mid-south atlantic hftp meeting

© PBMares, LLP 2015© PBMares, LLP 2015

Presented by:Kevin F. Reilly, JD, CPA, CGMA

Hospitality Tax Issues and the Potential for Comprehensive Tax

Reform in the New CongressRichmond MarriottFebruary 20, 2015

© PBMares, LLP 2015

Issues

• Economic outlook• Congressional outlook• Capitalization regulations (TARS)• Tax extenders• Other tax issues• Club tax issues• State issues


Forces at Work

• Challenges for hospitality industry well documented prior to Great Recession

• Forces at work include:– Overbuilding of hotels– Cutback in government spending– Cutback in corporate attendance at conferences– New household composition– Older and more diverse population– Decline in corporate support for memberships at clubs– Changing lifestyles– Preference for casual dining and socializing– Increased competition

• Change in composition of Congress


Consumer Confidence


Consumer Confidence II

• 8 of 10 indicators jumped– Jump in stock prices– Growing factory orders– Spread between short and long term interest rates– Jobless rate lowest since 2008

• Monthly economic expectation index rose– 32% of Americans say things getting better– Wages slowly rising– Plunging fuel cost (back on the uptick)– Fed to hold rates to near 0 through first quarter


Income Disparity


Have and Have Nots!

• Age 45-55– 20th percentile –red– 50th percentile – yellow– 95th percentile –blue

• Increased differential at higher levels

• Most business travelers and club members come from this age group


Impact on the Club Industry

1990 2000 2010 Est. 2020?0

1000

2000

3000

4000

5000

6000

Total Number of Member-Owned Golf and Country Clubs by Year

U.S. Private Clubs

Down 6%Down 10%

Down ??%


Impact on Hotels


Congressional Activity

• Republicans control Senate• House majority larger• Senate McConnell: We will

not have a shutdown 11/24/2014

• Department of Homeland Security’s funding runs out on February 27th

• Congress is on break


Congressional Tax Committees

• Comprehensive tax reform unlikely

• Trade issues• Highway tax• Corporate reversions• High wage earners• Have and have not

questions impact tax policy

https://danieljmitchell.wordpress.com/2012/12/14/which-cartoon-best-captures-the-gop-mindset/cartoon-gop-dem-pickpocket/


Extending What Had Expired 12/31/11 13 to 12/31/14

• State and local sales tax deduction• Teacher’s classroom expense ($250) deduction• Above-the-line $4,000 or $2,000 higher education tuition deduction • Sec. 25C Residential energy credits ($500 lifetime limit; $200)• Ability to offset AMT with Child Tax, Dependent Care, and Lifetime

Learning Credits• Exclusion of residence debt cancellation (up to $2 million)• Mortgage insurance premiums• Contributions of real property for conservation purposes• RMD’s from IRAs direct to charities

Extended

to 12/31/14


Section 179 Expense

Tax Year Max 179 Expense

Maximum Investment

2007 125,000 500,0002008, 2009 250,000 800,0002010 - 2013 500,000 2,000,000

2014 25,000 500,000

200,000 2,000,000

thereafter 25,000 200,000

Extended to

12/31/14


Tax Year Bonus %2008, 2009 50%

1/1/10 – 9/8/10 50%9/9/10 – 12/31/10 100%*

2011 100%2012 - 2013 50%

2014 0 50%2015 and thereafter

-0-

“Bonus” Depreciation

Retroactively

extended


Section 179 / Bonus ComparisonAttribute 179 Bonus

Property All personal

If original use

Limited to $500,000 No limitCan “fine tune” by Any

amountAsset class

Phase-out begins $2,000,000

N/A

Limited to Taxable Income?

Yes NO

Rental activities No YESLimitation: Passenger vehicle

$3,160 $11,160

Limitation : Trucks and vans

$3,460 $11,460

Sport Utility Vehicles $25,000 LOOPHOLETo avoid default treatment

Elect Elect Out

Virginia Conforms -0-


• Section 1250 nonresidential interior improvements of real property > 3 years old and which is placed in service by a lessor or lessee (unrelated) pursuant to a lease

• Doesn’t include:–Elevators and escalators–Enlargement of a building–Internal structural framework

– Structural components that benefit a common area used by different lessees of the same building

○ Stairways, hallways, lobbies, rest rooms, etc.

• Up to $250,000 under Section 179

Extended

to 12/31/14

Qualified Leasehold Improvements


• Interior improvements to a building used in the retail trade or business (selling tangible personal property to the general public)– Stockroom doesn’t count– Property does not need to be leased– Up to $250,000 under Section 179

Extended

to 12/31/14

Qualified Retail Improvements


• Improvements to a building if > 50% of the building’s square footage is devoted to preparation of and seating for on-premises consumption of prepared meals

• Restaurant building also qualifies• Up to $250,000 under Section 179

Extended

to 12/31/14

Qualified Restaurant Property


Other Business Extenders

• Work Opportunity Tax Credit• Research Tax Credit• Section 179D Deduction for Energy Efficient

Commercial Buildings• Section 45L Tax Credit for Energy Efficient Homes

Extended

to 12/31/14


AMT Exemption Patch

Status

2011 No “patch”

2012 2013 2014

Single

$ 48,450

$ 33,750 $ 50,600

$ 51,900

$ 52,800

MFJ 74,450

45,000 78,750

80,800

82,100

MFS 37,225

22,500 39,375

40,400

41,050

“Permanently”

extended


“Medicare Tax” Net Investment Income Tax on Unearned Income (if High Income)

3.8% additional tax on:• Interest• Dividends• Annuities• Royalties• Rents, if not from active trade or business• Income from passive trades or business• Non-business capital gains, less expenses

Effective

2013


Effective

2014

Income % to FPL Initial % / Final %

< 133% 2.0% / 2.0%

133% to 150% 3.0% / 4.0%

150% to 200% 4.0% / 6.3%

200% to 250% 6.3% / 8.05%

250% to 300% 8.05% / 9.5%

300% to 400% 9.5% / 9.5%

Premium Assistance Tax Credit


Sliding Scale for Premium Tax Credit

OnePerson

Two Persons

Four Persons

Federal Poverty Level

11,490 15,510 23,550

133% FPL 15,282 20,628 31,321

400% FPL 45,960 62,040 94,200


Cost Sharing Reduction

Low to moderate-income individuals who enroll in a qualified health plan providing silver level coverage through an exchange. “Cost sharing” includes deductibles, coinsurance, copayments, and similar charges. It does not include premiums or spending on non-covered services.Limited to coverage months for which a premium assistance tax credit is allowed.

Effective

2014

Income % to FPL Out-of-pocket reduced by

100% to 200% 2/3

200% to 300% 1/2

300% to 400% 1/3


Tangible Property Regulations- 2014

• Rev. Proc 2014-16 – Changes in accounting periods and in methods of accounting.

• Rev. Proc 2014-17 – Certain changes in methods of accounting for dispositions of tangible depreciable property.

• Rev. Proc 2014-54 – Procedures for dispositions– Defining assets for purposes of dispositions, electing GAA treatment, and

making partial disposition elections.

• Taxpayers required to comply for tax years beginning on or after 1/1/2014 – Materials and supplies– De minimus safe harbor election


What Happened During 2014?

• AICPA speaks up on 10/8/14 – requested IRS relief from repair regulations

• Small business exception provided on Friday the 13th

– Less than $10 million – Election prospective– No 3115 needed in most cases


Materials and Supplies

• Tangible property that is used or consumed in taxpayer’s operation that is not inventory

• Prior law– Materials and supplies

expensed when consumed

– Incidental M&S expensed when purchased

• New law– Expense up to $200 cost– Useful life of 12 months or

less– Specific enumerated

categories• Restaurant smallwares

– 2002 revenue procedure still applies

– Costs are expensed even if useful life greater than one year


Repairs, Maintenance and Improvements

• Safe Harbor election if have written capitalization policy in place as of 1/1/2014– AFS-$5000– No AFS-$500– No election or written

policy-$200

• Small taxpayer safe harbor– $10 million average annual

gross receipt– Own or lease building with

unadjusted basis of $1 million

– Lesser of 2% of unadjusted basis of building or$10,000

• Building refresh


Club Tax Issues

• Organizational test• Filing requirements• Employment taxes• Investment income• Nonmember income• Gaming and other

fundraising• Sale of club property

• Member related issues– Private inurement– Discrimination– Demographic information

• Public Disclosure• Scholarships• Traditional activity• Taxable clubs


IRS Activity

• Auditing more business• Partnerships seem focus• Taxable clubs• Tax exempt clubs• Obamacare• Other not for profit

entities


IRS Activity II

• Cuts in funding severe• Impacted services• Wait time to discuss matters

greatly increased• Responses to notices

significantly delayed• Attitude done a 180• Impacts audit• Protecting the governments

interest?

https://www.google.com/url?sa=i&rct=j&q=&esrc=s&frm=1&source=images&cd=&cad=rja&uact=8&ved=0CAcQjRw&url=https://danieljmitchell.wordpress.com/2013/04/16/some-good-cartoons-if-youre-suffering-from-post-tax-return-traumatic-stress-disorder/&ei=uB_iVP6BHoPesASSj4CoDg&bvm=bv.85970519,d.cWc&psig=AFQjCNG9azc_sNKMqYngOByn2mNIZhtmTg&ust=1424188111943964


State Taxes•Accounts Receivable Tax •Building Permit Tax •Capital Gains Tax •CDL license Tax •Cigarette Tax •Corporate Income Tax •Court Fines (indirect taxes) •Deficit spending •Dog License Tax ••Fishing License Tax •Food License Tax •Fuel permit tax •Gasoline Tax •Hunting License Tax •Inflation •Inheritance Tax Interest expense (tax on the money) •Inventory tax State Interest Charges (tax on top of tax) •State Penalties (tax on top of tax) •Liquor Tax •Local Income Tax •Luxury Taxes •Marriage License Tax •Medicare Tax •Property Tax • Real Estate Tax •Septic Permit Tax •Service Charge Taxes

•Road Usage Taxes (Truckers) •Sales Taxes •Recreational Vehicle Tax •Road Toll Booth Taxes •School Tax •State Income Tax •State Unemployment Tax (SUTA) •Telephone federal, state and local surcharge taxes •Telephone minimum usage surcharge tax •Telephone recurring and non-recurring charges tax •Telephone state and local tax •Telephone usage charge tax •Toll Bridge Taxes •Toll Tunnel Taxes •Traffic Fines (indirect taxation) •Trailer Registration Tax •Utility Taxes •Vehicle License Registration Tax •Vehicle Sales Tax •Watercraft Registration Tax •Well Permit Tax •Workers Compensation Tax


State Business Tax Climate

• 2015 changes– Maryland 40th best– DC 45th

– VA drops to 27th

– NC Climbs from 44th to 16th place

– SC remains 37th

– GA drops to 36th – Fl remains in top ten at #5


Kevin F. Reilly, J.D., CPA, CGMAPartnerPBMares, LLP12150 Monument Drive, Suite 350Fairfax, VA 22033 Phone: (703) [email protected]

Questions?

mid-south atlantic hftp meeting

Documents