Tax Planning

For many physicians, making it to the end of 2020 successfully is an achievement of perseverance, planning, pivots, and good business sense. An industry not traditionally associated with financial challenges was tested thanks to COVID-19 when in-office patient contact was restricted, elective procedures were all but halted, and ongoing medical care shifted to virtual. Many offices were forced to shut their doors or furlough staff, and the added cost of PPE and technology upgrades strained already-tight budgets.

As reported cases of COVID-19 continue to reach new highs in Georgia, with an average of 3,394 per day, there is an increasing concern in the business community that restrictions and forced closures will again be implemented.

Are tax-free reorganizations possible? Absolutely. Internal Revenue Code Section 368(a)(1) allows for tax-free (or tax-deferred) reorganizations for certain acquisitions, divestitures, bankruptcies, and corporate restructurings. F-type reorganizations, which are a type of corporate restructuring permitted under subparagraph F, allow a single corporation to change their “identity, form, or place of organization” without incurring a tax bill. But F-type reorganizations can do so much more than that.

Taxpayers first had the opportunity to use the 20% qualified business income deduction this past April 15th, and their tax returns fared a bit better because of it. This unique deduction was created at the end of 2017 as part of the Republican tax overhaul called the Tax Cuts and Jobs Act, and it gave taxpayers the unprecedented opportunity to reduce their taxable income by up to 20%. The 2019 tax season (when we filed 2018’s tax returns) was the first season taxpayers were eligible to take the deduction. Now that we have one year of experience with the deduction under our belts, what did we learn?

The 20% Qualified Business Income Deduction (QBI Deduction) is one of the many changes taxpayers will spot on their tax returns come April 15th. It was written into the tax code under IRS Code Section 199A was introduced as part of the changes implemented under Tax Cuts and Jobs Act at the end of 2017. This tax law allows business owners to take a deduction that can reduce their business income by up to 20%, a benefit that many will want to take advantage of. Qualifying for the deduction can be tricky, though, so it is important to understand the fundamentals before writing it into your tax plan for 2019.

A tax incentive for those who invest in designated Opportunity Zones is not an entirely new concept; states have been using similar incentives for years as a way to boost local economies. However, until recently, there had not been a Federal incentive of the type. President Trump passed the first Federal Qualified Opportunity Zone (QOZ) tax credit as part of the Tax Cuts and Jobs Act (TCJA) in December of 2017. This incentive was a last-minute measure added to the legislation, and it is often left out of the conversation when discussing the TCJA. However, QOZs provide investors tax-saving advantages that we should not overlook. Recently, the IRS released proposed regulations clarifying details of the incentive program, and these regulations can help make taxpayers comfortable with their investment decisions.

At the end of last year, the media and various news outlets were buzzing with information about tax reform. It was reported to be the most significant overhaul of the tax code since the mid-1980s. For individuals, it meant a reduction in tax brackets, a doubling of the standard deduction and the phase-out of several itemized deduction opportunities. For businesses, it reduced the overall tax rate to 21%, repealed AMT, expanded the opportunity to claim bonus depreciation and eliminated the opportunity to make like-kind exchanges for any asset other than real estate. While several of the tax saving vehicles were modified or eliminated there were also new opportunities created.

In 2017, Georgia business and individual taxpayers seeking to reduce their state income tax liability while contributing to a worthy cause should consider participation in the Georgia Heart Hospital Program. The program provides the opportunity for individuals and business owners to make a donation to a qualifying rural hospital in the state in exchange for a state tax credit. The program provides a way for finance-strapped hospitals in rural areas to get desperately needed funding while giving taxpayers an incentive to participate. In 2017, the state provided $60M in credits that taxpayers could apply for and claim on their state tax return.

Taxpayers are continually looking for new opportunities to reduce the amount of federal and state income tax they are required to pay each year. The sweeping changes to the tax code resulting from the Tax Cuts and Jobs Act of 2017 (tax reform) have changed the tax planning landscape significantly. While most can expect to pay less in income taxes over prior years, many of the familiar tax incentives (including credits and deductions) have been eliminated or changed to reduce their benefit. These changes have left some wondering if there are additional tax planning opportunities available.

In May of 2014, a new set of revenue recognition standards were released by the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB). These two bodies worked together to publish codified guidelines for how companies should report the revenues they earn from contracts with customers.