amounts you spend on gifts to your workers probably will be tax deductible for your company. However, the key question for employees is whether the gifts will be treated as taxable income.

Generally, a cash gift or anything that looks like cash, such as a gift card or gift certificate, will be taxable. The amount will be subject to federal and any state or local income tax withholding as well as unemployment tax and FICA taxes.

Non-cash gifts will be untaxed if they fall under the de minimis classification, meaning that the value is so low that it would not be reasonable for an employer to bother with record keeping, withholding, and so forth. The IRS has not spelled out an upper limit for spending on tax-exempt gifts. That said, you’re probably safe giving away hams or turkeys during the holidays.

If you wish to give other types of gifts, HLB Gross Collins, P.C. can advise you of the tax consequences. (More expensive gifts probably will generate taxable income.) In all price ranges, choices are vast and variable, from smartphone accessories (photo tripods, waterproof cases, and so on) to tickets to local entertainment.

Your gift will be even more meaningful if it’s accompanied by a thoughtful letter of thanks and wishes for good health in the coming year.

Business gifts

Instead of or in addition to employee gifts, you may want to give something to selected outsiders who helped your company during 2017. In this case, the issue is not whether the gift will be taxable income for the recipient, but whether you can deduct the cost of gifts to clients, vendors, and so on.

A business may deduct no more than $25 for business gifts per recipient. You can’t exceed this limit by making indirect gifts to a customer’s family member. Therefore, if you give a $200 sweater to the husband of a key customer, it will be considered an indirect gift over the $25 limit, and the excess amount will not be tax deductible. However, this rule does not apply if you have a bona fide, independent business connection with the family member receiving the gift, and it is not intended for the customer’s eventual use.

For this purpose, a partnership and its partners are treated as one taxpayer. Similarly, a married couple will be treated as one taxpayer subject to the $25 limit. It doesn’t matter whether the spouses each have their own company, are employed at different places, or have independent connections with the recipient.

Example: Steve Harrison’s company does business with ABC Corp., which is a valued customer. Steve and his wife Tina give four baskets of wine to ABC as a holiday gift.

The Harrisons paid $100 apiece for these baskets, for a $400 total. Four ABC executives each took a gift basket home for their personal use. The Harrisons have no independent business relationship with any of the executives’ other family members. They can deduct only $100 (4 times the $25 limit) of the cost of the gift baskets.

Incidental costs, such as engraving on jewelry, packaging, insuring, and mailing, are generally not included in determining the cost of a gift for purposes of the $25 limit. That’s true, as long as the incidental cost doesn’t add substantial value to the gift.

Beyond $25

  • The following items aren’t considered gifts for purposes of the $25 limit:
    An item that costs $4 or less that has your name clearly and permanently imprinted on the gift and is one of many identical items your company widely distributes. Such items might include pens, desk sets, plastic bags, and cases.
  • Signs, display racks, or other promotional material to be used on the business premises of the recipient.

Keeping good records can enable you to support deductions for business gifts, if those deductions are challenged.

Win With a Roth IRA Reversal

 

IRAs mainly come in two broad categories: traditional and Roth.
Traditional IRAs may be funded with pre-tax or after-tax dollars and are often funded largely with pre-tax dollars. Withdrawals of pre-tax money and earnings from the IRA are taxed at ordinary income rates. Once the IRA owner reaches age 70½, required minimum distributions (RMDs) from the account begin and last as long as there is money in the account. Any shortfall in a taxpayer’s RMDs for a year is subject to a 50% penalty.

Roth IRAs are always funded with after-tax dollars. Account owners never have RMDs. Once a Roth IRA has been in place for five years and the account owner reaches age 59½, distributions are tax-free.

Astute combining of these two IRA varieties can result in a substantial stream of cash flow, moderately taxed, for you or your beneficiaries, or both.

Conversion calculation

IRA contributions are now capped at $5,500 per year ($6,500 for those 50 or older). In addition, many people roll over large amounts into IRAs from a 401(k) account when they leave a job.

Example 1: Sue Baker leaves her long-time employer at age 55 to start a consulting business. While employed, Sue accumulated $400,000 in her 401(k) account, all pre-tax. She rolls the entire amount into a traditional IRA, maintaining the tax deferral.

At this point, Sue does not expect to heavily depend on her IRA for retirement spending. However, Sue realizes that she eventually will face RMDs. After more than 15 years of tax-deferred buildup, the RMDs could be substantial, generating sizable tax bills for withdrawals that Sue might not need.

Sue naturally would prefer to have her money in an RMD-free, potentially tax-free, Roth IRA. However, a complete Roth IRA conversion of her $400,000 traditional IRA would add $400,000 to her taxable income this year and trigger a six-figure tax obligation. Considering that her RMDs might last for many years, Sue would be vulnerable for future tax rate increases. Therefore, Sue decides to execute a partial Roth IRA conversion. The next step is determining the amount to convert.

Partial projection

One way to approach a partial Roth IRA conversion is to estimate an amount that will keep taxable income in the current tax bracket.
Example 2: Sue, who is unmarried, reported taxable income of about $75,000 in 2016. She expects her 2017 income to be about the same. This year, the 25% tax bracket for single taxpayers goes up to $91,900. Thus, Sue converts $15,000 of her traditional IRA to a Roth IRA in 2017. She believes that will keep her in the 25% tax bracket and generate $3,750 of added federal income tax (25% of $15,000), which Sue feels is reasonable.

If Sue makes similar partial Roth IRA conversions for the next 15 years, she probably will convert over half of this traditional IRA to a Roth IRA. Her RMDs will be reduced, and she’ll have access to a substantial amount of untaxed cash flow.

Looking back

A more precise method of implementing Roth IRA conversions is to use re-characterization, an IRS-approved method of reversing Roth IRA conversions, in full or in part. A Roth IRA conversion can be re-characterized up to October 15 of the following year, regardless of whether a taxpayer has requested an extension of time to file his or her return.

Example 3: Sue converts $100,000 of her traditional IRA to a Roth IRA in December 2017. When her 2017 tax return is prepared in early 2018, she discovers that her taxable income would be $73,200 without her Roth IRA conversion. Therefore, Sue re-characterizes enough of her 2017 conversion to wind up with an $18,700 conversion (the $91,900 upper limit of the 25% tax bracket minus Sue’s $73,200 of other taxable income).

Sue uses the full amount of the 25% tax bracket, moving as much money as possible from the traditional to the Roth side without moving into a higher bracket. Our office can help you calculate the amount to re-characterize and the amount to leave in the Roth IRA if you are interested in this strategy.

Once money is in the Roth IRA and the qualifications are met, Sue can withdraw as much or as little as she needs tax free. Amounts still in the account at Sue’s death usually can be withdrawn by her beneficiaries tax free, although RMDs will be in effect.

Roth IRA conversions

  • You can convert a traditional IRA to a Roth IRA in three ways:
    • Rollover. You can receive a distribution from a traditional IRA and contribute that amount to a Roth IRA within 60 days. Here, the distribution check is payable to you.
    • Trustee-to-trustee transfer. You can ask the financial institution holding your traditional IRA to transfer an amount directly to the trustee of your Roth IRA at a different financial institution. The distribution may be issued to you, payable to the new trustee.
    • Same trustee transfer. To keep your Roth IRA with your traditional IRA custodian, you can tell the trustee to transfer an amount from your traditional IRA to your Roth IRA.
  • A conversion to a Roth IRA results in taxation of any untaxed amounts transferred or rolled from the traditional IRA.
  • The conversion is reported on Form 8606, Nondeductible IRAs.
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