dsmWealth May 17, 2018

Tax Law Could Get Complicated for Businesses
BY STEVE DINNEN

If there is an upside to the massive 2017 tax bill, it lies in the fact that its full impact doesn’t take hold until Dec. 31. So we still have some time to figure it out, which is not a joke because some questions, especially with businesses, remain.

Take compensation, for instance. "This promises to be an area of contention and uncertainty," said Joe Kristan, a partner in CPA and business advisory firm Eide Bailly.

With an S corporation, Kristan has been telling audiences in Des Moines that defining reasonable compensation has been the subject of IRA audit attention, as taxpayers are inclined to minimize W-2 income to trim their payroll taxes. This raises the possibility of an unwanted exam.

With partnerships, reasonable compensation through guaranteed payments—often found with medical practices—there is, Kristan said, "almost no precedent or guidance." And will the IRS attempt to impose reasonable compensation on Schedule C (sole proprietorship) and Schedule F (farm owner) filers?

Speaking of S corps, Kristan wondered whether business owners might want to consider the C corp. It has generally been thought that for smaller firms an S corp works well because the income flows through to the owner’s personal tax return and the rate he or she qualifies for. C corps, on the other hand, pay taxes on their profits, and then any profits that flow through to owners are taxed at dividend rates.

The top tax rate for an individual is now 37 percent (adjusted gross income of more than $600,000). That’s a slight decline from the past. A C corp’s rate has been permanently slashed from 35 percent to 21 percent, giving a considerable boost to such entities’ profit picture.

Before you get all excited about a C corp, bear in mind that they now face a 20 percent levy on "excess accumulated taxable income." That and other perambulations of the new tax code may mean they’re not a slam dunk. And once an S corp or C corp is formed it can be very tough to switch just to grab perceived tax advantages.

Now, how about some personal tax changes:

Kiddie Tax simplified. This applies to unearned income on children up to age 24. "Kiddies" are taxed at single taxpayer rates, but unearned income is taxed using the estate and trust rate tax, without a single standard deduction. This means a bigger exemption for earned income, but potentially higher taxes on other income
For 2017, the alternative minimum tax is almost unavoidable for adjusted gross incomes from about $275,000 through $525,000.

Starting in 2018, the higher phase-out levels will make AMT unlikely for Iowa taxpayers without significant capital gains, tax credits or some relatively unusual items.

This stuff is complicated. Don’t wait until year-end to start talking with your tax adviser.

Downtown History Brick by Brick, Beam by Beam
BY STEVE DINNEN

Banking and insurance industries did an admirable job building the economy of Des Moines. Now it’s time to admire the actual buildings they erected on their way to fame and fortune. Such as the Principal Financial Group headquarters and campus. Or American Enterprise Group’s award-winning HQ. Or the ornate Polk County Courthouse.

Architecture on the Move is a series of walking tours that will have you do the moving as you tour east, west, north or south sides of downtown to view contemporary as well as historic buildings. Tour guides will be on hand to discuss works by architects as notable as Mies van der Rohe and Helmut Jahne.

The tours are run by the Iowa Architectural Foundation and are sponsored by Kum & Go, the convenience store operator that is constructing a strikingly designed headquarters, the Krause Gateway Center, on the western edge of downtown.

Tours start from the foundation’s digs at Capital Square, 400 Locust St. After a wine and appetizer welcoming, they shove off on any of the four available routes. Organizers would appreciate an RSVP phone call, to 244-1888, or an email to director@iowaarchfoundation.org.

In the event of inclement weather, tours will use the skywalk. Bring $15 for each walker. And sensible shoes.

The Tax Cuts and Jobs Act of 2017 repealed Internal Revenue Code Sections 215 and 682, both of which were important income tax provisions with respect to divorced and divorcing spouses. Read more

Frank Perdue’s widow, and daughter of the co-founder of Sheraton hotels, Mitzi, knows a thing or two about family businesses. Read more in: Philanthropy Is the Lifeblood of Family Continuity.

A new record for records? Auction totals for the Peggy and David Rockefeller Collection at Christie's reached $832.6 million, making it the largest from a single collection ever. Among the more colorful highlights: a money clip with the outline of Rockefeller Center was estimated to sell for $800 to $1,200 but sold for $75,000. Read more

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dsmWealth is published every first and third Thursday of the month and updated on dsmMagazine.com.

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