Tax Reform and You

Vaclav · Dec 22, 2017

a_skeleton_03 said:
You need to look into turning that 1099 into an LLC passthrough for real.

Yea I just caught a thread on Facebook just after this about "tax hacks" with the bill and that was mentioned, not sure what's involved with a passthrough but definitely curious now. Bah - wanted to link it in light of it being brought into topic, but I can't find it now, it dropped off my FB feed.

a_skeleton_03 · Dec 22, 2017

Vaclav said:
Yea I just caught a thread on Facebook just after this about "tax hacks" with the bill and that was mentioned, not sure what's involved with a passthrough but definitely curious now. Bah - wanted to link it in light of it being brought into topic, but I can't find it now, it dropped off my FB feed.

Basically how it works, and people have been doing this before forever, is that your LLC is contracted to do the work. You are paid by that LLC as you need it.

Nothar · Dec 22, 2017

The new pass-through tax break (that applies to Schedule C/ Sole Propietors, Partners in partnerships, or shareholders in “S” Corporations) is a new 20% deduction applied at the individual level - so calculated on Form 1040. This is in effect a phantom deduction that lowers the pass-through net taxable income of the business for the individual.
One big caveat for this is that to qualify for this deduction you must be an active non-passive member of the business, so someone who simply invests money into a business would not qualify for this defuction.

Vaclav · Dec 22, 2017

a_skeleton_03 said:
Basically how it works, and people have been doing this before forever, is that your LLC is contracted to do the work. You are paid by that LLC as you need it.

Yea, the article talked about the gist of it - I've never put an LLC together before to know the legwork involved there though. Doesn't look to hard besides the "arbiter" bit if I need to actually find a person for that, or I can just handle it myself.

I'm sure my accountant will run the numbers for me once he's home from his cruise. (well, unless he's bogged down with business account adjustments - I'm not used to contacting him close to a major reform like this)

I'd be really curious of deduction carry-over as well. My deductions really carry me quite far, my effective rate has been pretty astonishing for my income level. (20% w/o deductions would be worse than even my rates pre-reform thanks to the value of itemizing with my income sources/expenses - but if deductions are 1:1 it would be massive)

Whidon · Dec 23, 2017

lurkingdirk said:
I'm going to make out pretty well with this tax plan. A friend of mine with a small business (6 employees) will have his tax rate change from 27% to 38%. That sucks badly. If this prediction is right, he will almost certainly have to let someone go.

How? I'm really disappointed after seeing the biill. I thought the initial idea was to reduce the passthrough highest rates to match the new corporation rate of 20 or 25%?

Now i see the bill and feel confused and betrayed. If i'm reading this right a passthrough making 300-500k a year is still going to be paying the same to tax rate?

Not only that they are fucking our deductions. Thanks Republicans at least Democrats are honest abut wanting to raise taxes and not giving all the savings to the super rich.

Nothar · Dec 24, 2017

Whidon said:
How? I'm really disappointed after seeing the biill. I thought the initial idea was to reduce the passthrough highest rates to match the new corporation rate of 20 or 25%?

Now i see the bill and feel confused and betrayed. If i'm reading this right a passthrough making 300-500k a year is still going to be paying the same to tax rate?

Not only that they are fucking our deductions. Thanks Republicans at least Democrats are honest abut wanting to raise taxes and not giving all the savings to the super rich.

See my post above- there is a huge tax break for owners of pass-through entities. Pass-through entities like partnerships or s-corporations dont pay tax in the first place (hence the term pass-through), and now the income from them gets a 20% phantom deduction on the owners personal returns. This is a huge break for small business owners.

Kiroy · Dec 24, 2017

Nothar said:
See my post above- there is a huge tax break for owners of pass-through entities. Pass-through entities like partnerships or s-corporations dont pay tax in the first place (hence the term pass-through), and now the income from them gets a 20% phantom deduction on the owners personal returns. This is a huge break for small business owners.

*on 30% of the pass through. 70% is automatically counted as it was before. Still a huge break but not what a lot of people are making it out to be. Also I suspect there is going to be some serious head busting for people trying to fake a business to get that 30% taxed at 23%.

As a small business owner filing as an s-corp in CA, and after talking to my accountant, this should save me about 5k a year. Not game changing but good enough for me.

Sludig · Dec 26, 2017

Any tricks a couple each making 70k w-2 wages should be looking at? I need to run things again about filing jointly or not. Interested in the child stuff, thats 2 or 4k against what you owe/receive not a mere 4k reduction on taxable income?

Might make one of my objections to a kid go away since an extra 4k if thats correct would cover a fair amount of child care etc.

Heylel · Dec 26, 2017

None of the calculators I can find give me a very clear answer on what happens to my taxes in CA. It looks like it's pretty much a wash, but hard to say.

Gravel · Dec 26, 2017

Whidon said:
How? I'm really disappointed after seeing the biill. I thought the initial idea was to reduce the passthrough highest rates to match the new corporation rate of 20 or 25%?

Now i see the bill and feel confused and betrayed. If i'm reading this right a passthrough making 300-500k a year is still going to be paying the same to tax rate?

Not only that they are fucking our deductions. Thanks Republicans at least Democrats are honest abut wanting to raise taxes and not giving all the savings to the super rich.

Probably need to stop listening to the media. The tax break really was mostly for the middle class.

From what I've read, the $300k (might be $390k) to about $700k range is where people get kind of screwed. It really just moved the "AMT get fucked" income bracket a bit higher than it used to be.

Araysar · Dec 26, 2017

Sledge said:
I have a small business that's been around for about 7 years. This past year has been great and we need to build or buy a much bigger place.

I gave out normal bonuses 3 weeks ago but after reading about the new tax changes coming, feeling good about the business, (and following along in the politics thread) I gave everyone an additional $500 check today with their normal Friday paycheck. One of the employees that got back later in the day thought the extra check was a mistake and went to hand it back. I told her it was an additional bonus for a great year.

I haven't actually had time to see what, if anything, the tax changes will do for my S-Corp yet. But I'm very optimistic about 2018 either way.

You're a good man and you hire good people.

Vaclav · Dec 26, 2017

Gravel said:
Probably need to stop listening to the media. The tax break really was mostly for the middle class.

From what I've read, the $300k (might be $390k) to about $700k range is where people get kind of screwed. It really just moved the "AMT get fucked" income bracket a bit higher than it used to be.

Eh, we'll see in 10 years. If the stuff set to expire in 10 years does, and the stuff that isn't set to expire is kept - it's a long term hosing for anyone that isn't a corp. Logically the expire dates should be the opposite - we know the impact it'll have on individual filers, whereas the corporate rates are a bit of a test.

Still so anxious for my damn accountant to get back and have some time to go over my numbers though. I hope to God he's crunching some numbers while on the cruise to get me and his other clients (mostly major businesses - he doesn't do many individuals) rolling on estimates once he's home around NYE.

Burnesto · Dec 26, 2017

It's a good idea to make your January mortgage payments in December if you'll be itemizing this year and think that you won't want to next year with the new standard deduction.

Prepaying state and local taxes will also be beneficial for the same reason if it doesn't bump you into AMT for 2017.

Wingz · Dec 26, 2017

Vaclav said:
Eh, we'll see in 10 years. If the stuff set to expire in 10 years does, and the stuff that isn't set to expire is kept - it's a long term hosing for anyone that isn't a corp. Logically the expire dates should be the opposite - we know the impact it'll have on individual filers, whereas the corporate rates are a bit of a test.

Still so anxious for my damn accountant to get back and have some time to go over my numbers though. I hope to God he's crunching some numbers while on the cruise to get me and his other clients (mostly major businesses - he doesn't do many individuals) rolling on estimates once he's home around NYE.

To be fair, the new tax tables won't be received by businesses until around February so looking for stuff in Dec or even Jan beyond just the most basics may be jumping the gun for just about anyone.

Nothar · Dec 26, 2017

As a CPA who has been doing tax accounting for individuals and small businesses for a long time, we have a ton of clients asking exactly how the tax bill will affect them. Right now, we are still educating ourselves about all the details of the plan, and one major issue is that none of our tax planning software has been updated with the new info, so we are having to project things manually, which is time consuming.
Right now we are having to focus mainly on our biggest clients (since they pay us the most!) and just giving general tips to individuals and smaller businesses (accelerate deductions into 2017, defer ordinary income into 2018 in most situations if possible). With Congress passing the bill so late in the year, it really puts us into a tough spot with trying to educate ourselves on details of the bill plus advising clients on things to do before the end of this year to help them save taxes.

Dodsengel · Dec 27, 2017

Hateyou said:
What? Who else would companies be giving bonuses and raises to besides their employees? Are they saying they are giving bonuses and raises to random people on the street or something?

Nah, I meant that seeing these raises/bonuses publicized and attributed to tax reform has caused employees in general to ask if they'll be getting the same benefit. I don't know how popular this is but employees from two small businesses (under 20 employees in this context) that I know of have asked their managers/supervisors if tax reform would result in them getting a raise/bonus like the people on tv.

Hateyou · Dec 27, 2017

Dodsengel said:
Nah, I meant that seeing these raises/bonuses publicized and attributed to tax reform has caused employees in general to ask if they'll be getting the same benefit. I don't know how popular this is but employees from two small businesses (under 20 employees in this context) that I know of have asked their managers/supervisors if tax reform would result in them getting a raise/bonus like the people on tv.

Ah ok. Yeah, my company is going to save around $15 billion a year, and I’m expecting nothing. I’m guessing our executives will rake in the cash but I doubt any of the plebs will see anything.

Whidon · Dec 28, 2017

Nothar said:
See my post above- there is a huge tax break for owners of pass-through entities. Pass-through entities like partnerships or s-corporations dont pay tax in the first place (hence the term pass-through), and now the income from them gets a 20% phantom deduction on the owners personal returns. This is a huge break for small business owners.

I see that there does appear to be some tax relief for well off small business (depending on your income and how hard they hit deductions. However it just seems far less then what were were originally told.

That's why I feel justifiably mad that between that and the Deductions possibly get raped it appears Small business is not getting anything like the massive windfall many of us expected. Unlike say Corporate tax rates.

Say our companies is a pass-through making 500k a year. Under the original 20% or 25% for pass through plan we would make a nice windfall even if we lost 10k-20k a year from deductions.. It's hard to say with the new plan as we know so little about deductions but my CPA says we won't be able to write off every electronic item or piece of furniture, or mileage on our cars as expenses anymore. Again, maybe i'm reading it wrong but even with the 20% deduction i'm still gonna be in the top tax bracket as someone making the equivalent of 400k instead of 500k. Sure that's a bit of money saved but it's nothing compared to changing the rate of tax for earnings above 120k from nearly 40% to 25%

Anyways, my point is it seems they are screwing over the wealthy small business owner worth a few million so the billion dollar corporations can get everything they wanted..

Burnesto · Dec 28, 2017

Whidon said:
I see that there does appear to be some tax relief for well off small business (depending on your income and how hard they hit deductions. However it just seems far less then what were were originally told.

That's why I feel justifiably mad that between that and the Deductions possibly get raped it appears Small business is not getting anything like the massive windfall many of us expected. Unlike say Corporate tax rates.

Say our companies is a pass-through making 500k a year. Under the original 20% or 25% for pass through plan we would make a nice windfall even if we lost 10k-20k a year from deductions.. It's hard to say with the new plan as we know so little about deductions but my CPA says we won't be able to write off every electronic item or piece of furniture, or mileage on our cars as expenses anymore. Again, maybe i'm reading it wrong but even with the 20% deduction i'm still gonna be in the top tax bracket as someone making the equivalent of 400k instead of 500k. Sure that's a bit of money saved but it's nothing compared to changing the rate of tax for earnings above 120k from nearly 40% to 25%

Anyways, my point is it seems they are screwing over the wealthy small business owner worth a few million so the billion dollar corporations can get everything they wanted..

The only mileage that's going away would be for unreimbursed employee expenses on schedule A. I can't remember if medical or charitable mileage stays. If your business is a pass through or on schedule c you'll still be able to deduct it.
Plus there will be 100% depreciation next year for sure. I can't remember how long it lasts without seeing the actual text. So you'll be able to expense fixed assets still.
It seems there is some confusion between you and your CPA, or your CPA is just wrong, on those two points.

Qhue · Feb 27, 2018

Trump’s Tax Cuts in Hand, Companies Spend More on Themselves Than on Wages

Surprise_level = 0

My own company has indicated that it will not use its tax savings for any new investment or worker raises. In asking around to friends and family no one I know is getting a higher salary or even a bonus, though I have seen the reports online of some companies offering a 1 time bonus payout.

How about the rest of you? Are you seeing any substantial dividends from this 'once-in-a-generation' tax reform?

Tax Reform and You

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