A sense of urgency among tax pros to understand the changes
ARLINGTON, Va., Jan. 5, 2018 /PRNewswire-USNewswire/ — Bloomberg Tax today issued Industry-Specific Impact of Tax Reform, a special report that helps tax professionals understand how the recently enacted changes to the tax code may offer opportunities, increase compliance challenges and add complexity for businesses. Major industries highlighted include banking, health insurance, hospitality, manufacturing, financial planning, private equity, real estate, retail and energy.
While most businesses will benefit from the 21 percent corporate tax rate and the repeal of the corporate alternative minimum tax, they will also have to contend with the repeal of popular write-offs, such as the domestic production activity deduction and the reduced deduction for net operating losses. Each industry will have to navigate specific aspects of the act’s provisions in their ongoing tax planning efforts.
“There is a real sense of urgency for tax professionals to understand the changes made by the act,” said George Farrah, editorial director, Bloomberg Tax. “This report helps them make planning decisions now to take advantage of the positive impacts while minimizing the negative with features such as practitioners’ planning points to call attention to potential hidden effect of the act’s provisions. Industry-Specific Impact of Tax Reform is part of our comprehensive coverage and analysis to help tax professionals navigate the new challenges stemming from the most dramatic overhaul of the tax code in decades.”
Excerpts from the report
Affordable Care Act, Elimination of Individual Mandate
Even though the individual mandate technically survives under the act , the number of uninsured people will increase by 4 million in 2019 and 13 million in 2027 as a result of the change, according to the analysis from the Joint Committee on Taxation and the Congressional Budget Office (CBO). Average premiums would increase by roughly 10%, according to the CBO.
So, the prediction is that millions of health insurance customers will stop buying health insurance. This effect would occur mainly because, without the penalty and due to higher premiums, healthier people would be less likely to purchase health insurance, resulting in adverse selection.
Another factor at play is uncertainly as to the status of subsidy payments, known as “cost-sharing reductions” (CSRs), intended to help low-income people purchase coverage. The Trump administration cut off the payments in October 2017. Not paying the subsidies would result in a savings to the federal budget, which would help pay for the tax cuts in the act , but insurance premiums might rise. If premiums jump, purchasing health insurance would be more difficult even for those who do not qualify for the subsidies.
No vote was taken before the end of the 2017 session of Congress on legislation proposed by Sens. Lamar Alexander (R-Tenn.) and Patty Murray (D-Wash.) to reinstate the CSR funding, as well as on legislation proposed by Sen. Susan Collins (R-Maine) to provide $10.5 billion over two years for a reinsurance program.
Wealth & Financial Planning
Wealth planning professionals could be slight losers in the tax reform game; the 2017 tax act (Pub. L. No. 115-97), as passed and signed into law, doubles the estate and gift tax exemption amount, meaning fewer families will need extensive planning to avoid the tax. But that increased exemption sunsets after 2025, so the long-term outlook is mostly for transfer tax planning appears to be unchanged. In the short run, change itself will keep demand for advice high as clients sort out what the changes mean for them.
Pam Lucina, executive director of BNY Mellon Wealth Management’s Advice, Planning and Fiduciary Services, stated that “people will have to create flexible plans that contemplate both having an estate tax and not having one,” and emphasized that these steps should be taken regardless of the ultimate outcome because “permanent legislation is only permanent until the next Congress,” a reference to the temporary repeal of the estate tax in 2010.
Wealth and financial professionals will generally have to wait before advising clients on either amending existing estate plans or employing new estate plans. Ronald D. Aucutt, a partner at McGuireWoods LLP and co-chair of the firm’s Private Wealth Services Group, noted that the Treasury Department will need to draft regulations “to prevent a ‘clawback’” because “the real gift tax at the time of the gift could be different from what gets calculated for the estate.”
After some early rumors that the House bill would include limits on tax-advantaged retirement accounts, financial planners are breathing easier: the act leaves most individual retirement savings provisions intact.
A raft of changes to provisions impacting financial planners’ core client base makes it difficult to parse the net effects on the industry, but the changes are likely positive as clients will need to seek advice on the new provisions and on how to adjust their plans accordingly.
• Modifications to the estate, gift, and generation-skipping transfer taxes.
• Changes to S corporation elections and technical partnership terminations.
• Changes to Electing Small Business Trusts.
• Creation of Qualified Opportunity Zones.
• Reforms to retirement, savings, and compensation provisions.
• Reform of taxation of pass-through entity business income.
The report is available for download here.
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