Hartford Business Journal

8 Hartford Business Journal • February 12, 2018 • www.HartfordBusiness.com FOCUS: Banking & Finance By Patricia Daddona pdaddona@HartfordBusiness.com M ore than 30 years after digesting the last major federal tax overhaul, Connecticut accountants and legal advisers working to inter- pret the latest changes to the federal tax code say business clients are both enthusiastic and wary as they figure out how to adapt. Sweeping changes are at hand for businesses ranging from large con- glomerates like United Technologies Corp. (UTC) to small mom-and-pop shops like a Fairfield jeweler, and ev- eryone in between. "You really have to make sure you look to the future," said Patrick Duffany, managing partner for tax services at CohnReznick in Hartford. "The wrong call could create costs to unwind what you have done, or require you to pay a tax cost you could have avoided." Mark Everson of the Washington, D.C.-based specialty tax services firm the alliantgroup, recently told a Cromwell forum, sponsored by his firm and BlumShapiro and put on by the Connecticut Business & Industry Association, that the last significant changes to the federal tax code hap- pened in 1986. "The media has created so much attention, business clients are craving information," said Brett McGrath, the partner in charge of accounting firm Marcum's Connecticut tax services. In addition to constant email blasts about the latest tax changes, Marcum held three days of webinars at the end of January for its clients, McGrath said. The biggest changes introduced by the Tax Cuts and Jobs Act of 2017 that primarily affect businesses involve a 20 percent deduction for pass-through companies; mandatory repatriation of not only current foreign earnings but those going back 30 years (but at a lower rate of 15.5 percent); and a de- cline in the corporate tax rate from 35 percent to 21 percent, advisers said. In addition, advisers said the state and local income tax (SALT) deduc- tion, which has a new $10,000 limit for individual taxpayers, may drive some senior management executives out of state. Connecticut and 11 other states plan to argue in federal court that the deduction cap is unconstitutional. Gov. Dannel P. Malloy said the law will cost Connecticut taxpayers bil- lions in deductions. He's also propos- ing potential workarounds. More guidance needed Even though President Donald Trump signed the law in December, guidance and regulations from the Internal Revenue Service are not yet available in most cases. Complicating matters further, adds Greg Cabral, managing partner in BlumShapiro's Rhode Island office, is the fact that some states, including Connecticut, haven't yet adopted the 20 percent pass-through deduction. And because it would cost some states tax revenues, Connecticut, which is still running a deficit, likely won't, he said. A Malloy spokesman said the gover- nor is not proposing adoption of the deduction, but he'd work with lawmak- ers if they wanted to. He has, however, proposed tax changes to pass-through entities aimed at allowing them to re- duce their federal income tax liability. Malloy also said Connecticut will not adopt federal tax changes related to accelerated depreciation and asset expensing, which would cost the state money. Given the uncertainty, many accoun- tants said their business clients are approaching the changes with "cau- tious optimism" — embracing the tax provisions that have clear advantages in their given situation, but taking a "wait- and-see" approach to major adaptations they have to research and analyze, like restructuring a business, which could have long-term consequences. Advisers said their clients are not confused so much as concerned — especially small businesses that do not have in-house tax advisers. EXPERTS CORNER How nonprofits fare with the 2017 Tax Cuts and Jobs Act By Marla Esan L ike every sector, nonprofits won some and lost some in the Tax Cuts & Jobs Act. Here is a brief summary of the provisions impacting the nonprofit world. Unrelated business taxable income Beginning Jan. 1, 2018, organizations carrying out more than one unrelated business activity must separately calcu- late unrelated business taxable income for each activity. As a result, losses from one trade or business may not be used to offset income de- rived from another trade or business. Under prior law, exempt or- ganizations were able to offset un- related business taxable losses against unrelated business taxable income. Organizations that provide certain types of qualified fringe benefits, includ- ing transportation benefits, qualified parking facilities and use of employer- provided athletic facilities, will be subject to unrelated business income tax on the value of the benefits provided. Additionally, the use of net operat- ing loss carryover deductions from unrelated business activities are now limited to 80 percent of taxable income and will not be eligible to be carried back (only forward). New excise tax for large university endowments An excise tax of 1.4 percent is imposed on the net investment income of endow- ments at some private colleges and uni- versities with enrollment of more than 500 students and an asset threshold of at least $500,000 per full-time student. The new law also makes a slight modification to the definition of "ap- plicable educational institution," which now includes only institutions with more than 50 percent of tuition-paying students located in the United States. New excise tax on high salaries A 21 percent excise tax will be im- Marla Esan Cautious Optimism Federal tax overhaul creates uncertainty, hope and some concern for business owners Greg Cabral (standing), a managing partner in BlumShapiro's Rhode Island tax office, addresses more than 300 people at a recent tax reform forum in Cromwell. The Jan. 25 forum also featured accountants Alan Osmolowski (center) and Tim Barry. PHOTO | CONTRIBUTED

• Cover