RECAP: 2018 FOX Family Office Forum

Presenters: Mark J. Blumenthal, CPA, Partner, Plante Moran Domingo Such, Partner, Firmwide Chair, Family Office Services Practice, Perkins Coie LLP Session Description:  The 2017 Tax Act presents planning opportunities around the choice of entity. Existing clients with pass-through entities like S-Corporations and LLCs should consider if maintaining this status is prudent given the recent changes in the tax law. In the past, C-Corporations considered becoming pass-through entities to avoid two tiers of tax. What is best for a particular client situation will challenge past thinking, as the choice of entity for optimization is dependent on facts and circumstances.

• Key tax law change highlights include: 21% corporate tax rate, elimination of personal exemptions, increased standard deduction, and modifications to many itemized deductions, including:
  • New limitations on state and local tax deductions and home mortgage interest deductions
  • Elimination of miscellaneous itemized deductions
  • Elimination of itemized deduction phaseout
  • Increase in charitable cash contribution limitation
• Deduction changes for trusts include: $10,000 Limitation on State and Local Taxes; 2% itemized deductions eliminated; trustee fees remain deductible; tax determination and preparation fees remain deductible
  • This illustration outlines the key considerations for anyone considering the sale of a Corporation or Partnership. Participants were encouraged to evaluate their options carefully and not rush to change entities to C-Corporations without considering the long-term realities of this decision. There is no one-size-fits-all solution.
• While the Lender Management, LLC v. Commissioner ruling is considered a “win” for family offices that use a profits interest structure, it is critical to consider the specifics of each family’s situation to determine whether a profits interest structure makes sense for the family. More insights on this topic can be found in the FOX Hot Topics Webinar: Profits Interest Structure here.
• The speakers explored several case studies on entities shifting from an S-Corporation to a C-Corporation, making it clear there are important considerations to keep in mind, including the uncertainty about the corporate tax rate after 2025, when the current provisions expire. Families converting to a C-Corporation should also be mindful of the provision requiring a five-year period before reverting to another type of entity.
• Participants were encouraged to include their accounting advisors in the evaluation process to ensure that all costs inherent in the accounting required of various structures are factored into the decision.
   

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