INDIVIDUAL TAX REFORM Mahesh Desai CPA CFP CFA

INDIVIDUAL TAX REFORM Mahesh Desai CPA, CFP, CFA BUSINESS TAX REFORM CPA & Financial Advisor INDO-AMERICAN CHAMBER OF COMMERCE – GREATER HOUSTON (IACCGH) & TAX LAWS CHANGES - FBAR MAHESH DESAI CPA ● 5555 WEST LOOP SOUTH SUITE 535, BELLAIRE, TX 77401 ● 281 -236 -8444 ● MD@MDCPACFA. COM 1

Individual Tax Reforms/Changes - Major changes: TCJA, and SECURE Act. - Mortgage interest $750 K. Debt prior to 12/15/2017 is grandfathered. - Property Tax, state and local tax deduction is limited to $10 K. - Standard Deduction Increases to $12, 200 for individuals, $18, 350 for heads of household, and $24, 400 for married couples filing jointly. - Additional Senior Deduction of $1, 650 for 65 and older. Form 1040 SR for Senior. - Child Tax Credit is $2, 000 per child. - No Alimony Deduction. - No Penalty for Not Having Health Insurance – No individual mandate penalty. - Medical deduction threshold is 10% starting in 2019. - No more deductions for: moving expenses, casualty and theft losses (Deduction only applied to federally declared disasters), and miscellaneous deduction category. MAHESH DESAI CPA ● 5555 WEST LOOP SOUTH SUITE 535, BELLAIRE, TX 77401 ● 281 -236 -8444 ● MD@MDCPACFA. COM 2

Digital/Virtual Currency - Virtual Currency Fairness Act of 2020. Paying tax on crypto transactions. IRS has worked with Chainalysis and Coinbase to investigate tax evasion. - Record-Keeping is your responsibility. Income from bitcoin dealings should be reported in Schedule D. - Cryptocurrency is property, not fiat currency => currency gain/loss rules do not apply. - General rules for sales and exchanges of capital assets as follows: Net short-term gains = ordinary income Net short-term losses = offset ordinary income up to $3, 000 Net long-term gains = income subject to capital gains rates Net long-term losses = offset ordinary income up to $3, 000 MAHESH DESAI CPA ● 5555 WEST LOOP SOUTH SUITE 535, BELLAIRE, TX 77401 ● 281 -236 -8444 ● MD@MDCPACFA. COM 3

SECURE Act and Stretch IRA • Setting Every Community Up for Retirement Enhancement Act of 2019. • Requires all 401 K and IRA distributions after death of the account owner within 10 years • Non Spouse beneficiary must empty inherited account within 10 years. There are no mandatory annual distributions- entire Inherited Traditional or Roth IRA balance must be withdrawn by the end of the 10 th year. • Does not apply to designated beneficiaries that are surviving spouses, disabled, or chronically ill. • Does not apply if the designated beneficiary is within 10 years of age of the deceased account owner. • Also does not apply to minor children until they reach the age of majority (plus 10 years). • Allows Penalty-Free Withdrawal up to $5 K for Birth or Adoption of Child (Sec. 113) - Amounts withdrawn can be recontributed without impacting limits. MAHESH DESAI CPA ● 5555 WEST LOOP SOUTH SUITE 535, BELLAIRE, TX 77401 ● 281 -236 -8444 ● MD@MDCPACFA. COM 4

Key Changes for Individuals for RMD (Effective Jan. 1, 2020) • Required Beginning Date for MRDs changed to 72 from 70 ½ (Sec. 114). • The required minimum distribution (RMD) starting age is 72 if born on or after July 1, 1949. It remains 70 ½ if born before July 1, 1949 (i. e. , if RMDs began in 2019 or earlier). • Age of IRA holder: First RMD Deadline*: Turn 70 in 2019 on or after July 1 ----- April 1, 2022 Turn 70 in 2020 (turn 72 in 2022)-------- April 1, 2023 MAHESH DESAI CPA ● 5555 WEST LOOP SOUTH SUITE 535, BELLAIRE, TX 77401 ● 281 -236 -8444 ● MD@MDCPACFA. COM 5

Combined Annual Report for Group of Plans (Sec. 202) • Allows for single form 5500. • Must have same trustee and named fiduciaries. • Must have common plan years. MAHESH DESAI CPA ● 5555 WEST LOOP SOUTH SUITE 535, BELLAIRE, TX 77401 ● 281 -236 -8444 ● MD@MDCPACFA. COM 6

Education tax benefit changes • Sec 529 plan distributions for private school tuition- pay student loan -10 K and sibling loan -10 K- used for Apprenticeship • Can be used for K-12 education • Sec 529 plan assets can transfer to ABLE accounts for family members • Student loan forgiveness will not be taxable income to student upon death/total disability MAHESH DESAI CPA ● 5555 WEST LOOP SOUTH SUITE 535, BELLAIRE, TX 77401 ● 281 -236 -8444 ● MD@MDCPACFA. COM 7

Business Rates – C-Corporations 2019 ALL taxable income will be taxed at 21% Dividends Qualified dividends and Long Term Capital Gain is taxed at 0%, 15% or 20%, depending on your taxable income and filing status. Individuals Married/filing jointly Tax rate* $0 - $39, 375 $0 - $78, 750 0% $39, 376 - $434, 550 $78, 751 - $488, 850 15% Over $434, 550 Over $488, 850 20% MAHESH DESAI CPA ● 5555 WEST LOOP SOUTH SUITE 535, BELLAIRE, TX 77401 ● 281 -236 -8444 ● MD@MDCPACFA. COM 8

20% QBI Deduction under Section 199 A Passthrough tax rates • S-corps, sole-proprietors, partnerships, LLCs • Creates new 20% passthrough deduction o Section 199 A o “Between the line” deduction – Reduce AGI and Taxable Income Deduct 20% from Qualified Business Income o Net Income All businesses up to $160, 700 single / $321, 400 joint Large Passthrough Limitation o Limited to 50% of total W 2 wages in the business MAHESH DESAI CPA ● 5555 WEST LOOP SOUTH SUITE 535, BELLAIRE, TX 77401 ● 281 -236 -8444 ● MD@MDCPACFA. COM 9

20% QBI Deduction under Section 199 A • Calculation of the Section 199 A deductions required careful analysis and application of entirely new terms and concepts: Qualified Trade or Business; Specified Services Business; Qualified Business Income; Qualified Investment Property; Complicated Deduction Limitation Calculations • QBI is all domestic business income other than investment income (e. g. , dividends and interest – • Qualified REIT dividends and income distribution under K-1 are eligible for 199 A • Most service businesses (law, accounting, health, financial services, athletics, consulting, hedge fund managers) are Specified Services Business and are subject to phase out limitations. • Professional Service Corporation Limitation/Exclusion o Limited over next $50, 000 single / $100, 000 joint o Excluded over $210, 700 single / $421, 400 joint MAHESH DESAI CPA ● 5555 WEST LOOP SOUTH SUITE 535, BELLAIRE, TX 77401 ● 281 -236 -8444 ● MD@MDCPACFA. COM 10

Depreciation - Expensing of Capital Investments • Additional first year/bonus depreciation- 100% for property acquired after 9/27/17. • Now allowed for new and used property • Luxury auto limits – (note that additional $8 k depreciation has been extended for 2017). • Increases to Sec. 179 ($1, 040, 000 and threshold $2, 590, 000) in 2020. Limits are indexed for inflation. • Expansion for certain real property (roofs, HVAC). • Allow businesses to immediately write off new investments in depreciable assets including for residential rental property. • Automobile depreciation limits - (10 K/16 K/9. 6 K for 1 st, 2 nd and 3 rd year and $5, 760 for subsequent years) • SUV (over 6 K -lbs. gross weight) if used 100% for business - write off available. SUV limitation remains at $25, 000. MAHESH DESAI CPA ● 5555 WEST LOOP SOUTH SUITE 535, BELLAIRE, TX 77401 ● 281 -236 -8444 ● MD@MDCPACFA. COM 11

The Opportunity Zone program is designed to incentivize long term investments: MAHESH DESAI CPA ● 5555 WEST LOOP SOUTH SUITE 535, BELLAIRE, TX 77401 ● 281 -236 -8444 ● MD@MDCPACFA. COM 12

Tax on Lifetime Gifts Tax treatment of lifetime gifts of cryptocurrency is the same as lifetime gifts of other assets U. S. Citizens and Domiciliary: ◦ Gifts up to annual exclusion ($15, 000) not subject to gift tax ◦ Gifts in excess of annual exclusion must be reported and reduce exclusion from estate tax available at death ◦ If full exclusion used during life, gifts are taxed at a rate of 40% Non-Resident Aliens: ◦ Lifetime gifts of intangible assets not subject to U. S. gift tax MAHESH DESAI CPA ● 5555 WEST LOOP SOUTH SUITE 535, BELLAIRE, TX 77401 ● 281 -236 -8444 ● MD@MDCPACFA. COM 13

Tax on Death • U. S. Citizens and Domiciled Individuals: • Subject to US estate tax on all worldwide assets, including cryptocurrency, regardless of situs • Exclusion from estate and gift tax = $11. 58 M for individuals, $23. 16 M for married couples • Tax rate = 40% • Situs of cryptocurrency unimportant • Higher limit will sunset on Dec 31, 2025 • Estate planning is more than minimizing estate taxes. • • Updating documents Repurposing insurance Privacy Asset protection MAHESH DESAI CPA ● 5555 WEST LOOP SOUTH SUITE 535, BELLAIRE, TX 77401 ● 281 -236 -8444 ● MD@MDCPACFA. COM 14

Estate planning is more than just the taxes Wills, beneficiary designations Critical to review and update periodically Revocable living trust Transfers property outside of the probate system Health-care proxy and advanced medical directive Facilitate decisions around medical treatment or end-of-life wishes Power of attorney Assigns decision-making responsibilities in case of unforeseen circumstances Guardianship Planning for minors or other extended family members MAHESH DESAI CPA ● 5555 WEST LOOP SOUTH SUITE 535, BELLAIRE, TX 77401 ● 281 -236 -8444 ● MD@MDCPACFA. COM 15

Who must file form 114 – failure to file and voluntarily disclosure US laws impose an obligation on the US person to file FBAR Fin. CEN Form 114 and Form 8938 – Statement of Specified Foreign Financial Assets 1. United States persons with financial interest in or signature authority over at least one financial account located outside of the United State; and 2. The aggregate value of all foreign financial accounts exceeded $10, 000 at any time during the calendar year reported. FBAR - a calendar year report, must be filed electronically by April 15 th through Fin. CEN’s BSA E-Filing System. Similar to tax return- six months extension to file FBAR is available. Questions on Schedule B of Form 1040 - ask about your Foreign Bank Account & FBAR filing 2019 FBAR Update: No New Rules but Enforcement Threat Looms. If IRS sends you letter and ask you to file - Civil penalty assessment: ◦ If non-willful, up to $10, 000 per violation; ◦ If willful, up to the greater of $100, 000 or 50% of the account balances and criminal penalties may also apply. MAHESH DESAI CPA ● 5555 WEST LOOP SOUTH SUITE 535, BELLAIRE, TX 77401 ● 281 -236 -8444 ● MD@MDCPACFA. COM 16

What if you failed to file FBAR? Taxpayer Voluntarily Disclose Offshore Voluntary Disclosure Program (OVDP): - ENDED on Sept 28, 2018 ◦ The IRS claims - Since the launch of the program, taxpayers with undisclosed offshore accounts have paid a total of $11. 1 billion in back taxes, interest, and penalties. Streamlined Domestic Offshore Procedures (SDOP)- Open Currently – File delinquent FBAR, File Amended returns, pay back taxes with interest and penalty by including overseas income Covers both US citizen, GC and person meeting substantial presence test – Physically out of USA for at least 330 full days *** if non willful claim is accepted by IRS- FBAR Penalty is only 5% of highest account balance If IRS finds - failure to file was willful and rejects your request, it may open audit or assign case for Criminal investigation. MAHESH DESAI CPA ● 5555 WEST LOOP SOUTH SUITE 535, BELLAIRE, TX 77401 ● 281 -236 -8444 ● MD@MDCPACFA. COM 17

Aadhaar Card / PAN Card • As per Unique Identification Authority of India(UIDAI), established under Aadhaar Act 2016, “US Citizen/NRI/OCI (Overseas Citizen of India) are not eligible to obtain Aadhaar and hence are fully exempted to produce Aadhaar for any verification. . . NRI/OCI need not verify their bank account or PAN with Aadhaar. • Aadhaar is for every Resident of India. Can an NRI apply for Aadhaar? YES. An NRI (whether minor or adult) with a valid Indian Passport can apply for Aadhaar from any Aadhaar Kendra. • If required, they may inform the service provider(s) that they being NRI/OCI are exempted from Aadhaar verification". UIDAI clarified that it is NOT mandatory for NRIs or OCIs holding accounts in India to get their Aadhaar card linked by the March 31 deadline. • You can have PAN card for Indian Income tax reporting purpose and for filing Indian Income tax Return. MAHESH DESAI CPA ● 5555 WEST LOOP SOUTH SUITE 535, BELLAIRE, TX 77401 ● 281 -236 -8444 ● MD@MDCPACFA. COM 18

Planning for 2020 and beyond • The Tax Cuts and Jobs Act represents the most sweeping changes to the tax code in decades • Careful attention to determine the impact on your financial situation • Work with professionals to assess income and estate tax planning strategies • Guidance needed on Sec. 199 A (pass-through deduction) • Definitions: qualified business income; qualified trade/business; small business • Effect of corporate reduction to 21% on choice of entity + Tax on Dividend distribution ◦ Re-examine entity choice: S-Corp v. LLC v. C-Corp ◦ Always conduct annual meetings and memorialize in writing business decisions ◦ Ratify tax planning decisions ◦ Helps secure entity level liability protection ◦ Revisit regularly partnership and shareholder agreements ◦ Inform family members about important financial details –records MAHESH DESAI CPA ● 5555 WEST LOOP SOUTH SUITE 535, BELLAIRE, TX 77401 ● 281 -236 -8444 ● MD@MDCPACFA. COM 19

MAHESH DESAI CPA ● 5555 WEST LOOP SOUTH SUITE 535, BELLAIRE, TX 77401 ● 281 -236 -8444 ● MD@MDCPACFA. COM 20