Opportunity

Article Dean Dorton

President Biden’s tax plan could shake-up many real estate investors’ and developers’ tax obligations. Due to Democratic control of the White House, Senate, and House of Representatives, the possibility of changes to the tax law may become a reality, however when and to what degree is unclear due to President Biden’s priority being addressing COVID-19.



The potential financial implication of the proposed tax plan may stretch to all facets of the real estate investor community. If passed, investors and developers may want to reexamine their entity structure as well as their tax planning strategies.

In President Biden’s tax plan, he has proposed:

  • Elimination of the $25,000 exemption from the passive loss rules for rental real estate losses for certain individuals
  • Eliminate like-kind exchanges that allow deferral of capital gain taxes on the exchange of appreciated real property for taxpayers earning more than $400,000
  • Eliminate faster depreciation for certain property 
  • Eliminate or phase out Qualified Business Income (QBI) Deductions for profitable rental real estate activities where taxpayers earn more than $400,000
  • Tax capital gains as ordinary income for taxpayers with over $1 million in income
  • Reforming Opportunity Zone initiative by:
    • Incentivizing Opportunity Funds to partner with non-profits within the Opportunity Zone
    • Require benefits to be reviewed by the Treasury Department to ensure the benefits are only allowed where there are economic and social impact to a community
    • Require recipients of the incentive to provide detailed reporting and public disclosure of their investment and impact on the community

We will continue monitoring the situation as President Biden’s plans take shape. For a comparison of Present Law to President Biden’s Proposal, please click below:

Tax Plan Comparison

Becky Hughes, CPA, MACC
Tax Director
bhughes@deandorton.com • 502.566.1039

Article Dean Dorton

Key Risks and Opportunities for Electric Co-operatives in 2021:

Cybersecurity and Big Data

Co-operatives need to be proactive in cybersecurity by implementing effective controls to prevent and detect cyber-crime. The increased need to work remotely due to COVID-19 has elevated the importance of secure remote connections.

Power Supply Costs

Management needs to continue to investigate alternative sources of energy, such as wind, solar, biomass, etc., to further diversify power sources as well as work with communities to deploy energy storage and efficiency technologies.

Safety, Including Overtime Management

Safety is a major concern for co-operatives as their employees routinely work in dangerous conditions (i.e. downed power line in a thunderstorm) that, if not taken seriously, can expose the co-operative.

Community and Environmental Responsibility

Electric co-operatives have to balance providing affordable electricity to the communities they serve while protecting those same communities from environmental deterioration. ESG (Environmental, Social and Governance) programs will become more prevalent by stakeholders.

Succession Planning

As co-operative executives continue to grow older and retire in larger numbers than in the past, there must be a greater emphasis on succession planning and staff development.

COVID-19 Impact

COVID-19 has led to a decline in electricity demand and elevated customer collection concerns Additionally, supply chains have been hampered which has slowed the delivery of key materials, especially those coming from overseas.

Adoption of the New Lease Standard

Co-operatives will need to adopt ASU 2016-02 (Leases) in 2022.

Article Dean Dorton

Operators need to monitor the following risk areas to stay competitive 2021:

1. Cybersecurity

Convenience stores should comply with PCI standards in order to protect cardholder information. Also be aware of skimming, in which devices are affixed to gas pumps and ATM machines to steal credit card information. C-stores should implement procedures to monitor pumps and ATM machines, and prevent and/or remove such skimming devices. Additionally, establish controls around the use of artificial intelligence to better understand consumer buying habits. Companies have until April 17, 2021 to comply with EMV chip card technology. Companies should invest in a proactive cybersecurity program which includes training programs to educate employees on common phishing scams.

2. Social Media & Mobile Technologies

Social media is increasingly becoming a part of everyday life. Incorporating social media into your business model can improve customer service and provide a low-cost alternative to traditional advertising. More than half of all buying is expected to occur on mobile devices. Therefore, having mobile applications is crucial to achieving success. Incorporating a rewards program in an app can lead to customer loyalty and increased sales.

3. Food Service

Food service sales continue to drive the success of the convenience store industry, and you risk losing out on business if you do not invest in food service. Because customers are looking for healthier food options, the c-store industry has seen large sales increases in “better-for-you” items, with lunchtime traffic as the biggest opportunity. Continued trends in 2021 are going green, customization, unique experiences, healthy options, and tech takeover.

4. Wage Rates

The focus on driving up federal and state minimum wage requirements will get additional attention as the U.S. sees a transfer of power in Washington D.C.

5. Regulation Compliance

Increased regulation may result in higher prices for products such as e-cigarettes and other vapor products, diet and energy drinks, and dietary supplements, or a ban on those products altogether. Convenience stores must also comply with regulations regarding sales of alcohol, tobacco, and lottery tickets or face serious fines and penalties.

6. Softening Tobacco Market

While the tobacco market is stable, cigarette consumption is slowing as consumer demand flattens. E-cigarettes can be an important product line in c-stores, as almost half of adult smokers are looking for an alternative to cigarettes. Cigarette taxes have been rising, which will impact demand as well.

7. Shortage of Truck Drivers

The average age of a truck driver is 55, so all industries need to work together to identify an expanded labor pool. Currently community colleges are expanding programs along with a focus on female and military veteran drivers. The shortage of truck drivers can create delays in shipments to stores, inventory shortages, and frustrated customers. The LA Times reports 1.7 million American truck drivers could be replaced by self-driving trucks over the next decade.

8. Environmental Trends (Going Green)

Environmental trends are changing the landscape of c-stores. Plastic straws and disposable cups have been marked as ecological hazards. The industry needs to work together on finding alternatives to risk not losing its customer base. California has issued a ban on new gasoline cars by 2035 which puts an emphasis on developing battery powered vehicles and the need for c-stores to add charging stations.

9. COVID-19 Impact

COVID-19 has caused a substantial decline in travel and gas consumption. C-stores have to expand marketing to draw traffic for food and other items beyond fuel.

Beyond 2021, operators need to monitor competition from nontraditional c-store locations and sources. Amazon and Dollar General are both evaluating c-store options. Operators have also expressed concern in recruiting top talent and having to explore nontraditional labor pools. Additionally, significant changes in the automobile industry in the next 10 years will see autonomous vehicles, ride sharing programs and battery powered vehicles which will dramatically reduce the fuel supply provided by c-stores. C-stores provide approximately 80% of the fuel purchased in the U.S.

Sources: csnews.com, dol.gov, nacsonline.com, convenience.org

Article Dean Dorton

If you have a child in college, you may be eligible to claim the American Opportunity credit on your 2016 income tax return. If, however, your income is too high, you won’t qualify for the credit — but your child might. There’s one potential downside: If your dependent child claims the credit, you must forgo your dependency exemption for him or her. And the child can’t take the exemption.

The limits

The maximum American Opportunity credit, per student, is $2,500 per year for the first four years of postsecondary education. It equals 100% of the first $2,000 of qualified expenses, plus 25% of the next $2,000 of such expenses.

The ability to claim the American Opportunity credit begins to phase out when modified adjusted gross income (MAGI) enters the applicable phaseout range ($160,000–$180,000 for joint filers, $80,000–$90,000 for other filers). It’s completely eliminated when MAGI exceeds the top of the range.

Running the numbers

If your American Opportunity credit is partially or fully phased out, it’s a good idea to assess whether there’d be a tax benefit for the family overall if your child claimed the credit. As noted, this would come at the price of your having to forgo your dependency exemption for the child. So it’s important to run the numbers.

Dependency exemptions are also subject to a phaseout, so you might lose the benefit of your exemption regardless of whether your child claims the credit. The 2016 adjusted gross income (AGI) thresholds for the exemption phaseout are $259,400 (singles), $285,350 (heads of households), $311,300 (married filing jointly) and $155,650 (married filing separately).

If your exemption is fully phased out, there likely is no downside to your child taking the credit. If your exemption isn’t fully phased out, compare the tax savings your child would receive from the credit with the savings you’d receive from the exemption to determine which break will provide the greater overall savings for your family.

We can help you run the numbers and can provide more information about qualifying for the American Opportunity credit.