Developing News: 2018

For business and occupation (“B&O”) tax purposes, taxpayers earning apportionable revenue calculate their taxable Washington revenue by applying a “receipts factor” apportionment methodology. Taxpayers computing B&O tax in this manner are required to complete and file an Annual Reconciliation of Apportionable Income form with the Department of Revenue.

When is the Annual Reconciliation of Apportionable Income Form Due?

The form must be submitted to the Department of Revenue by October 31st of each year. Failure to timely file the reconciliation form may result in penalties.

Who Must File?

In-state taxpayers that earn income from apportionable business activities performed for customers located inside and outside of Washington may apportion such revenue to Washington for B&O tax purposes.

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The Tax Cuts and Jobs Act (TCJA) added a new tax deduction for owners of pass-through entities – a 20% deduction of qualified business income (QBI) from a qualified trade or business.

This new provision may potentially lower the maximum individual tax rate of 37% on pass-through income to 29.8%, which makes it more comparable to the new C corporation tax rate of 21%.  However, the new law contains limitations that may reduce or eliminate the deduction for some business owners.

What Is the 20% QBI Deduction?

For tax years beginning after December 31, 2017 through 2025, the QBI deduction is 20% of QBI from an S corporation,

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The Tax Cuts and Jobs Act (TCJA) was intended to reform the tax code by lowering tax rates and changing income and deductions for all businesses.  Two of the most significant changes are the reduction of the C corporate tax rate to 21% and the addition of the 20% qualified business income deduction for pass-through entities (S corporations, partnerships or sole proprietorships).

Many businesses are questioning – what’s the right type of entity for my business for tax purposes?

Key Questions

The path to choosing the right entity starts with considering the following important questions:

  • What are the plans and objectives for the company and its owners?

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The Tax Cuts and Jobs Act (TCJA) has significantly lowered tax rates for businesses and changed many deductions.  One of the biggest and most important changes is the deductibility of business interest expense, which is creating complexity and confusion.  This provision is expected to raise $250 billion in taxes over the next ten years.

In the past, business interest expense has been generally deductible, but with some limitations.

For tax years beginning after December 31, 2017 and before January 1, 2022, deductible business interest expense is limited to:

  • 30% of adjusted taxable income before depreciation, amortization and depletion
  • plus business interest income and floor plan financing interest

Starting in 2022,

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On May 14th, 2018, the Seattle City Council, after much political wrangling and public debate, enacted a new employee hours tax (referred to as the “head tax”) on businesses in the city. The ordinance was signed by Mayor Durkan on May 16th and the tax will take effect on January 1, 2019. The revenue generated from the new tax is to be used to combat the issue of homelessness and the lack of affordable housing in the Seattle metropolitan area.

The new tax is imposed on businesses earning Seattle gross taxable income in excess of $20 million per year. For purposes of this threshold,

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With the passage of the 2017 Tax Cuts and Jobs Act (TCJA), many clients want to know if the tax benefit of the federal research credit (R&D credit) is still available.

The TCJA did not directly change the general rules related to the R&D credit.  The R&D credit is available to taxpayers who develop new or improved products, processes, and formulas.  The R&D credit can be used to directly reduce income tax liabilities for C corporations, individual owners of businesses structured as pass-through entities (i.e., S corporations and limited liability companies), and individual proprietors.

In some cases, employers may reduce a portion of their share of payroll taxes for start-up companies.

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Taxpayers taking advantage of any one of the available State of Washington tax incentives – including tax deferrals, reduced B&O tax rates, exemptions, and credits – may be required to file an Annual Report or Annual Survey.

Some incentives require that both the report and the survey be filed, while other programs do not have a reporting requirement.

For tax incentives taken in 2017, the due date for the Annual Report and Annual Survey is May 31, 2018.

There are over 50 different tax incentive programs in Washington. A partial list of common incentives includes:

  • High Technology B&O Tax Credit for R&D Spending
  • High Technology Sales &

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If you receive payments from a donor or client based in the European Union (EU), then a new law taking effect on May 25, called the General Data Protection Regulation (GDPR) will require your compliance. The regulation centers around accountability for the personal data of individuals and is applicable to anyone doing business with an individual or entity from the EU. In order to comply, your company must put practices and safeguards in place to understand what personal information may be embedded in your transactions or captured by your systems. Knowing the data lifecycle of transactions across your network is key—non-compliance will result in fines.

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Suppliers for Microsoft who handle sensitive information are likely aware that the Supplier Security and Privacy Assurance (SSPA) program data protection requirements were updated to address the General Data Protection Regulations (GDPR) coming out of the EU. GDPR will take effect on May 25, 2018.

Suppliers need to be aware of these new requirements to remain compliant. In addition, other existing requirements were clarified or enhanced, and others still were removed.

As the May 25 deadline approaches, we recommend you have in place, at a minimum, the following:

  1. A Data Classification and Privacy Governance Policy
  2. IT Asset Inventory document listing the hardware and devices connecting to your network and accessing data
  3. Updating your current privacy policy and terms and conditions both externally and internally.

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Many parents and loved ones are concerned about funding their children’s education, and it’s no wonder. According to College Board’s recent “Trends in College Pricing” report, average tuition to attend a public four-year institution has increased 213% from 30 years ago. However, there is an option to help with these costs – the 529 plan.

Currently there are two types of Qualified Tuition Programs under IRC Section 529(b)(1)(A): prepaid tuition and college savings investment plans.

Prepaid Tuition vs. College Savings Investment Plan

Those who open a prepaid tuition plan generally lock in the current costs of tuition in place of future prices,

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Melissa Takade
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Clark Nuber
Phone: 425-454-4919
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