Pub. 4 2015 Issue 7

September 2015 29 l e a d i n g a d v o c a t e f o r t h e b a n k i n g i n d u s t r y i n k a n s a s Co-sponsored by Management of your customers' credit and risk has become an integral part of ag lending in today’s environment. Once the financial analysis is complete, assess- ment of the customer’s strategic management components from a risk management perspective is critical. This workshop will examine the factors that are frequently the foundation for financial performance. All Ag lenders (experienced and inexpe- rienced) are encouraged to attend. Presenters Shan Hanes Darrell Holaday 2015 Ag Risk Management: Minimizing Risk While Maximizing Reward Educational Resources 785-232-34444 www.ksbankers.com December 3 - Salina Webster Conference Center S corporation banks and C corporation banks with more than $500 million in assets, as they generally are not allowed to use the reserve method of accounting. Basel III Treatment of DTAs In general, Basel III took effect January 1, 2015, for community banks, and the rules are phased in over a five-year period. Under both the old and the new standards, the starting point is generally accepted accounting principles deferred tax asset (DTA)/deferred tax liability (DTL). However, there are some key distinctions after the starting point. • First, allocate DTL’s pro rata to offset DTAs. • Second, any remaining DTAs related to net operating loss carry-forwards and/or credit carry-forwards are backed out of Tier 1 capital. In other words, a bank cannot use future projected taxable income to support these types of DTAs. • Third, DTAs are allowed as long as they can be carried back against taxes paid previously and do not exceed the new threshold deduction computations: o Individually, less than 10 percent of adjusted Common Equity Tier 1 (CET1) o Collectively, less than 15 percent of CET1 • Finally, there is a 250 percent risk weighting on allowable DTAs. Unknowns for 2015 Tax Years Several favorable tax provisions expired at the end of 2014. Here are some of the key items that could affect business decisions: • 50 percent bonus depreciation – this gave banks the ability to expense 50 percent of the cost on certain qualifying fixed asset additions in 2014. • Section 179 – this gives banks the ability to expense 100 percent of the cost on certain qualifying fixed-asset additions up to $500,000 in 2014; the $500,000 limit is reduced to $25,000 starting January 1, 2015. • Recognition period for S corporation built-in gains tax – this allowed S corporation banks to sell assets after five years and not pay built-in gains tax. The recognition period is now 10 years. • Work Opportunity Tax Credit – this gave banks the ability to claim a credit on new hires if they met certain criteria, such as living in a rural renewal county. Last year, these provisions above were extended late in 2014, and they could be extended again. This uncertainty will make tax planning difficult. Contact your tax advisor for more information on relevant tax topics for banks. This article is for general information purposes only and is not to be consid- ered as legal advice. This information was written by qualified, experienced BKD professionals, but applying this information to your particular situation requires careful consideration of your specific facts and circumstances. Consult your BKD advisor or legal counsel before acting on any matter covered in this update. Article reprinted with permission from BKD, LLP, bkd. com. All rights reserved.