THIS ISSUE'S HEADLINES
Why Wealth Migration to Florida is Expected to Continue
Register for the 2018 Cybersecurity Symposium - Protect Your Business Against Cyber Attacks
New Federal Tax Law Provides Boosts for Business Š Corporate and Non-Corporate Alike
WHY WEALTH MIGRATION TO FLORIDA IS EXPECTED TO CONTINUE
Wealthy individuals have been flocking to Florida for years. According to the website howmoneywalks.com, from 1992 to 2016, the IRS Division of Statistics, U.S. Census Bureau reported Florida gained $27 billion in taxable income from New York, $18 billion from New Jersey, $13 billion from Illinois and $11 billion from Connecticut and Pennsylvania, respectively. Individuals from Rhode Island have brought $1.72 billion in taxable income from the Ocean State. And this doesnÕt include the dollars newcomers bring that arenÕt taxed. Individuals will continue to relocate to the Sunshine State, perhaps even at a greater pace, because of the Tax Cuts and Jobs Act (TCJA) passed by Congress last year and the favorable income and transfer tax environment Floridians enjoy.
The TCJA made several significant changes to the individual (and business) income tax. The TCJA modifies or eliminates most itemized deductions for individuals. Perhaps the most significant limitation is the cap on the amount deductible for state and local taxes (comprised of income, real estate and sales taxes) at $10,000 per year. This hurts high income earners in high-tax states. Governors in high-tax states are understandably concerned about the caps impact on home prices, job creation and economic growth in their states. This past July, a lawsuit by New York, Connecticut, Maryland and New Jersey was filed against the federal government to void the $10,000 cap. Commentators have suggested the suit is not likely to succeed. As individuals from high-tax states prepare their 2018 personal income tax returns and realize higher taxes, resulting in part from the cap on state and local taxes, many may be seeking to move to a low-tax state.
So, whatÕs so great about Florida? ItÕs not just the weather. Florida has no personal income tax, no capital gains tax, no state gift tax, and no state estate or inheritance tax. Professionals and retirees flock to Florida because of the favorable tax environment but there are additional benefits to being domiciled in the Sunshine State. For example, Floridians enjoy asset protection in the form of strong state laws that exempt their homestead, retirement assets, insurance, and certain spousal joint property from being used to satisfy a creditorÕs judgment against an individual.
Further, Florida permits individuals to set up long-term trusts to benefit multiple generations for up to 360 years without federal transfer tax. These trusts can be structured to include a spouse as a beneficiary and they may be funded with any type of asset, including life insurance. The creators (and beneficiaries) of these trusts can rest assured that the assets in the trust are protected from divorcing spouses, business creditors and personal injury plaintiffs.
After the passing of the TCJA, individuals who were already looking to leave high-tax states for lower-tax states could be persuaded to take the plunge and relocate. Others will likely follow suit and states such as Florida will continue to benefit from the income and dollars that follow. Given the significant changes to the tax law resulting from the TCJA, individuals should talk to their advisors to ensure they are doing all they can to minimize taxes and protect and plan for their loved ones, regardless of whether they are considering relocation or not. For more information about individual or business tax matters, wealth management and estate planning, please call Attorney Jason S. Palmisano at 561-362-2034 or email firstname.lastname@example.org. Attorney Palmisano has extensive experience advising clients on wealth management, asset protection, trust and estate planning and administration, and in all matters of tax planning, including international, and advising clients on business and succession planning.
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REGISTER FOR THE 2018 CYBERSECURITY SYMPOSIUM - PROTECT YOUR BUSINESS AGAINST CYBER ATTACKS
October is National Cyber Security Awareness Month. The designation aims to raise awareness and educate individuals and businesses about how to prevent and protect against the threat of online attacks by cyber criminals.
To help in this effort, PLDO attorneys are joining Compass IT Compliance experts and national and local law enforcement representatives, along with other cyber security professionals in business and academia, for the 2018 Cybersecurity Symposium on Thursday, October 25, 2018 from 9 a.m. to 4:30 p.m. at The Meehan Overlook in North Providence. The program includes multiple panels covering topics such as “The Art of the Attack,” a review of cyber initiatives and concerns at the federal and state level, “cyber liability insurance 101,” business continuity planning and resiliency, and social and digital media legal issues and data protection strategies to minimize online cyber attacks.
Headlining the symposium’s speaking program is U.S. Congressman James Langevin who is a member of the House Committee on Homeland Security and the House Armed Services Committee, where he is the Ranking Member of the Emerging Threats and Capabilities Subcommittee.
PLDO Partner Brian J. Lamoureux and Senior Counsel Joel K. Goloskie, both members of the firm’s cyber law and business law teams are featured speakers during the day-long event, along with the following industry-leading cyber professionals: Mark Weatherford, the nation’s first Deputy Undersecretary for Cybersecurity for the Department of Homeland Security and presently a Senior Vice President and Chief Cybersecurity Strategist at vArmour; Captain John Alfred of the Rhode Island State Police Cyber Crimes Unit and Fusion Center Commander; Lt Col Christopher N. Allen, the Detachment Commander and Director of Operations, 102d Cyberspace Operations Squadron in North Kingstown; Jesse Roberts, Professor of Cybersecurity and Network Engineering at the New England Institute of Technology; Brian Kelly, CISSP, CISM, CEH, MSIA, Chief Information Security Officer at Quinnipiac University; Mike Barry, VP of Information Technology at Coghlin Companies, Inc.; and Warren Smay, Chief Technology Officer at Clear Harbor, LLC.
The public is invited to attend. Tickets are $50 and will include breakfast and lunch. All proceeds will go to The Sargent Rehabilitation Center in Rhode Island. For more information about the symposium and to register, visit 2018 Cybersecurity Symposium.
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NEW FEDERAL TAX LAW PROVIDES BOOSTS FOR BUSINESS - CORPORATE AND NON-CORPORATE ALIKE
Historically so-called C corporate taxpayers have faced substantially higher rates of effective income tax. From a policy standpoint Congress has imposed higher tax rates on C corporations due to their perceived ability, whether real or not, to accumulate large sums of wealth in corporate form. With the enactment of the Tax Cuts and Jobs Act in December of 2017, however the top corporate rate dropped substantially from 35% to a flat rate of 21%, while the top individual dividend income tax rate remained at 20%. This two-tier tax system for C corporations results in an effective tax rate of 36.8% on the C corporate dollar. For example, a C corporation that earns $100 and distributes all its earnings after paying taxes would pay a total tax of $21 at the entity level and $15.80 at the individual level ($100 less $21 in tax = $79.00 x 20% dividend rate) for a total tax of $36.80 on each corporate dollar. That is a significant drop from prior law under which top combined corporate and dividend rates resulted in a whopping 48% effective rate on each C corporate dollar.
Along with lowering the effective rate on C corporate earnings, Congress also enacted new Section 199A, which provides relief to taxpayers engaged in a qualified trade or business that is operated as a sole proprietorship, partnership or S corporation. If section 199A applies, the effective tax rate drops from the new top individual rate of 37%, which is higher than the C corporate rate discussed above, to 29.6%. This new lower effective rate restores the rate differential between C corporate taxpayers and non-C corporate taxpayers that has historically existed.
Section 199A gives non-C corporate taxpayers a deduction equal to 20% of the taxpayerÕs qualified business income earned in a qualified trade or business. The deduction is limited, however, to the greater of 50% of W-2 wages paid in the business or the sum of 25% of W-2 wages plus 2.5% of the cost basis of qualified property. The W-2 basis limitations do not apply however if taxable income is less than $157,000 or $315,000 for married filing jointly taxpayers. Thereafter the W-2 limitations are phased in and once a single taxpayer reaches $207,500 and a married filing joint taxpayer reaches $415,000 in income, the W-2 limitations are fully implemented. Finally, the deduction is further limited to the amount of ordinary non-capital gain income.
A qualified trade or business is every business except certain specified businesses. The excepted businesses include those that perform services in the fields of health, law, accounting, actuarial science, performing arts, consulting, athletics, financial services, or brokerage services. Even if a taxpayer is in a business that is not a qualified trade or business, if the taxpayerÕs income falls within the W-2 limitations discussed above, the deduction is still available.
If the 20% deduction applies to a sole proprietorship that earned $100, the remaining $80 of income will be taxed at the new top individual rate of 37% for ordinary income under the new law. This results in an effective tax rate of 29.6% ($80 x 37%). Comparing this to the new 36.8% C corporate rate, the historical relative rates of taxation between C corporate taxpayers and other business taxpayers is retained.
If you would like further information or have questions, please contact PLDO Partner Gene M. Carlino at 401-824-5100 or email@example.com. Attorney Carlino has more than 25 years of experience in all areas of estate and tax planning, including advising and advocating for clients in all matters involving federal and state taxation and representing individuals before the IRS in contested assessments.
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