us economic outlook...• current account and trade deficits explode • 2018: $670 billion •...

©2015 RSM US LLP. All Rights Reserved. ©2015 RSM US LLP. All Rights Reserved.

February 1, 2018

US ECONOMIC OUTLOOK

©2015 RSM US LLP. All Rights Reserved.

Your instructor

RSM Us LLP

New York, NY

Kevin Depew

Director of Economics


US ECONOMIC OUTLOOK


US Economic Outlook

• Base Case: Growth above 3 percent in 2018

• Tax cut boosts growth prospects in 2018 & 2019

• Current account and trade deficits explode

• 2018: $670 billion

• 2019: $900 billion

• 2020: $1 trillion

• Tax effect fades in 2020 and growth moves back toward 2 percent (long-term trend)

• Household consumption of 3.5 percent

• Upper quintile of income earners to drive spending

• Wealth effect via rising equities to boost upper middle class

• Strong business outlays on capital expenditures

• Software, equipment and intellectual property

• Data from MMLC survey shows middle market ramping up

• Residential investment adjusts to cap on mortgage interest deduction

• Shift toward construction of entry level homes?

• Price adjustment above $500,000?


US Economic Outlook

• Medium to Long-Term Outlook

• Long-term growth trend 2 percent

• Any growth above 2 percent should be considered healthy.

• Productivity remains tepid near 0.5 percent per year, but will pick up

on back of stronger fixed business investment

• Economic and wage growth uneven around the country

• 2018 Recession probability low; near 15 percent

• RSM Middle Market Business Index at 132.1, all-time high

• Household consumption of 3 percent

• Solid consumption and services demand driven by rising incomes

and decline in unemployment rate below 4 percent

• Residential Investment

• Forward looking permits at 1.25 million at annualized pace

• Major supply issues in new home markets

• Policy to impact residential investment going forward


US Economic Outlook: Service Spending

10.9

2.2

10.5

4.4

9.3

8.4

1.4

6.4

6.4

6.1

3

1.2

5.3

0 2 4 6 8 10 12

OTHER

ACCOMMODATION

ARTS, ENTERTAINMENT AND RECREATION

HEALTH CARE & SOCIAL ASSISTANCE

EDUCATIONAL SERVICES

ADMIN, SUPPORT & WASTE MANAGEMENT

PROFESSIONAL, SCIENTIFIC & TECHNICAL SERVICES

REAL ESTATE, RENTAL & LEASING

FINANCE & INSURANCE

INFORMATION

TRANSPORTATION & WAREHOUSING

UTILITIES

SERVICES

Ye

ar-O

ver-

Ye

ar P

erc

en

tage

Ch

ange

Source; RSM, US Census


Private Fixed Investment: Policy Key to Reversing Slide

12%

13%

14%

15%

16%

17%

18%

19%

20%

21%

1978 1983 1988 1993 1998 2003 2008 2013 2018

Pe

cen

tage

of G

DP

(No

min

al)

Source: RSM US, BEA


Recession Probability Low

0

10

20

30

40

50

60

70

80

90

100

197

6

197

7

197

8

197

9

198

0

198

1

198

2

198

3

198

4

198

5

198

6

198

7

198

8

198

9

199

0

199

1

199

2

199

3

199

4

199

5

199

6

199

7

199

8

199

9

200

0

200

1

200

2

200

3

200

4

200

5

200

6

200

7

200

8

200

9

201

0

201

1

201

2

201

3

201

4

201

5

201

6

Per

cen

tage

Pro

bab

ility

Recessions Recession Probability IndexSource: RSM US


US Economic Outlook

• Policy Normalization Amidst Low Rate Structure

• Central Bank

• Fed forecasting 3 rate hikes in 2018; we think 4 is more likely

• Balance sheet normalization in process

• 2018 Recession probability low; near 15 percent

• Interest Rates

• Policy rate likely to move to 2.5 percent in early 2018

• 10-year to trade between 2.5-3 percent with upside risk as Trump

tax plan implemented

• Inflation

• Modest inflation for now

• Stirrings in both producer and consumer data

• Technology likely to restrain inflation in near to medium term

• Fiscal operations likely to push inflation and bond yields much

higher over the long term


Inflation: Your new friend

10

• NY Fed Underlying

Inflation Gauge

• At 3% (2.99%) for first

time in more than a

decade

• Measures 346 data

sets

• Goods and services

prices (CPI, PPI); labor

market, money,

producer surveys, and

financial variables

(short and long term

government interest

rates, corporate and

high yield bonds,

consumer credit

volumes and real

estate loans, stocks,

commodity prices).


Household Outlook and Debt

•WARNING: WHAT YOU

ARE ABOUT TO SEE MAY

BE SHOCKING


Household Outlook and Debt


US Household Outlook and Debt

• Ratio: Debt service payments as a PERCENT OF DPI


US Household Outlook and Debt

• Ratio: Total household debt service payments as a PERCENT OF DPI


Global Economic Outlook

• Base Case: Growth above 4% percent in 2018

• Global Financial Conditions

• Major tailwind behind overall global growth

• US rising policy rate, EU to end negative interest rate policy

• Manufacturing Resurgence

• Germany, U.S., China, & India

• Supply Gap Forming in Global Oil Market

• Excess capacity clearing

• 6.5 million barrels per day need to be replaced

• U.S. Consumer Demand

• Mopping up excess supply

• Auto sales to remain robust


US-Global Economic Relations: A Difficult Period Ahead

• U.S.-Global Trade Friction: Major 2018 Policy Issue

• This is the major risk to the domestic economic outlook in 2018

• Selective tariffs, NAFTA and key trading partners

• Trump administration 15-50% tariffs on solar, washing machine

• Targets China, South Korea

• Expect many more over coming months

• Asymmetric China retaliation will be designed to take market share

• NAFTA Modernization – Don’t believe the urgency hype from media

• March possible, or even July concurrent with MX presidential

election

• US will push to brink – classic Trump tactic (needs the base)

• Canada in some ways more at risk than Mexico

• Mexico willing to work out bilateral agreement if NAFTA terminated

• Meanwhile, prepare for short-term disruptions


Why NAFTA Matters

• $1.2 trillion in cross border activity

• 12.5 million jobs at risk in the U.S. linked

to NAFTA

• $1 million in trade every minute of each

day of the calendar year

• Value added imports: 68 percent


North American Economic Integration

-6

-5

-4

-3

-2

-1

0

1

2

3

4

5

6

7

8

1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016

GD

P Y

ear-

Ove

r-Ye

ar P

erce

nta

ge C

ha

nge

North American Economic Integration

Mexico Canada US

Source: RSM US, Bloomberg


North American Intermodal Rail Network


EMPLOYMENT OUTLOOK


US Employment Outlook

• US Economy at Full Employment

• 173K per month gain in 2017 & 150K in 2018

• US Unemployment rate at 4.1 percent

• Heading to 3.7 percent with risk of lower rate in 2018

• Those working part time for economic reasons below long-term

average

• Initial claims at multi decade low

• Tight Labor

• Cyclical low of unemployed individuals per job opening

• Substitution of technology for labor


Tight Labor Market

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

5.5

6.0

6.5

7.0

2003 2005 2007 2009 2011 2013 2015 2017

Job

Op

en

ings

Pe

r P

ers

on

Number of Unemployed Persons Per Job Opening=1.17

Source: RSM US, BLS


Pulling Workers Back Into Market

3.0

3.5

4.0

4.5

5.0

5.5

6.0

6.5

7.0

7.5

8.0

8.5

9.0

9.5

10.0

1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017

Mill

ion

s

Noticeable Reduction in Labor Slack Over Past Year

Involuntary Part Time Employment=5.12 Million 20-Year Average=5.4 Million

Source: RSM US, BLS


Shrinking Jobs vs Growing Jobs

Source: Bureau of Labor Statistics and Census Bureau, via IPUMS


PRODUCTION AND MANUFACTURING


Production and Manufacturing

• Industrial Production and Manufacturing

• Strong soft data positive

• Confidence measures

• Sentiment surveys

• Hard data not as encouraging

• Major risk is around policy: NAFTA

• Real concerns about auto production

• North American integrated auto supply chain provides a $4000.00 discount per auto produced

• Global and domestic demand

• Germany leads way


Manufacturing Solid In 2017

20

30

40

50

60

70

80

2001 2003 2005 2007 2009 2011 2013 2015 2017

Ind

ex

ISM Manufacturing ISM New Orders Contraction=Less Than 50 Recession= Less Than 43.1



Industrial Production

-20

-15

-10

-5

0

5

10

15

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Yea

r-O

ver-

Year

Per

cent

age

Ch

ang

e

US Industrial Production US Industrial Production Materials & Energy



Global Manufacturing Snapshot

46

47

48

49

50

51

52

53

54

55

56

57

58

59

60

2014 2015 2016 2017

Ind

ex

US ISM Manufacturing JP Morgan Global Pmi German Markit PMI



HOUSING OUTLOOK


Housing Outlook

• Housing Shortage Growing

• 350K units short

• Three Problems

• Lack of available lots

• Shortage of skilled workers

• Regulatory costs (also impacting labor mobility)

Amazon HQ2 (50k workers, need housing, etc.)

• Homeowners staying put

• Lack of supply

• Rising prices


Residential Investment Recovery

0.3

0.5

0.7

0.9

1.1

1.3

1.5

1.7

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Mill

ion

s

Housing Starts Building Permits (2 Month Lead)

Source: RSM US, US Census


THE MIDDLE MARKET LEADERSHIP COUNCIL (MMLC)


RSM US Middle Market Leadership Council (MMLC)

• Designed to be a random and representative

sample of the middle market

• Comprised of 700 middle market business

leaders, not necessarily RSM clients

• Harris Poll-selected yearly, blind to RSM

• Surveyed quarterly

34


RSM US Middle Market Business Index (MMBI)

Questions asked every quarter

Current sentiment

or recent performance

(current quarter

vs. last quarter)

Future period expectations

or intentions

(next 6 months)

Expectations regarding overall economy

(sentiment)

Gross revenues/incoming funds

Net earnings**

Capital expenditures/investments

Hiring levels

Average employee compensation

Credit

• Current period credit availability

• Future borrowing intentions

Prices paid (goods and services excluding

labor)

Prices received**

Inventory levels*****Not asked of non-profits***Asked of product and retail businesses only


After a sharp decline in the prior quarter, the RSM US Middle Market Business Index in the fourth quarter surpassed it’s previous all-time high.

36

123.8

121.4

114.5 116.6

119.8

115.6

120.1

129.8

132.1

125.7

132.2

80

85

90

95

100

105

110

115

120

125

130

135

140

Q2‘15 Q3‘15 Q4‘15 Q1‘16 Q2‘16 Q3‘16 Q4‘16 Q1‘17 Q2‘17 Q3‘17 Q4'17

PES

SIM

ISM

OP

TIM

ISM

MIDDLE MARKET BUSINESS INDEX


Executive Summary (cont’d)

The U.S. Middle Market Business Index hit a high point in the fourth

quarter.

• The RSM US Middle Market Business Index (MMBI) rose 6.5 points to post a new

cyclical high of 132.2 after the decline to 125.7 in the third quarter.

• The major catalyst for the increase was resurgent growth in the domestic economy,

which resulted in strong current gross revenues and net earnings and robust

expectations for the six-month forward look.

• Although slightly higher, aggregate capital expenditures/investments remained

relatively unchanged and cautious, which was somewhat surprising given the relative

economic trends

• Hiring and compensation results show the middle market continues to carefully

manage the labor situation.

• Prices paid and prices received both showed modest increases, in line with recent

stirrings in overall inflation data.

• Inventories continue to be carefully managed.

37


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TAX CUTS AND JOBS ACT CONSIDERATIONS FOR CONSUMER PRODUCTS INDUSTRY

February 1, 2018

Boston MA

Presented by Matt Talcoff


TAX REFORMNotable provisions for consumer products Industry


TAX REFORM

• Overview – Consumer Product Industry Impact

• Corporate rate cuts and choice of entity

• Pass-through entities

• Capital expenses

• Business interest deductions cutback

• Other important business deduction limitations, liberalizations, or deferrals

• Close-up on profits interests and carried interests

• Close-up on private equity

• Overview of State Tax Impacts

• Overview of the international business provisions

• Overview of the individual and wealth-transfer provisions


OVERVIEW


Provisions impacting the consumer products industry

1. Corporate tax rates reduced from a top rate of 35% to 21%

2. Individual tax rate of owners reduced from a top rate of 39.6% to 37%

3. Pass-through entity deduction up to 20% of the ‘qualified business income’

4. Enhanced depreciation deductions for capital expenditures (bonus and section 179)

5. Alternative minimum tax repealed for corporations and higher exemption for individual owners

6. Potential limit on Interest deduction based on 30% of modified taxable income

7. Net operating loss (NOL) rule changes generally reduce value of NOL carryforwards

8. Small business exemptions exist for limits on interest deduction and overall accounting methods


Notable provisions, cont.

9. Many tax credits preserved (TIPs, WOTC, R&D)

10. Charitable contribution deductions preserves including enhanced food inventory deduction

11. Deduction for domestic production activities (section 199) was repealed

12. Transition to territorial system: Mandatory tax up to 15.5% on accumulated foreign earnings

13. Decoupled and diverse state income tax systems

14. Transaction related changes including limits on interest deductions and enhance write offs

15. Estate and gift tax exemptions nearly doubled to approximately $11M


Major new or renewed concepts and provisions

• Corporate rate dramatically lower than top individual rate

• Double tax remains− All-in corporate plus dividend or capital gain rate slightly higher than top

individual rate

• Pass-through effective rate

− for qualifying income, lower than normal ordinary income tax rate

for salaries or portfolio income

• Limitations on business interest deductions

− even for payments to unrelated lenders


Other key business provisions

Revenue Cuts:

• ($1.35T) - Corporate rate cuts

• ($414B) - Pass-through cuts

Revenue Raisers:

• $324.4B - International

• $253.4B - Limit net interest

• $201.1B - Limit net operating losses (NOLs)

• $149.7B - Limit pass-through losses

• $119.7B - R&D (research) amortization

• $ 98.0B - End domestic production deduction Sec 199


CORPORATE TAX RATE CUTSThe choice of entity question


Tax Revenue Landscape Sets the Stage2016 Federal tax revenues by category

Source: Congressional Budget Office

Individual Income Taxes47.3%

Payroll Taxes 34.1%

Corporate Income Taxes9.2%

Excise taxes 2.9%

Other (Estate, Customs, etc.) 6.5%


Details of the reduced corporate tax rate

• Tax rate reduction from 35% to 21% − Compare to top individual tax rate of 37%

− Effective in 2018 (Audited Financial Stmts for Deferred Taxes in 2017)

− Repeals alternative minimum tax (AMT) for Corp not Individual

− No special 35% rate for personal service corporations (PSCs)

• Dividends received deductions (DRD) − Corporation-to-corporation dividends adjusted accordingly

− Reduces DRD 80% to 65% and 70% to 50% to preserve current effective rates


Example for an individual shareholder

• Current (2017) income tax rules

− $100 of corporate income

• Less $35 tax at 35% rate

− $65 of cash on balance sheet


− $52 of after tax cash

• 48% combined income tax rate

• 3.8% tax on $65 or $2.47

• All-in 50.47% tax rate

• Future income tax rules




• Less $15.8 tax at 20% rate

− $63.2 of after tax cash

• 36.8% combined income tax rate

• 3.8% tax on $79 or $3

• All-in 39.8% tax rate

− Note: Max Indiv Rate of 37%

• 20% reduction is 29.6% on certain business income


Planning around the new rates (C corporation/entity choice)

• New income tax rules (C corps)




• Less $15.8 tax at 20% rate

− $63.2 of after tax cash

• 36.8% combined income tax rate

• 3.8% tax on $79 or $3

− All-in 39.8% tax rate

• Planning opportunities

− Defer the 20% dividend and

3.8% NII tax

• Reinvesting cash in the business

− Avoid the 20% dividend and

3.8% NII tax

• At death or

• Stock gifts to charity that would otherwise be made in cash

− Reduce the 20% dividend and

3.8% NII tax

• If shares held by lower-rate taxpayers

• Including from gifts, trusts, etc.


PASS-THROUGH ENTITIES


20% pass-through deduction in a nutshell

• Applies to operating income of active businesses− If at 37% tax rate then the 20% deduction results in an approx. 29.6% federal

tax

− Compared to: • 21% top corporate tax rate

• 37% top individual tax rate

• 39.8% top corporate/dividend tax rate

• 29.6% potential pass-through tax rate

• Does not apply, generally, to professions or financial businesses

• Business must either− Pay W-2 wages equal to 40% of income to get the full 20% deduction

− Limit deduction to 2.5% of original cost of depreciable, tangible property plus 25% of wages

• Business type and wage/asset limits do not apply below specified income limits ($315K)


No benefits (above the income threshold) for owners of “specified service businesses”

Specific service businesses:

• 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 or business where the principal asset of such trade or business is

the reputation or skill of 1 or more of its employees [OR OWNERS]

What does this mean?

• For example, could a franchised restaurant operation be a service business under this

provision?


CAPITAL EXPENSESDepreciation, expensing, bonus depreciation


Capex - Depreciation

Complex analysis but generally…

• MACRS Continues

• 100% bonus depreciation through 2022, then phased out through 2026

• Applies to new and used property acquired

• Real property depreciation complex, potential business interest limitations

• Applied for property acquired after Sept. 27, 2017

• Qualified improvement property (QIP) remains − Qualified leasehold improvement (QLHI), restaurant and retail improvement eliminated

− But no life provided and needs to be 20 years or less to be 100% bonus eligible

• Section 179 − $1M permanent expensing, subject to limitations and phase-outs beginning at $2.5M

− QIP interior of non residential rental property (Includes roofs, HVAC, fire protection, security sys.

− Careful planning needed

• State conformity is a question and an opportunity


BUSINESS INTEREST DEDUCTIONS CUTBACK


Important changes to interest limitations

• Caps net interest deduction at 30% of an amount based on

earnings (EBITDA) for 4 years, then limits the deduction to 30% of

earnings before interest and taxes (EBIT)

• Taxpayers with average gross receipts of $25M or less and car

dealers using floor plan financing loans to fund their inventory are

excluded from the interest limitation

• Allows ‘limited’ deductions to carry forward forever

• Various exceptions for real estate, utilities, farming, and certain

small businesses

• Special rules for partners and partnerships


Interest limitation using EBITDA

Company worth $3 million

Debt of $2 million @ 5%

Equity of $1 million

Earnings before interest and depreciation = $500,000

Depreciation = $200,000

Interest = $100,000

Taxable income before limitation = $200,000

Base for limitation = $500,000

30% of base = $150,000

No limitation applies

Carryforward allowed indefinitely


Interest limitation using EBIT

Company worth $3 million

Debt of $2 million @5%

Equity of $1 million

Earnings before interest and depreciation = $500,000

Depreciation = $200,000

Interest = $100,000

Taxable income before limitation = $200,000

Base for limitation = $300,000

30% of base = $90,000

$10,000 interest is ‘limited’

Carryforward allowed indefinitely


OTHER IMPORTANT BUSINESS DEDUCTION LIMITATIONS, LIBERALIZATIONS, OR DEFERRALS


Good news

• Deferred taxes on financial statements

• Expanded use of cash method of accounting for small C corporations and partnerships with C corporation partners with < $25M gross receipts

• Expands the uniform capitalization (UNICAP) small business exception

• Generally exempts certain small business taxpayers from requirement to keep inventory

• Expands percentage of completion method exception for certain construction contracts

• Retains research and development credit

• Retains TIPs credit and WOTC

• Favorable depreciation rules (But QIP?)

• Repeals technical termination of partnerships


Not good news

• No more manufacturer’s deduction (section 199) i.e. commissaries

• No more NOL carrybacks – some limitations and modifications to

the carryforward rules

• Modifies the exclusion from income of certain contributions to

capital (e.g., state/city grants)

• Limits like-kind-exchanges to certain real property

• Increased limitations on deductibility of certain expenses of

entertainment (good and bad), etc.

• Limits on business interest expense

• Limit on state income tax deductions for flow-throughs

• Deemed repatriation (good news, bad news)


Limitations on entertainment

• New limitations apply

• What constitutes entertainment?

• Compliance and planning opportunities


CLOSE-UP ON PROFITS INTERESTS AND CARRIED INTERESTS


Treatment of carried interest

• Expressly recognizes the concept of different treatment for profits

interests in an ‘applicable trade or business’ defined as –

− A regular, continuous and substantial activity of

− Raising or returning capital, and either

• Investing in or disposing of specified assets, or

• Developing specified assets

− Specified assets include securities, commodities, real estate, cash,

options, derivatives, and partnership interests

• But, for now, only applies a 3 year holding period


CLOSE-UP ON PRIVATE EQUITY


Issues for private equity

• Generally good news for treatment of carried interest if hold for 3 years

• Business interest limitations may limit leverage

• NOL rules and other rules may require restructuring

• Reconsider choice of entity (partnership vs. corporation) for portfolio

companies

• Founders or other individuals may have rate issues, self-employment

issues and net investment income tax issues

• Write off of used assets in M&A transaction


OVERVIEW OF STATE IMPACT


State taxation: decoupled and diverse state systems

• Will states legislatures decouple?− 2018 sessions have begun

− 47 states and the District of Columbia scheduled to be in session

− Most sessions end by June

• A question of conformity− Rolling

− Fixed

− Selective

• Some provisions broaden the federal income tax base (e.g., interest expense limitations)

− Potential windfall for states

• Some provisions allow deductions from the federal income tax base (e.g., bonus

depreciation)

− Expect decoupling for state purposes

• Other state responses− Rate changes

− Deductions and exemptions eliminations

− Base expansions and new taxes, e.g., gross receipts taxes

− Continued aggressive nexus expansion


OVERVIEW OF THE INTERNATIONAL BUSINESS PROVISIONS


Why do we need international tax reform?

• Tax proposals are new to the United States but not to the rest of the world

• Consistent with global trends

− Lower corporate rates in Europe and many other countries

− Territorial system elsewhere

• Argument is competitive tax system will increase employment

− German experiment

− Tax is one leg of the stool: health care and education


What about offshore earnings (E&P)?

• New tax holiday for offshore earnings:− Deferred offshore earnings taxed in 2017 for calendar year ‘deferred income corps’;

• ‘clears the earnings and profits (E&P) decks’

− Two tier rates (15.5%/ 8%): cash vs non-cash assets

− Applies to a U.S. shareholder (individuals will get slightly higher rates)

− Must take into account share of ‘aggregate’ earnings in all foreign countries

− But can offset positive earnings in some foreign countries with deficits of others

− Election to defer payment of tax over 8 years

− Special election for S corporation shareholders – can defer until triggering event • (e.g., sale or liquidation)

• Other Items− BEAT

− GILTI

− Planning


OVERVIEW OF THE INDIVIDUAL AND WEALTH-TRANSFER PROVISIONS


Final provisions

Area Conference Resolution

Brackets and rates for individuals • Seven tax brackets—10, 12, 22, 24, 32, 35, and 37 percent. The top individual rate of 37

percent will apply at incomes of $500,000/$600,000

Brackets and rates

for estates and trusts

• Condenses the number of tax brackets from seven to four, including 10, 24, 35 and 37

percent brackets

Alternative minimum tax • Retained with higher exemptions ($70,300/ $109,400); phase-out of exemption

increased to $500,000/$1,000,000

Personal exemptions • Repeals

Standard deduction • Doubles to $12,000/$24,000; retains additional deduction for blind and elderly

Mortgage interest • Limits to interest on $750,000 of indebtedness on newly purchased principal and second

residences incurred after Dec. 15, 2017; not allowed for home equity loans

State and local tax deductions • Deduction of up to $10,000 for state and local property, income or sales taxes allowed

• Cannot pre-pay 2018 state and local income taxes to get 2017 deduction

Charitable contributions • Preserves deduction and increases the AGI limitation for cash contributions to public

charities and certain private foundations from 50 percent to 60 percent

529 plans • Up to $10,000 of 529 plans can be used per student for public, private and religious

elementary and secondary schools


Final provisions, cont.

Area Conference Resolution

Other deductions • Deductions for casualty and theft losses limited to those incurred in a disaster area

• Alimony paid for divorce after Dec. 31, 2018 not deductible/includible after 2018

Miscellaneous deductions • Eliminates miscellaneous deductions over 2 percent of AGI

Medical expenses • Medical expenses exceeding 7.5 percent of AGI deductible for 2017 and 2018;

eliminates AMT preference for medical expense deductions for 2017 and 2018.

Overall limitation on deductions (Pease

Limitation)

• Suspends 3 percent of AGI limit on deductions

IRA’s • Conversion of traditional IRA to a Roth IRA cannot be recharacterized; can still convert

traditional IRA into a Roth IRA.

Estate, gift and GST tax • Exemptions are doubled to approximately $11.18 million, effective January 2018.

• The estate, gift and GST tax rates remain the same as existing law.

• Estate and GST tax not repealed

• Provisions sunset after 2025


Key provisions of current law undisturbed

• Income tax− The 3.8 percent tax on investment income under section 1411 and

the .9 percent Medicare tax on compensation

− Tax rates on capital gains and qualified dividends

− Exclusion of gain on sale of a residence

− Ability to identify the securities that an investor is deemed to sell, i.e., the Senate’s proposal for a ‘first-in, first out’ method not included

− Pre-tax contribution limits (including catch-ups) for 401(k) plans

− Ability for beneficiaries to ‘stretch’ IRA withdrawals out over their lifetimes

− Student loan interest deductions, adoption assistance programs, dependent care accounts, tuition waivers, employer paid tuition, teacher supplies deduction and Archer medical savings accounts


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Panel Members

b.good

Anthony Ackil

Co-founder and CEO

J.W. Childs Associates

David Firoentino

Partner

The Paper Store

Tom Anderson

President and CEO

*Moderator

John Nicoloupos

Partner, RSM

79

us economic outlook...• current account and trade deficits explode • 2018: $670 billion •...

Documents