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Thursday
Nov302017

The Tax Cuts and Jobs Act: Trust & Estate Planning Considerations

Gift Tax, Trusts & Estate Planning Attorney

 

by Kira S. Masteller
818.907.3244

 

 

This week was supposed to be the week Republicans passed a tax bill. It’s unclear what exactly will happen in the immediate future, or if we’ll have to wait for the New Year to see any type of tax reform. If or when we do get tax reform, the new law under the current Administration will be called the Tax Cuts and Jobs Act.

Income Tax Reform 2017So how will this affect estate planning?

If either the U.S. Senate or House manage to pass their respective bills (both branches of Congress will need to sign off on one, cohesive plan), we could see big changes in the future.

Here’s a look at how potential tax reforms could affect individuals and married couples under each Congressional proposal.

 

Regarding Income Taxes

 

a.) Tax Brackets

HOUSE: Raises individual tax rates, but cuts tax brackets from seven to four. The new brackets would be changed to 12, 25, 35 and 39.6 percent.

SENATE: Keeps the current seven individual tax brackets, but lowers the rates for some of these. The revised rates will be 10 (same as current), 12, 22, 24, 32, 35 (same as current) and 38.5 percent.

b.) Standard Deductions

HOUSE & SENATE: The House and the Senate envision raising the standard deduction from the current $6,350 (single)/$12,700 (married) to $12,000/$24,000. One difference between the proposals is for the Head of Household deduction, currently capped at $9,500. The House plan raises this amount to $18,300, while the Senate plan raises it to $18,000.

c.) AMT

HOUSE & SENATE: Each chamber decided to repeal the Alternative Minimum Tax, which basically ensures the wealthier filers pay a minimum amount of tax no matter how many deductions they take.

d.) SALT

HOUSE: House Representatives plan to repeal the State and Local Tax Deduction (specifically income and sales tax deductions), and sets a cap on property tax deductions at $10,000.

SENATE: The Senate’s plan aims for a full repeal of this deduction.

e.) Pass-through Income

HOUSE: Income “passing through” sole proprietorships, partnerships, S-Corporations, etc., and currently taxed at individual income tax rates, will be taxed at 9 percent on the first $75,000 earned, and capped at 25 percent maximum. The current maximum rate is 39.6 percent. Certain personal service providers (law, accounting, brokerages, performing arts, etc.) would not be eligible for the lowered rates under this plan.

SENATE: In contrast, the Senate plan offers a 17.5 percent deduction rather than a lowered tax rate.

f.) Child Tax Credit

HOUSE: The Representatives’ plan raises this credit to $1,600, plus a $300 credit for each parent and dependent who is NOT a child. The child tax credit goes away for married couples making $230,000 or more per year.

SENATE: The credits are slightly higher at $2,000, plus a $500 credit for each dependent child. It is phased out for married couples earning $500,000 or more annually.

 

Regarding Estate Tax

 

HOUSE & SENATE: Currently, there is a 40 percent tax levied on assets valued at over $5.49 million, per individual. Both the branches of Congress would double the basic exclusion. However, the House of Representatives included plans to repeal the tax after 2024, while the Senate will not repeal estate taxes.

 

Regarding Charitable Gifts Tax

 

HOUSE & SENATE: Certain tax reforms such as the significant rise in standard deductions and a possible repeal of estate taxes, could have negative consequences for nonprofits. If more taxpayers choose the standard deduction rather than itemizing their returns for example, there will be less incentive to give to charity.

 

We anticipate there will be considerable “chopping” to both proposals with a compromise that leaves us with most of the proposed items for individuals intact, but potentially revised timelines for repeal rules. Stay tuned, as we will summarize the final reform tax bill when passed.

Kira S. Masteller is a Shareholder in our Trusts & Estate Planning Practice Group. 

Disclaimer:
This Blog/Web Site is made available by the lawyer or law firm publisher for educational purposes only, to provide general information and a general understanding of the law, not to provide specific legal advice. By using this blog site you understand there is no attorney client relationship between you and the Blog/Web Site publisher. The Blog/Web Site should not be used as a substitute for obtaining legal advice from a licensed professional attorney in your state.

Monday
Nov272017

The Tax Reform Bills: Home Ownership, Purchases & Sales

Tax Law Certified SpecialistCalifornia Bar Certified Specialist in Tax Law

by Michael Hackman

818.907.3279

 

Congressional efforts to enact tax reform are now in the home stretch. While there is no assurance that any legislation will be enacted, or what the form of a final bill would look like, it is likely that something will pass and be signed by the President. And it is almost certain that some of the basic rules with respect to taxation of home ownership will change.

Through the years, the Government has tried to use tax policy to encourage home ownership. First time buyers would weigh the deductible costs of owning a home with the costs of non-deductible rent. That all may change.

The Administration is dead set on reducing taxes on corporations and owners of pass through entities to 20 percent or something very close to it, and among other things is financing those reductions with reduction or elimination of most itemized personal deductions.

Changes with Respect to the Home You Own

Currently, homeowners can deduct their property tax. The House bill would allow a deduction for property taxes, but only up to $10,000. The proposed legislation in the Senate would eliminate deductions for all state and local taxes, including property taxes.

There would be no new limitations on deductions for existing home mortgage interest (presently limited to interest on $1 million of mortgage indebtedness plus another $100,000 of home equity indebtedness). However, under the Senate legislation, the category of home equity indebtedness would be eliminated.

If You Want to Purchase a Home

The limitations discussed above on property taxes would be in effect. For example, if you purchase a California home for about $800,000 you would have property taxes above $10,000 and could not deduct the excess (this assumes that there is no exemption you can qualify for).

If the House bill passes, you could only deduct interest on a loan of $500,000 to assist you in purchasing the home. The present Senate discussions would maintain the $1 million limit.

If You Want to Sell Your House

Because of the limits discussed above, your pool of buyers may be substantially reduced. The number of interested buyers would be necessarily reduced by of the deduction limits.

The ability to avoid some tax on a home sale would be substantially curtailed. In addition, under present law the first $250,000 ($500,000 for most married taxpayers) of the gain on sale of a home was not taxed, so long as you had lived in and owned the home for two years (out of the last five). The House bill and the legislation in the Senate would increase that to five years (out of the last eight).

Taxes on sales of houses would remain subject to capital gains taxes. The 3.8 percent “Obamacare” tax on certain investment income would also apply. The 3.8 percent tax would have been eliminated (though not necessarily immediately) in the proposed healthcare legislation, but those proposals did not pass.

The Future

This legislation may not pass before year-end. But the Trump administration is pining for a significant legislative victory and should continue to pursue tax changes next year, and home ownership will again be a convenient target.

 

Michael Hackman is the Chair of both our Tax, and Trust & Estate Planning Practice Groups.

Disclaimer:
This Blog/Web Site is made available by the lawyer or law firm publisher for educational purposes only, to provide general information and a general understanding of the law, not to provide specific legal advice. By using this blog site you understand there is no attorney client relationship between you and the Blog/Web Site publisher. The Blog/Web Site should not be used as a substitute for obtaining legal advice from a licensed professional attorney in your state.

 

Thursday
Nov162017

Restaurant Industry Gets Another Chance to Chime in on Menu Labeling

CalBar Certified Franchise & Distribution Law Specialist

by Barry Kurtz

818-907-3006

 

Franchisors in the food service industry have until January 18, 2018 to comment on the latest version of the Food & Drug Administration’s Menu Labeling Guidance. The FDA released the draft November 7th. This version includes pictorial suggestions for how consumer information might be displayed under certain circumstances.

The currently non-binding recommendations aim to clarify options for menu labeling compliance and will eventually affect any food and beverage retailer, including those selling self-service foods and buffet operators.

 

Special Orders: The ABCs of Menu Labeling

 

Caloric information is the key ingredient in menu labeling requirements. But the FDA is now taking a more cooperative approach to handling special situations:

All You Can Eat: In the current draft, signage regarding serving size and calories are not required next to every food item offered on a buffet. However, the info must be available to consumers in other forms, i.e. gel window-clings on sneeze guards or on menu boards.

Speaking of menu boards, restaurant owners need not provide one at their businesses if they do not already display a menu.

On the other hand, if a menu board is available on site, it must be updated to include nutrition information. Digital kiosks or other devices, hand-held menus, etc., may also be used to convey consumer info about nutrition.

By the Bucket or Bowl: Family style restaurants like Maggiano’s will be required to provide caloric info for the whole (multiple serving) menu item sold. However, family-style restaurants may relay additional information, such as the suggested number of individual servings and calories per serving of that item. The FDA offers this example:

Family-Style Salad: 1,200 Cal: 150 Cal/serving, 8 servings

Beer, Wine, Cocktails: If the choices are listed on a menu or menu board, nutrition should also be displayed. “Display” foods are not subject to the labeling requirements. These include beers served on tap.

Seasonal beers (pumpkin spiced ale, anyone?) on the menu are also exempt from labeling requirements provided they are not available for more than 60 days per year.

Customer Crafted Menu Items: The FDA now offers “build-your-own” restaurants like Chipotle or PizzaRev a bit of flexibility. The Administration suggests this type of restaurant group customer options, i.e. pizza crusts, sauce choices and toppings so that consumers can quickly calculate which options provide the most and least amount of calories per slice or serving. 

Chef’s Choice: Food selections based on seasonal produce or other items that change on a daily basis are not subject to the nutrition labeling guidance, UNLESS, these selections appear regularly. So a restaurant that serves clam chowder every third Friday will have to provide nutrition information.

Self Service Foods: Food and beverages in soda machines; grab and go donut cases, sandwich or salad coolers; rotisserie chicken warming carts and similar displays and dispensers all fall under the self-service or food-on-display categories.

Pre-packaged foods like sandwiches prepared on site but already wrapped for customer convenience should display an FOP, or “front of pack” label with calorie information.

Donut cases and beverage dispensers found in grocery or convenience stores contain unpackaged foods. A label can be affixed to the dispenser or display case detailing information for each choice available, or displayed on signage nearby.

 

To Lab Test, or Not To Lab Test?

 

 

The FDA will not require restaurants to submit menu items to food labs to determine nutrition information. But legitimate options for determining calorie and other data are required. The Administration recommends using one of the following:

  • Laboratory Analysis
  • USDA National Nutrient Database
  • Trade Association or Industry Databases
  • Alcohol and Tobacco Tax and Trade Bureau Methods for Analysis
  • Cookbook Listings
  • Other reasonable means

If opting for other reasonable means, records must be maintained at corporate headquarters or the restaurant’s main office in case the FDA requests the data and method used to substantiate the information.

 

Chain Stores and Co-Ops

 

Independent franchises, cooperatives, grocery chains and similar businesses not selling substantially similar foods from location to location are not considered “covered establishments” as far as the FDA Menu Labeling Guidance is concerned. “Covered Establishments” include businesses that:

  • Have 20 or more locations
  • Do business under the same name
  • Sell substantially same menu items
  • Sell food eaten on premises or food that may be taken away

So a gasoline franchisee of a major chain that also operates an independently owned mini-mart under a different name would not be considered a “covered establishment”.

 

The Wrap Up

 

Again, the Administration decided to take a more flexible approach in their rules regarding nutrition labeling, and work more cooperatively with covered establishments:

. . . our typical approach following an inspection would be to raise any compliance concerns with the most responsible person (e.g., the manager or owner) at a covered establishment during a close-out inspection meeting or in regulatory meetings with that establishment. If post-inspection issues remain, we may send a letter to the establishment asking for the firm to come into compliance. Any enforcement activities we pursue will be consistent with our public health priorities. . .

All in all, this seems like a much more feasible plan than the 2014 Final Rule previously published.

Barry Kurtz is the Chair of Lewitt Hackman's Franchise & Distribution Practice Group.

Disclaimer:
This Blog/Web Site is made available by the lawyer or law firm publisher for educational purposes only, to provide general information and a general understanding of the law, not to provide specific legal advice. By using this blog site you understand there is no attorney client relationship between you and the Blog/Web Site publisher. The Blog/Web Site should not be used as a substitute for obtaining legal advice from a licensed professional attorney in your state.

Friday
Oct272017

Beep: Your Hamburger is Ready

CalBar Certified Franchise & Distribution Law Specialist

by Barry Kurtz

818-907-3006

 

Analysts predict robots may take nearly 40 percent of U.S. jobs – particularly the ones that require lower education levels – in the next 15-20 years. The study was released by PricewaterhouseCoopers, and was based on anticipated technological progress, which leaves a lot of room for error.

Not all jobs can be staffed with tech though, as Microsoft cofounder Bill Gates illustrates when talking about the fast-rising trend.

He supports a robot tax on businesses that use Artificial Intelligence (AI) to replace human employees. The revenues could be used to train people to fulfill other jobs, like those in teaching or elder-care, where a human component is much more important. It would also help slow the rush to acquire AI.

Gates told Quartz news outlet:

So if you can take the labor that used to do the thing automation replaces, and financially and training-wise and fulfillment-wise have that person go off and do these other things, then you’re net ahead. But you can’t just give up that income tax, because that’s part of how you’ve been funding that level of human workers...

Taxing questions aside, many hospitality franchisors find themselves facing a dilemma: Invest in people, or invest in tech?

Some Franchises Bet Heavily on Tech

Drone Delivery RoboticsReplacing humans with AI is still relatively expensive today, and not exactly a guarantee of larger profits at this time. But some franchises are throwing down a lot of chips on AI development. Why?

For one thing, restaurant jobs, particularly those around a hot grill or spitting fryer can be dangerous. And it’s hard work that not everyone wants.

Burger bot “Flippy” developed by Pasadena-based Miso Robotics with franchisor CaliBurger can cost upwards of $60k, according to TechCrunch. But it will never report to work tired, hungover, or in any state that may result in workers’ comp claims. It also won’t demand higher wages.

Domino’s delivers, as we all know. But food delivery can also be dangerous, which is one reason the chain invests heavily in tech.

The pizza franchisor developed Domino’s Robotic Unit (DRU), a four-wheeled autonomous delivery vehicle. Though DRU will be able to navigate the best route to a customer’s door, it has not yet been activated to serve, as the robot vehicle is still being tested. The DRU Drone is also in development, and may lift off for first deliveries in New Zealand in February.

Restaurant chain (not a franchise) Shake Shack opened a high traffic location in New York’s East Village. The restaurant features kiosk-only ordering and cashless transactions. When the food is ready, the diner can opt to receive a text message to pick up a tray, or go with the old school shout out.

Shake Shack still employs humans to provide customer assistance, cook, and expedite the food at this restaurant location.

Hoteliers are also embracing a new wave in AI services. AURA is the first robot in Asia to provide room services – delivering towels, water and more. And a Marriott in Belgium deployed a bot that addresses vacationers and business travelers in 19 different languages.

What Should Franchisors Know About AI?

Hi Tech Burger

As always, when considering upgraded tech for a chain, consider the needs of individual locations. Right now there are more questions than answers:

  • Will a loyal, profitable franchisee balk at having to deploy AI?

  • Will the leased or owned property of the franchisee accommodate robot workers?

  • Will the costs for AI create substantial reductions in comparison with employee-related expenses, and more profits for the operators?

  • Will the public accept AI as a substitute for smiling wait staff and cashiers?

  • Will ordering kiosks and robotic workers be a turn-off (in locales where unemployment rates might be very high), or a draw (like the hotel mentioned above attracting millennial clientele)?

But also remember that some AI can be used behind the scenes, e.g. in certain food prep tasks, to analyze marketing trends, fold hotel linens, etc.).

Whatever the industry, don’t be afraid to embrace the tech. Just be sure to look both ways before crossing fully into the digital realm.

Barry Kurtz is the Chair of Lewitt Hackman's Franchise & Distribution Practice Group.

Disclaimer:
This Blog/Web Site is made available by the lawyer or law firm publisher for educational purposes only, to provide general information and a general understanding of the law, not to provide specific legal advice. By using this blog site you understand there is no attorney client relationship between you and the Blog/Web Site publisher. The Blog/Web Site should not be used as a substitute for obtaining legal advice from a licensed professional attorney in your state.

Thursday
Oct122017

California Employers: Governor Brown Signs Important New Legislation re Parental Leave and Hiring

Lawyer for EmployersEmployment Defense

by Tal Burnovski Yeyni

818-907-3224

 

You can like it. You can hate it. But one thing is certain: California is a trend-setter when it comes to employees’ rights. Maintaining that tradition, Governor Brown just signed Senate Bill 63 and Assembly Bill 168 into law.

California Parental Bonding Leave

Here is the gist:

Senate Bill 63: Parental Leave 

The new legislation provides eligible employees up to 12 weeks parental leave to bond with a new child. Parents may take this leave within one year of the child’s birth, adoption or foster care placement.

An employee is eligible for the leave if s/he has at least 12 months of service with the employer, has at least 1,250 hours of service with the employer during the previous 12-month period, and works at a worksite in which the employer employs at least 20 employees within 75 miles. 

Senator Hannah-Beth Jackson, SB 63’s author, defined the governor’s endorsement as:

...a great victory for working parents and children in California [...] With more women in the workforce, and more parents struggling to balance work and family responsibilities, our policies must catch up to the realities of our economy and the daily lives of working families. No one should have to choose between caring for their newborn and keeping their job.

The bill specifies it will be an unlawful employment practice for an employer to:  

  • Refuse to allow an eligible employee to take up to 12 weeks of the bonding leave;  

  • Refuse to provide a guarantee of employment in the same or a comparable position before the start of the leave;

  • Refuse to maintain and pay for coverage for an eligible employee during the leave (if applicable);

  • Refuse to hire, or to discharge, fine, suspend, expel, or discriminate against an individual because:
    • An individual’s exercise of the right to bonding leave;
    • An individual’s giving information or testimony as to his or her own bonding leave, or another person’s bonding leave, in an inquiry or proceeding concerning the bonding leave.
  • Interfere with, restrain, or deny the exercise of, or the attempt to exercise any right provided with respect to the bonding leave.  

The new law does not apply to employees who work for large employers (50+ employees) and are otherwise eligible for protected leave under the federal Family and Medical Leave Act (FMLA) and the California Family Rights Act (CFRA).      

If an employer covered by SB 63 employs both parents that are entitled to the leave – that employer is not required to grant bonding leave that would allow the parents leave totaling more than 12 weeks.

There’s more  the legislature also seeks to create a parental leave mediation pilot program.

Under the program, if an employer receives notice regarding an employee’s claim of violation of the parental leave law, the employer may request to mediate the dispute in a special Mediation Division Program.  An employee may not pursue any civil action concerning the parental leave until the mediation is complete. The pilot program will be in effect until January 1, 2020. 

Employers should be mindful that the new bonding leave is provided in addition to pregnancy disability leave. Thus, an employee who works for a covered employer and is disabled by pregnancy, childbirth, or a related medical condition is eligible for up to four months of pregnancy disability leave and up to 12 weeks of bonding leave.  

Assembly Bill 168: Salary Information

Employers may not ask for salary history

AB 168 prohibits all employers from: 

  • Relying on the salary history information of an applicant as a factor in determining whether to offer employment to an applicant or what salary to offer; and

  • Seeking salary history information, including compensation and benefits, about an applicant for employment;

Furthermore, the legislation requires employers to provide, upon reasonable request, the pay scale for a position to an applicant applying for employment.  

As the bill’s author Assemblymember Susan Eggman explained:

The practice of seeking or requiring the salary history of job applicants helps perpetuate wage inequality that has spanned generations of women in the workforce. AB 168 is a needed step to ensure that my 9-year-old daughter, and all women, can be confident that their pay will be based on their abilities and not their gender.

Note, however, that if an applicant, voluntarily and without prompting, discloses salary history information to a prospective employer, the employer may consider or rely on that voluntarily disclosed information in determining the salary for the applicant.  

Employers, update your company policies – both new laws go into effect January 1, 2018. As always, seek experienced employment counsel if confused about state and federal laws regarding leave of absence or hiring and firing practices.

Tal Burnovski Yeyni is an Employment Defense Attorney

Disclaimer:
This Blog/Web Site is made available by the lawyer or law firm publisher for educational purposes only, to provide general information and a general understanding of the law, not to provide specific legal advice. By using this blog site you understand there is no attorney client relationship between you and the Blog/Web Site publisher. The Blog/Web Site should not be used as a substitute for obtaining legal advice from a licensed professional attorney in your state.

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