The Balancing Act of the Tax Cuts and Jobs Act

Everything related to taxes tries to even out.  What is a deduction to one person, is typically income to another.  For example, when I contract work I issue a 1099-MISC to the contractor.  This is a business deduction for me, and the contractor will report the 1099-MISC as income to them.  Examples of this type of balancing act can be seen in the new Tax Cuts and Jobs Act (TCJA) that is in effect for 2018.

TCJA lowers tax bracket rates, allows for higher standard deductions, and higher child tax credits for families with minor children.  These all result in more money in our pockets.  However, to compensate for this there needs to be the evening out portion.  So, what are we losing in 2018? Here are the top 7:

  1. No more personal exemptions. Say goodbye to the $4,050 per claimed person exemption in 2018.
  2. Mortgage interest on purchase loans is still deductible under tax reform up to $750,000, but the deduction for interest on home equity loans is nondeductible in 2018.
  3. Moving expenses are no longer allowed. So if you are planning to move more than 50 miles for a new job, don’t expect a deduction like in previous years.
  4. Casualty and Theft losses are no longer available in 2018. However, you may claim related expenses if there is a presidentially declared natural disaster in your area.
  5. Unreimbursed employee expenses are out – try to get your employer to pay for these expenses as much as you can.
  6. Subsidized parking is a thing of the past. Employees were eligible under old tax law to get up to $255 per month from their employers to subsidize parking costs or transit passes. Workers didn’t have to include those perks in income, and companies could deduct it. Now, the corporate deduction for that cost will go away, and that could lead some businesses to stop offering those programs to workers.
  7. Tax preparation fees are no longer an allowable deduction.

Please contact us at www.TaxationDefense.com or 727-230-0333 to discuss how TCJA impacts you directly.

Social Security and the Elderly

65 is the new 45 – just ask my mother!  And while people are living longer, the Social Security system has not caught up to speed.  In the mid-1940s, there were 42 workers paying in for each Social Security beneficiary.  By 2020, this ratio will drop to 2.8 workers per beneficiary.

As if that wasn’t enough to make you think about the “security” in Social Security, the “baby boomer” generation joins Social Security at 10,000 a day and has since 2008.  Many of the 76 million baby boomer Social Security recipients began withdrawing at 62, which increased the amount drawn from the System and subsequently reduced the amount of tax revenue being added to the System.

Another fun fact is that lifespans are increasing.  We are living into our 90s now, compared to our 50s and 60s when the Social Security system was established.  This means that beneficiaries are drawing payments for many more years than originally expected.

The new Tax Cuts and Jobs Act does slightly address the Social Security dilemma.  In 2017, all earned income between $0.01 and $127,200 was subject to Social Security’s 12.4% payroll tax, with income above and beyond $127,200 not subject to the tax. This year, this earnings cap will be increasing by $1,500 to $128,700. That means higher earners could owe up to $93 or $186 in additional payroll taxes. The difference will depend on whether they’re employed by someone else, which would mean their employer covers half of the 12.4% payroll tax, or if they’re self-employed and responsible for all 12.4% of the tax.  This means more revenue into the System which is than paid out to Social Security beneficiaries.

Things to think about – What does all this mean for your retirement?  Is there “security” in your Social Security?  What planning steps can you take in ensure your financial comfort during retirement?

Always remember that it is better to plan calmly than react in panic.  AnnaMarie L. Mitchell, P.A. is here to help you every step of the way.  Call us at 727-230-0333 and start planning today!

The New Deduction for Pass-Through Businesses

New year, new firm, new blog! Big changes in 2018, not just for myself, but for the area of law I practice in – the very exciting area of Tax Law. Don’t fall asleep just yet! I promise you will find this blog entertaining and informative (ok – probably just informative). January’s post is dedicated to the 20% deduction available to most of us small pass-through entity business owners, under the new Tax Cuts and Jobs Act.

The 20% Reduction of Taxable Business Income for Pass-Through Entities

First, you need to know what a pass-through entity is. A pass-through entity can be a partnership, S corporation, limited liability company or partnership, or sole proprietorship — basically, most of the country’s small businesses (hovering around 95% of US businesses). Owners and shareholders of these entities are taxed on earnings based on individual, not corporate, tax rates. Effectively, company earnings, losses and deductions pass through to the individual’s personal tax rates.

This deduction is limited in both time and amount of qualified business income (QBI). Unless Congress extends the time, the available pass-through 20% reduction is set to expire in 2025.  And, to take advantage of the 20% reduction you must report a business profit. So, what is QBI?

QBI includes: Rental income from a rental business; Income from publicly traded partnerships; Real estate investments trusts; and Qualified cooperatives. QBI does NOT include: Dividend income; Interest income; S corporation shareholder wages; Business income earned outside the United States; Guaranteed payments to LLC members or partnership partners; and Capital gain or loss.

If you want to know how your small business can take advantage of this 20% reduction, what the income limitations are, or when it is proper to be classified as a pass-through entity to take advantage of the new 20% reduction verses a corporation that is now taxed at a flat 21% tax rate – call AnnaMarie L. Mitchell, P.A. at 727-230-0333!