2022 Legislative & Advocacy Issue AZ CPA September/October 2022 The Arizona Society of Certified Public Accountants y www.ascpa.com
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AICPA Council Members Mike Allen Jared Van Arsdale AZ CPA is published by the Arizona Society of Certified Public Accountants (ASCPA) to provide information, news and trends to the accounting profession. It is distributed six times a year as a benefit to ASCPA members. The ASCPA, its members, board of directors and administrative staff assume no responsibility for advertisements herein. The ASCPA and the above people also assume no liability for business decisions made by readers in reference to statements and/or claims in articles or advertisements within this publication. Opinions expressed by contributors are not necessarily those of the ASCPA. Arizona Society of CPAs 4801 E. Washington St., Suite 180 Phoenix, AZ 85034-2040 Telephone (602) 252-4144 AZ Toll-Free (888) 237-0700 www.ascpa.com
The Arizona Society of Certified Public PresidentAccountants&CEO Yandle of Directors
4 AZ CPA SEPTEMBER/OCTOBER 2022
Chair Rachael Crump Chair-Elect Andrea Levy Secretary/Treasurer Lauren Murro Directors Benjamin Cilek David ChristopherJosephBarbaraSamanthaCollinsCrumTithiDebnathGlenEvansGonzalezHeidleburgGabrielleLuomaEugeneParkJessePorrasMeganRomoTyhurst
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Editor Haley MacDonell Advertising Heidi Frei Board
Oliver
9 Legislative PlotPolicymakingReport:Twists 9 Legislative PolicymakingReport:Plot TwistsBy Ryan DeMenna 13 ASCPA PAC Report 14 Climbing for a Cause By Haley MacDonell 19 Taxes in Retirement: How Taxpayers Can Utilize the 2017 Tax Cut & Jobs Act By Brent W. Burgesser Columns & Departments Chair’s Message by Rachael Crump, CPA, CGMA 6 Member News 7 Classifieds 26 Quick Quiz 27 AZ CPA Features Volume 38 Number 5 September/October 2022 4801 E. Washington St., Suite 180 Phoenix, Arizona 85034-2040 www.ascpa.com SEPTEMBER/OCTOBER 2022 AZ CPA 5
Advocacy (noun) public support for or recommendation of a particular cause or policy
When I learned that this was our advocacy issue of the magazine, I immediately turned to the internet to research what advocacy truly means. The definition above is from the Oxford Dictionary, but I knew it meant something more. Further Google searches led me to this: Advocacy means garnering support to help express your views and wishes and help you stand up for your rights.
Part of our success as an organization is the support and engagement of our members. Whether it’s our volunteers, CPA Day at the Capitol participants or those who offer their time and expertise to assist in policy requests, members like you are key to success. Giving to the ASCPA PAC is equally important, as those contributions allow us to back candidates who know our issues and support our commonsense goals.
In a TEDx Talk “How to Turn Advocacy Into Action,” former Mayor of San Luis Obispo, Heidi Harmon talks about how we can come together to be effective and responsible citizens and stewards of community. I like her advice, “show up, step up and stand up.” As she says, “I realized we need to not just be on the outside demanding the right thing, but on the inside doing the right thing.”
ASCPA Chair’s Message 6 AZ CPA SEPTEMBER/OCTOBER 2022
Rachael Crump, CPA, CGMA Chair, Arizona Society of CPAs Senior Vice President, Global Corporate Controller and Principal Accounting Officer at Insight
The ASCPA ensures we have a strong working relationship with Arizona policymakers on matters important to CPAs. As we look back at the 2022 legislative session and look ahead, our advocacy team enhances how we interact and engage with state legislators.
If you search across your life, you will likely find you play a role in advocacy, or directly as an advocate, in many forms. As a parent, we are all advocates for our children by guiding them through learning life’s lessons. In the beginning, we are their sole advocate. If you volunteer in your community, you are likely an advocate as well. This magazine features a story about one ASCPA member who climbed Kilimanjaro to support the Arizona Burn Center, an amazing feat of activism for a cause that she cares about.
There is much that dictates our ability to be trusted business partners to our clients and in our organizations. We are respected because of our expertise and training, but there are external factors that can change the way we work.
As CPAs, there are values we share in our profession when it comes to solving client problems and becoming their trusted ally in business. And, who advocates for us?
Advocacy, What Do You Stand For?
In the coming months, be on the lookout for opportunities to engage with the ASCPA advocacy team. I hope you will take advantage of opportunities to participate in advocacy events, consider giving to the ASCPA Political Action Committee (PAC) and engage in your enhanced access to political and regulatory information. l
We’re also broadening our network of like-minded organizations, associations and businesses, so we can more effectively react to legislation and proposed policy changes in Arizona. There is strength in numbers, and we know how a broad coalition can be hugely beneficial when advocating at the Legislature.
When faced with these factors, we have the ASCPA to be our advocate at the Arizona Legislature.
Respectfully, Rachael Crump
CliftonLarsonAllen
Member News SEPTEMBER/OCTOBER 2022 AZ CPA 7
Refer a CPA
David R. Baldwin, CPA, of Baldwin Moffitt Behm LLP was appointed to the Tax Executive Committee of the AICPA.
www.ascpa.com/ascpamembership
Do you know a CPA or CPA candidate that is not an ASCPA member? Please share the link below and how your membership has influenced your career and connection to the CPA community. They can add your name as the referral contact when joining, and you will receive two movie tickets!
Congratulations to these BeachFleischman members for their promotions: Morgan Walkovich Accounting & assurance senior Brittany N. Dvorak, CPA Accounting & assurance manager Elizabeth Huska, CPA Accounting & assurance manager Emma Carter Tax senior John Sarikas Tax senior Huong T. Bui, CPA Tax supervisor Allisyn Keyser Byrne, CPA, was advanced to director in the employee benefit plan practice of LLP.
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It’s safe to assume AZ CPA readers are comfortable with numbers, but you don’t need to be an expert in literature to be familiar with one of the most exciting parts of storytelling: the plot twist. The best plot twists are revealed only after anticipation has grown and its revelation leaves you in a state of jaw-dropping awe, a suitable descriptor for the explosive conclusion to Arizona’s 2022 legislative session.
PlotPolicymakingReport:Twists
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Lawmakers have a constitutional obligation to pass a budget by July 1 of each year. When lawmakers gathered in early January, the Republican majority made clear its priority to pass a “Republican budget.” on next
Legislative
By Ryan DeMenna
The most expansive school choice law in the nation opens ESAs to all school-age children. ESA opponents are already gathering signatures to refer the expansion to the November 2024 ballot. An ESA expansion was referred to the ballot and subsequently voted down in 2018, but ESA proponents believe voter attitudes have shifted since then.
10 AZ CPA SEPTEMBER/OCTOBER 2022
With razor-thin margins and a renewed inability to pack policy into the budget, leaders grappled for months to secure the support of all Republican state lawmakers.Inthefinal week of session, just days from the next fiscal year and with no Republican-only budget deal in sight, came the plot twist: a bipartisan budget.
2. Last fall, the Arizona Supreme Court found that several provisions of the 2022 budget violated the state constitution’s “single subject” rule. Simply put, you can’t include laws in the state budget that don’t have anything to do with the funding in the state budget. This judicial wrist slap barred the legislative “logrolling” that is regularly deployed to secure budget support.
• Empowerment Scholarship Accounts (ESAs):
• The Water Infrastructure Finance Authority (WIFA): More than $1 billion will go toward water augmentation, supply development, conservation projects and more.
Gathering the votes necessary to pass a budget is never easy, but it was painfully obvious that passing a Republican-backed budget would be a heavy lift for two primary reasons:
Legislative leaders, aware of the near-impossible task of nailing down every Republican for a budget deal, had been developing an alternative spending plan with a bipartisan group of lawmakers. When Republican holdouts drew their final line in the sand, the bipartisan budget deal was finalized, voted on overnight and passed just before sunrise the following day.
1. Republicans in the state House and Senate currently hold a single vote majority, so every member of the majority would have to be in lockstep support for the spending plan.
The Tax Policy Subplot
Arizona CPAs have been on a taxcode rollercoaster for years. While predictability in the tax realm is always a close second to the desire for lower taxes, that predictability has remained elusive for too long.
Anticipation had grown throughout the session, and the revelation of a bipartisan budget left legislative onlookers in that state of jaw-dropping awe. The 2022 legislative narrative was also punctuated by a handful of ambitious policymaking proposals, including:
• Proposition 400 Extension: A half-cent sales tax was approved by Valley voters in 1985 and extended in 2004. The tax – which provides funding for transportation projects in metro Phoenix – is set to expire in 2025, so legislation was advanced that would have allowed Maricopa County to ask voters to extend the tax for the next 25 years. The legislation authorizing the vote passed with bipartisan support but was vetoed by Governor Ducey. The story at the Legislature may not be over. Before lawmakers closed out the 2022 session, rumors were already swirling about the possibility of a special session. The exact “release date” of this legislative sequel, however, remains unknown.
Between the Tax Cuts and Jobs Act, COVID-relief spending bills, Proposition 208 and subsequent legislative proposals intended to blunt the impact of Proposition 208, Arizona CPAs have had their hands full. At the onset of the session, there were whispers of a legislative effort to “repeal and replace” the flat tax proposal referred to the ballot by education advocacy groups. The flat tax proposal was passed by Republican state lawmakers in response to Proposition 208. On a separate but parallel judicial track, Proposition 208 opponents sued over the measure, and in March the Arizona Supreme Court found that the surcharge couldn’t beWeeksimposed.later, the Court ruled that the referendum seeking to overturn the flat tax can’t face a voter challenge because it was part of the state budget and related to the “support and maintenance” of state government. With the Court nullifying Proposition 208 and denying a referendum on the flat tax, Arizonans will only pay the phased-in 2.5% flat tax, and Arizona CPAs can rest easier knowing that the state’s tax landscape settles.
This year, the ASCPA launched the Tax Conformity Debrief, a December gathering for lawmakers and staff to hear directly from Arizona CPAs about changes made to the Internal Revenue Code in the preceding calendar year. With experts, they learn how those changes will impact conformity in Arizona, and it serves as an excellent opportunity to encourage lawmakers to get the conformity ball rolling early.
Another plot twist occurred with this year’s income tax conformity legislation.TheArizona Society of CPAs (ASCPA) works hard to educate both veteran and newbie lawmakers alike on the importance of passing income tax conformity as early in the session as legislatively possible.
The Debrief, which the ASCPA will hold every year, produced a welcome plot twist: multiple conformity bills were introduced. Members of the ASCPA then advised lawmakers which of the proposals should advance, and this year’s conformity bill was signed into law by Governor Ducey in March. It goes without saying that policymakers are competitive by nature, so future Debrief attendees will be strongly encouraged to set the record for passage of tax conformity. A New Cast of Characters State legislative candidates run for election or re-election every two years. Of those elected, roughly one-third are new to the process. Every 10 years, legislative and congressional district lines are redrawn based on the results of the Decennial Census, and this change in district boundaries also produces fresh faces. Candidates vying for your vote are running in the newly drawn districts developed after the 2020Whencensus.you consider the legislative turnover in a typical election, the change in district boundaries and a historic number of legislative retirements and resignations, it’s clear there will be a new cast of characters in 2023. And with a new cast of characters, you can expect new plot twists.
Every year, the ASCPA – led by President and CEO Oliver Yandle and Director of Government Relations John Baumer – works tirelessly to ensure that the CPA voice is heard in the legislative process. Unwavering advocacy efforts have positioned the ASCPA and its members as trusted experts and advisors to lawmakers and their staff.
The Tax Conformity Plot Twist
Advocacy at the legislature is more important than ever, and the ASCPA has shown time and time again that it can rise to any challenge and tackle any policymaking plot twist. Our success would not be possible without the support of members like you. l (Above) In February, ASCPA members joined our advocacy team during CPA Day at the Capitol to meet policymakers.
The Tax ProtagonistPractitioner
The ASCPA, reinforced by its steadfast advocacy efforts, members and members of the Tax Legislation Review Committee, scrubs every legislative proposal in the tax realm. This scrubbing ensures that the mechanics of the legislation are intact, not to paint the legislation as a good or bad idea. Only in the case of legislation impacting the profession does the ASCPA make its opinion known.Itisthis unique yet necessary form of legislative engagement that continues to reinforce the ASCPA as the gold standard for advocacy. Oliver, John and the team at the ASCPA also work to ensure that members are in the know when it comes to the Legislature, regulation of the profession and state politics. Updates recently deployed by the ASCPA like The ASCPA Advocate, The Legislative Roundtable and The Legislative Scoop do just that.
Left to right: Director of Government Relations John Baumer; Virginia E. DeSanto, CPA; Senate Majority Leader Rick Gray; Jared W. Van Arsdale, CPA; Kate E. Franklin, CPA; Michael T. Allen, CPA.
SEPTEMBER/OCTOBER 2022 AZ CPA 11
One of the most well-known, longstanding and respected protagonists in the legislative story is the ASCPA. The protagonist often makes decisions that affect the plot, and for the ASCPA, this is undeniably true.
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ASCPA PAC Report
Edward K. Zollars, CPA Total
Rufus Glasper
Jared W. Van Arsdale, CPA
“At a time when finding areas of agreement and compromise is fraught with political challenges from ones right or left, the ASCPA’s reliable presence at the Legislature and willingness to educate our elected representatives is valued.”
“The PAC provides my firm with a voice that can be heard at the Legislature regarding tax structures that we are going to be charged with implementing on behalf of our clients every year.”
$43,000Causes:toTotal$76,000Contributions:PACContributedCandidates/
Cheryl
EdwardCorrineCaleBrookeJenniferMatthewMattthewCandaceLaurieStevenMichaelAndrewZacharyKarinJeremyLayneJenniferJillLeAnnEricBarbaraStephenChristinaBradleyJonathanLisaJayBrentMelindaJohnJessicaBryanJuliaKevinPhillipEricDanielChrisLeslieDonnaNikkiColetteCharlesHerbertMichaelJeremyR.BrianVictoriaStephenSeanChristopherCharlesRufusDavidAnthonySharlynnThomasFoltynL.FriendM.GarzaR.GerlachS.GiffordGlasperH.GoodmillerJ.GraceyHalesT.HarrisC.HarrisJ.HemmerleDaleHensleyS.HensonA.HoerigJ.HoffmanJ.InderiedenKampsM.KuretichH.LaubscherA.LeeW.LudwigA.MaceMajchrzakR.McCollumJr.W.McHollandA.MiessnerW.MogensenMoulderM.MurdoughK.NelsonPapekZ.ParkeS.ParkeM.PoppelJ.PreberC.RoderickJ.RodisJ.RohwedderS.RudnerM.RudolphA.ShawL.ShieldsR.SimmonsA.SmithSmithS.SnicklesM.SpillumE.StranevaL.TaitA.TaylorB.TookeE.VargasJ.WallerA.WardM.WestemeierL.WhittingtonG.WilsonK.Zollars SEPTEMBER/OCTOBER 2022 AZ CPA 13
$5,000 Deloitte & Touche, LLP $1,250 Price Kong & Co $500 Michael T. Allen Samantha Crum Rachael Crump Virginia E. DeSanto Thomas F. Duensing Jessica R. Estrada Tabitha L. Fox David G. Gephart Barbara J. Gonzalez Andrea B. Levy James S. McGettigan Lauren Murro Bruce J. Nordstrom Eugene Park Megan M. Romo Gidget S. Slater Leslie B. OliverRandyJaredChristopherStackpoleTyhurstW.VanArsdaleD.WagnerP.Yandle $260 - $300 Glenn C. Conover Susan A. Armstrong $250 Sandra A. Abalos Corey Arvizu Kevin C. Bach Anita F. Baker Steven E. Bandler Glenn A. Bier Randy G. Brammer James F. AndreasChristopherDavidJoyBrianDebraRonaldJayChristineBrewerBrueserL.BuckButlerJr.A.CallicuttJ.CampbellCervantesJ.CohenT.CootsD.Coumides Jr. Sandra L. Cronstrom David M. Damron Bradley S. Dimond Kevin J. Donovan Michael C. Drexler Richard B. Eggleston Donna M. Esposito Marc D. Fleischman Randy G. Fletchall D. Folkerth Brian
Your contributions to the ASCPA PAC help support incumbent legislators and candidates who understand and support the issues important to the CPA profession. Thank you to the ASCPA members who contributed more than $76,000 last fiscal year. These contributions ensure the CPA voice is heard in the political process and help protect your investment in the profession. Every contribution makes a difference; the average contribution to the ASCPA PAC is $200. Show your support and pride of the CPA profession and contribute to the PAC today at www.ascpa.com/pac.
“Giving to the ASCPA PAC is not an obligation, nor a hardship, but a privilege to help sustain best practices in Arizona and to continue my service.”
Your membership dues and your investment in the ASCPA PAC help fund the important work the ASCPA advocacy team does to protect the CPA credential, advance the profession and advocate for sound policy in Arizona. In tandem, CPA volunteers contribute their professional expertise as guidance on issues that matter and dedicate their time to helping us develop relationships with legislators. All of these contributions, combined with the support of the best lobbyists, put our priorities into action.
Contributing to Effective Issues Advocacy
CPA Day at the Capitol
The ASCPA worked hard to ensure no legislation that would negatively impact the CPA credential was passed in 2022.
Qualified Lobbyists funded by your membership investment ASCPA PAC through contributions Your Voice on issues at stake
WinsLegislative2022
In February, ASCPA volunteers met with state legislators to promote the CPA profession and speak to the value the ASCPA provides in the policymaking process. Engaging Legislators
More and more state legislators seek out the ASCPA for input on legislation and policy in the world of accounting, finance, tax and business. We foster a strong, positive working relationship with both parties to best serve CPAs, Arizona businesses and residents.
THE ASCPA TAX LEGISLATION REVIEW COMMITTEE (TLRC) CONTINUES TO SERVE ARIZONA POLICYMAKERS BY PROVIDING NONPARTISAN TECHNICAL EXPERTISE ON ALL TAX LEGISLATION. WE CONTINUE TO WORK TO PROMOTE THE VALUE OF CPA INPUT AND THE TLRC’S REVIEW. THANK YOU TO TLRC MEMBERS MICHAEL LEMME, GARY WILLIAMS, DAVID WALSER, CHRIS HALLSTROM, DIANE DARLING, JAMES BUSBY, LISA JOHNSTON AND ED ZOLLARS FOR THEIR DEDICATION AND TIME. 2022
14 AZ CPA SEPTEMBER/OCTOBER
First Annual Tax Conformity Debrief
In December, lawmakers and staff heard from Arizona CPAs about changes made to the Internal Revenue Code. This event encouraged lawmakers to get the conformity ball rolling early. This year the legislation to align with the IRC was signed on Mar. 23. No LegislationAnti-CPAIntroduced
The ASCPA had a successful legislative session on behalf of Arizona CPAs. No matter the year or the issue the ASCPA has your back at the Legislature.
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16 AZ CPA SEPTEMBER/OCTOBER 2022
“Based on my previous experience, I helped champion the climb on the [Valleywise] board as well as in the community,” Stelzer explains. “We were determining if this was a risk we should take. Will this be good for the system? Is this the right fit for our mission? Will this help us raise awareness and funds?”
In June 2022, the entire team arrived in Tanzania after 25 hours of travel. In the two days before their climb, they volunteered at local organizations such as a hospital and a school. It was the first time the entire group was together before the ascent.
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By Haley MacDonell
The summit of Kilimanjaro is a joyous place. Hikers celebrate the culmination of seven days and 14,000 feet of ascension, made possible through months of training, the proper gear and the right guide. It’s a once in a lifetime feat that ASCPA member Pamela S. Stelzer, CPA, has accomplished twice for good causes.
In 2019, Stelzer was on the board of the Valleywise Health Foundation, fundraising for programs and equipment for the new comprehensive safety net hospital facility at Valleywise Health. She ran into Kevin Cherilla, an expert mountaineer who she had gotten to know in 2009, when he led a Kilimanjaro climb benefiting the Foundation for Blind Children. Stelzer was on the team that climbed with eight blind climbers to reach the summit.
“I’ve been super involved in helping to manage this from the beginning,” Stelzer explains. “I’ve put in a lot of time, and I had support from my firm, Henry+Horne. They didn’t hesitate when I said I’d like to take on this challenge.”
By the second day of the trek, basic tasks were a challenge due to the elevation, but the routine was manageable. At daybreak, a porter would wake her up with a greeting and a hot cup of coffee.
“That’s the best way to wake up ever,” Stelzer says. Then, she put down her tent, packed her mountain bag and sat down for a breakfast meeting. “They would give us an idea of the terrain to select our gear accordingly,” Stelzer recalls. “Sometimes you’re hiking over big rocks. Sometimes there are a lot of tree branches. Or it’sTheslippery.”teamfilled their water bottles and hit the trail. The elevation and the exertion of hiking – anywhere from six to 12 hours daily –are“Weexhausting.wouldeat lunch at the end of the hikes, at maybe 2 p.m.,” Stelzer explains. “We had a film crew, so in the afternoons, they held interviews, talking with the burn survivors.”
The initiative was approved for the Arizona Burn Center, a renowned department at Valleywise Health. Stelzer would return to Kilimanjaro in a team of 47, including the head of the Burn Center, staff, medical personnel and eight burn survivors that were treated at the facility.
SEPTEMBER/OCTOBER 2022 AZ CPA 17
“The team had a lot longer time to train and get to know each other,” Stelzer says. “We gelled and were really tight, especially those of us that were out hiking every other weekend.”
The Arizona Burn Center, the state’s only nationally verified burn center, treats nearly 10,000 patients each year from throughout the Southwest. Burns are slow to heal, painful and require extensive care.
The original June 2020 climb date came and went, postponed twice during the pandemic. In the interim, Stelzer trained regularly, including hikes at the Grand Canyon and Mount Humphreys in Flagstaff.
“I knew the climb was very taxing, and I’m 13 years older now,” Stelzer recalled. “It is 37 miles and a lot of altitude. I kind of laugh at this, but I can compare it to childbirth, in the sense that you forget how hard it is because the outcome is awesome.”
Climbing for a Cause
On the day they reached the summit, they began their climb at 5 a.m. “You wake up to below freezing temperatures,” Stelzer explains. But, as the sun slowly begins to rise, hikers remove their clothing, layer by layer. “Just the act of shedding your clothes and repacking your backpack, you get out of breath.”
If you would like to learn more about their team, Valleywise Health and the Arizona Burn Center, please visit valleywisehealthfoundation.org/https:/courage-rising
l (Above) Eight burn survivors ascended Kilimanjaro to raise awareness and funding for the Arizona Burn Center, where they were originally treated.
After dinner, Stelzer remembers the card games and the brilliant stars. It was easy to fall asleep fast. “You would wake up and do it again the next day,” she says. “Nurse whatever wounds you had and just keep waking up to do it again.”
“It’s an absolute honor and privilege to make the climb again with this group,” Stelzer says. “I get so much more out of it than I put into that amazing experience. The burn survivors that climbed with us have amazingly positive attitudes, incredible grit and unbelievable courage. The challenges on the mountain paled in comparison to their burn survivorship journeys, and I am so inspired by their stories. They were asked if they wanted to join the team, and they were eager to give back to the organization that they felt took such great care of them.”
“It’s not your typical provider-patient relationship,” she says. “The Arizona Burn Center is a pretty special place, and you can certainly see that from that relationship between the medical team and the burn survivors at Kilimanjaro.”
The hike to the first summit, Stella at 18,888 feet, is seven hours each way. “Everybody stops at Stella,” she says. “It’s a big celebration.” People rejoice, cry, repack their bags and take photos. Hikers undergo a health check to review blood oxygenation levels. For those who want to reach the second summit, and who pass the health check, they walk another 40 minutes, with approximately 500 feet of elevation gain to see the view through the clouds. Within 10 minutes at the second summit, climbers begin to descend to make it back to camp. Stelzer, who reached the second summit in 2009, turned around at Stella to retrace her steps back to camp, another seven hours. It’s a grueling day, and reaching the peak isn’t the end of the journey.
18 AZ CPA SEPTEMBER/OCTOBER 2022
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8 CPE Credits Tax industry giant Don Farmer will review current year developments and planning ideas affecting individual, corporate and business income taxation using a combination of humor and examples. Join Farmer and your peers to review major developments in federal income taxation for individuals, corporations and other businesses having the greatest impact on participants, clients and companies. The course format is designed to update CPAs with various levels of experience. A special thanks to our sponsors: AZ Tax Credit Funds, Catholic Education Arizona, CPACharge, Mariner Wealth Advisors, Paychex and STO4KIDZ. Register www.ascpa.com/taxupator(602)252-4144 October 28, 2022 · The Scottsdale Resort at McCormick Ranch or via webcast Don TaxFarmer’sUpdate
SEPTEMBER/OCTOBER 2022 AZ CPA 21
TCJA reduced statutory tax rates at almost all levels of taxable income and shifted the thresholds for several income tax brackets. As under prior law, the tax brackets are indexed for inflation but using a different inflation index. One of the most notable changes under TCJA is the reduction in tax rates for most taxpayers. The new tax brackets are 10%, 12%, 22%, 24%, 32%, 35% and 37%. These lower rates apply to both ordinary income (such as wages and interest) and capital gains (such as dividends and profits from selling investments). The tax rates on qualified dividends and long-term capital gains remain the same at 0%, 15% and 20%.
Tax Rates & Tax Brackets
Taxes in Retirement: How Taxpayers Can Utilize the 2017 Tax Cut & Jobs Act
By Brent W. Burgesser
The Tax Cuts and Jobs Act (TCJA) made sweeping changes to both individual and corporate taxes. While many of the provisions relating to businesses are permanent, most of the individual tax changes are set to expire after 2025. This means that individuals need to be aware of how these changes will affect them in the short- and long-term, especially as they approach retirement.
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Capital Gains, Dividends and “AMT” Tax
Pre-2017 TCJA Top rate of 40% on estates above $5.6 million (single), $11.2 million (joint); indexed for inflation Tax Cuts and Jobs Act Top rate of 40% on estates above $11.0 million (single), $22.4 million (joint); index for inflation Sunsets
How You Can Use the Tax Law Changes From the TCJA
Now 1. Qualified Opportunity Zones, Funds, and Businesses (IRC Code(s) 1400Z-1 & 2)
Starting in 2019, TCJA set the Affordable Care Act’s (ACA’s) individual mandate penalty tax to zero dollars. The tax had been $695 per adult and $347.50 per child, with a maximum of $2,085 per family, or 2.5% of household income above the tax filing threshold for the relevant tax year, whichever was greater. Under the new law, individuals who do not enroll in adequate health insurance plans will not face a penalty starting in 2019. Because fewer people will obtain free or subsidized coverage in the absence of the penalty tax, and the reduced costs of ACA premium tax credits and other subsidies and Medicaid benefits will far exceed the lost revenue from setting the penalty tax rate to zero, the net effect will be to reduce the federal budget deficit. This provision does not sunset.
Created in 2017 as part of the TCJA, the Qualified Opportunity Zones (QOZ) program provides tax incentives to invest in designated economically distressed communities around the country. QOZs are intended to spur economic development and job creation in these areas through tax breaks on capital gains. For example, if an investor sells an asset for a profit, they can defer paying taxes on that gain by investing it in a QOZ. Additionally, investors can receive a reduction on their capital gains taxes if they hold their investment for at least five years.
The individual tax and the estate tax provisions expire after 2025, except the reduction of the ACA penalty tax, the change in inflation indexing and several changes in the tax base for business income. Some provisions expire sooner, such as the increased deductibility of medical expenses applies only to tax years 2017 and 2018. Many of the business tax provisions do not sunset. Congress chose to make the individual provisions temporary to limit the revenue cost of the TCJA to a level consistent with the overall constraint on the 10-year revenue loss in the Congressional Budget Resolution and to comply with Senate budget rules under the process used to pass the tax act that require no increase in the federal budget deficit after the 10th year.
Indexing In general, tax provisions are indexed for inflation, allowing tax laws to keep pace with the economy without resulting in tax increases simply because incomes have risen due to inflation. TCJA changed the method for calculating inflation adjustments from the Consumer Price Index for Urban Consumers (CPI-U) to the Chained Consumer Price Index for Urban Consumers (C-CPI-U). The change in indexing is projected to result in lower tax brackets, a higher standard deduction and a higher AMT exemption over time. However, the tax brackets and AMT exemption will revert after 2025 unless Congress makes the changes permanent. As under prior law, tax bracket thresholds and many tax deductions and tax credits are adjusted each year for inflation. However, TCJA changed the indexing of some tax provisions from the CPI-U to a less generous “chained CPI” measure of inflation. The chained CPI will result in slower growth in tax bracket thresholds, the standard deduction and the AMT exemption over time, and will cause more taxpayers to become subject to the AMT. The tax brackets and AMT exemption are scheduled to revert after 2025. Estate Tax TCJA doubled the estate tax exemption to $11.2 million for single filers and to $22.4 million for couples. It continued to index the exemption levels for inflation. The top estate tax rate remains at 40%.
TCJA retained the preferential tax rates on long-term capital gains and qualified dividends and the 3.8% net investment income tax (NIIT). The NIIT applies to interest, dividends, short- and long-term capital gains, rents and royalties, and passive business income. TCJA separated the tax-rate thresholds for capital gains and dividend income from the tax brackets for ordinary income for taxpayers with higher incomes; the TCJA retained the individual AMT but raised the exemption levels and raised the income threshold at which the Alternative Minimum Tax (AMT) exemption phases out, which will significantly reduce the number of taxpayers subject to the AMT. The exemption amounts and phaseout thresholds continue to be indexed for inflation.
Affordable Care Act Penalty Tax
22 AZ CPA SEPTEMBER/OCTOBER 2022
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2) Using Dynasty Trusts to Avoid/ Mitigate Generation-Skipping Transfer (GST) Taxes Under TCJA, potential exists for those employing dynasty trusts in their estate planning mix to avoid the GST tax. The GST tax levies an additional 40% tax on transfers to grandchildren or others that skip a generation, potentially consuming substantial amounts of wealth. The key to avoiding the tax is to leverage your GST tax exemption, which under the TCJA, will be higher than ever starting in Assuming2020.you haven’t yet used your gift and estate tax exemption, you can transfer $11,580,000 to a properly structured dynasty trust. There’s no gift tax on the transaction, because it’s within your unused exemption amount. Additionally, the funds, plus future appreciation, are removed from your taxable estate. Most importantly, by allocating your GST tax exemption to your trust contributions, you ensure that any future distributions or other transfers of trust assets to your grandchildren or subsequent generations will avoid GST taxes. This is true even if the value of the assets grows well beyond the exemption amount or the exemption is reduced in the future. Brent Burgesser is the owner and CEO of Burgesser Wealth Management. He will speak at the ASCPA’s annual conference, Converge, held November 8-9, 2022. Learn more at ascpa.com/converge. l
C NVERGE22 Join us at Converge, the ASCPA’s annual conference, where you can attend general sessions relevant to all CPAs as well as sessions tailored to your specific community of practice. Enjoy the benefits of a larger conference experience while accessing the specialized content that best fits your needs. This event connects you with colleagues and some of your favorite local and national speakers. Register now at www.ascpa.com/converge. November 8-9, 2022 Desert Willow Conference Center and via webcast WHAT’S AHEAD: Leadership Tax Economic Outlook CybersecurityCryptocurrency REGISTER Gold Sponsors AZ Tax Credit Funds · Bill Simplicity · Catholic Charities Community Services · Catholic Education Arizona · CPACharge · First Western Trust · Headfarmer · Paychex · Institute for Better Education · Justworks · MS Consultants, LLC · Pransform Services, INC. · STO4KIDZ · Aviation Tax Consultants, LLC 8 specialized tracks Leadership & Growth • Construction Corporate Finance • Financial Planning Audit • TechnologyTax • Business Valuation & Litigation Services
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1. In the context of the chair column, what does advocacy mean? m Public support for or recommendation of a particular cause or policy m The profession or work of a legal advocate. m Acting in dissent
3. When was the tax conformity bill signed into law by Governor Ducey this year? m February m March m April 4. Why was the passing of this year’s state budget surprising? m It was passed with a Republican single majority vote. m It did not adhere to the state’s single subject rule. m It was a bipartisan budget, originally developed as an alternative.
2. Which of the following is an example Rachael Crump gives to engage in advocacy?
Take this quiz on AZ CPA content online or submit this hard copy. Receive a score of 70 percent or more and earn one hour of CPE credit in specialized knowledge. It’s that easy!
7. What question did the Valleywise Health Board ask before committing to the Kilimanjaro climb? m Is this the right fit for the organization’s mission? m What are the risks? Are they worth taking? m All of the above.
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AZ CPA Quick Quiz You’ve Read It, Now Get Credit SEPTEMBER/OCTOBER 2022 AZ CPA 27
September/October 2022 Issue of AZ CPA*
5. Which of the following bills were vetoed by Governor Ducey this year? m The Water Infrastructure Finance Authority m Empowerment Scholarship Accounts m Proposition 400 Extension 6. Which of the following boards has Pam Stelzer not served on? m Foundation for Blind Children m Valleywise Health Foundation m Phoenix Children’s Hospital
m Attend events such as CPA Day at the Capitol to connect with policymakers m Volunteer on committees such as the tax legislation review committee m All of the above
8. What is the net effect of setting the Affordable Care Act’s (ACA’s) individual mandate penalty tax to zero dollars? m The net effect will be to reduce the federal budget deficit. m Individuals who do not enroll in adequate health insurance plans will face a penalty. m Calculating inflation adjustments will switch to the Consumer Price Index for Urban Consumers (CPI-U). 9. Most of the individual tax changes from the Tax Cuts and Jobs Act are set to expire after ________________. m 2025 m 2027 m 2030 10. Which is not a way that you can use the tax law change from the TCJA now? m Use dynasty trusts to mitigate generation-skipping transfer taxes. m Use the tax incentives of Qualified Opportunity Zones. m Use low inflation indexing for exemption amounts and phaseout thresholds.
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