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TAX REFORM ON THE TABLE


JimTaxes

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I know for the sake of the country a simpler tax code is good.. from a tax preparer standpoint I saw the president holding up a post card yesterday saying most Americans will be able to file their taxes on that post card.. this sounds good for the country but cannot be good for tax preparers. 

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Goggledegook!

I have been in this business for thirty plus years and not a year has gone by that I have not heard a cry to tax simplification. If the post card idea works for a bunch of folks - Great!  But as long as there is taxation, there will be opportunity for you and me. And my firm belief is that there will always be taxation. :)

 

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There are some very, very interesting proposals in this bill right now.  How many will survive remains to be seen, but there is going to be a lot of tax planning to do for our clients, especially in states like CA, NJ, NY.  Those clients in the 75-125K range are going to want to look at different options to save tax dollars if the SALT tax deductions are limited the way they are being proposed.  

There will always be EIC / CTC / AOTC issues to deal with for our clients, and some of those rules are changing.

The 401K option may be one of the best tax strategy vehicles left to our upper middle clients.  Right now there is no changes proposed in the current plan.

Our clients with pass through businesses are going to need us more than ever.

There will be work to do.

Tom
Modesto, CA

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Every time they "simplify" the tax code, my phone starts ringing off the hook.  Plus, all the prior-year issues remain under the old rules and the IRS has ten years to catch up with those.  

But gee, wouldn't it be nice to help clients make the most out of their business opportunities, rather than our constant scramble to protect them from the ramifications of thoughtless decisions and times being stuck between the rock and the hard place?  ("I want to live in Theory.  EVERYTHING works in Theory!")

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Every tax bill has winners and loser. Of course, everyone is talking about the taxpayers in high tax states like CA, NJ & NY.

Some of the less obvious ones are:

1.  Families with more than 3 children especially if they are older than 16 due to loss of personal exemptions.

2. Families with children in college due to loss of education credits and student loan interest deduction.

3. The absolute worst is the loss of the medical expense deduction:

I have a 97 year old client with dementia who has been in a memory care facility for the last 3 and 1/2 years.

She has income of about $40,000 per year. Her medical expenses are over $7,000 per month which are all deductible,

which of course reduces her taxable income down to zero. Under this bill her medical deductions would be zero, which

means that she would be paying taxes on all of her income above $12,000 since the net effect of the increased standard deduction

minus the lost personal exemption is only $400. Also families with parents or children who have chronic medical conditions

that require expensive drugs with be be really slammed.

 

 

 

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The stated points of tax reform were to (1) cut corporate tax rates (as if big corps pay anything now) and (2) to simplify the tax code. The latest proposal is anything but simplification. Up to $10k of property taxes will be allowed; interest on mortgages up to $500k, no second homes; child tax and adult dependent CREDITS instead of deductions from AGI.  Instead of erasing 1000 pages of tax code they seem to have added 10,000.

Elimination of the AMT is anything but.  The original proposal seemed to eliminate the regular tax system and imposed AMT on everyone--no dependent exemptions, no state/local deduction, no misc itemized deductions, limited mortgage interest deduction. Face it, AMT is a much simpler tax system than what we have now (and for that matter, what is in the revised proposal). Typically those with really high AGI don't pay AMT because their regular tax rate is higher than 28%.  Those with big real estate investments will get a break because they won't have the longer AMT depreciation periods.

I don't see the student loan interest adjustment helping many people now, so have no opinion on its elimination.  The adjustment starts to phase out at $65k single and $130k MFJ and is gone at $80k/$160k.  These are the people who get loans!  Lower AGI gets grants; higher can presumably afford to pay tuition. The one part of the proposal I am enthusiastic about is the elimination of HOH filing status. It's confusing and often misused.

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I have a lot of clients that will be much worse off if this passes as it is. The medical deduction is huge for many of my clients. Student loan interest deduction is useful for a lot of my younger clients that are paying off their student loans. I have a few C Corps that will have to pay higher taxes as they are normally in the 15% bracket. I will have to look at S Corps, but they are very old businesses with a lot of retained earnings and one uses an HRA for himself, that may not work as an S Corp. I have to check the new rules on home equity interest, because I just had an elderly client have to take out a $35K  home equity loan when her basement began to cave in, due to poor construction years ago. The builder took bankruptcy due to most of the subdivision having these issues. 

Will this kill self-employed health insurance deductions and/or HRAs?

I am really feeling older than I am these days. I expect that I will have to keep this up until I'm 70, before I can go work somewhere less stressful. 

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The cry for years is a tax system where everyone pays the same rate.

Now that the changes are ready to be put in place to move toward that, all those that have paid very little or no tax are PLAYING VICTIM!!

I want every person to have some skin in the tax system.  When 50% pay no tax or get back more than was withheld, that is not the "fair" system all the people are demanding.
These changes will not please everyone, but moves the system toward EVERYONE having a part in paying taxes.

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1 hour ago, NECPA in NEBRASKA said:

Will this kill self-employed health insurance deductions and/or HRAs?

In the MSA section, they mention that both MSA and HRA are very similar, so deleting MSA and having HRA simplifies.

Attached is a PDF of the Tax Cuts and Jobs Act   H.R. 1  Section-by-Section Summary

House_Summary 110317.pdf

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Thanks for the link, easytax. With today's extra hour of sleep, I had the energy to read through it. Like Jack, I try to avoid reading proposed changes, but this one has garnered so much attention I thought it necessary. I won't go into the changes the media has covered so often, but I found many surprises.

Charitable miles will finally be adjusted for inflation.

Gone are credits for adoption, elderly and disabled, electric cars.

Moving expenses won't be deductible, and employer reimbursed moving expenses will be taxable.

The proposal says students can no longer claim the Hope Scholarship Credit. The IRS pub says that credit isn't available in 2016, so the policymakers apparently never read current law. Lifetime Learning Credit is repealed. Students can take the AOC for a fifth year at half the rate ($500 refundable). Employer-provided education assistance is taxable, as is savings bond interest even if used for higher ed.

No more Coverdells. 529s can cover $10k elementary and secondary school tuition.

No more deductions for casualty losses.  Proposal makes an exception for "hurricanes" but later says federal disaster areas.

Itemized deductions will no longer be limited.  Charitable deductions allowed up to 60% AGI.

Proposal seems to get rid of professional gambler Sch C losses. Their losses + expenses will be limited to winnings.

Refinanced mortgages will use date of original mortgage, so will be grandfathered if original mortgage was.

Exclusion of gain on principal residence: Must own and use for 5 of 8 years; can only use once every 5 years. Exclusion phases out dollar for dollar for AGIs above $250k single and $500k MFJ.

Like-kind exchanges limited to real property.

No more IRA recharacterizations.

Businesses can't deduct entertainment expenses or transportation and gym fringe benefits.

Private activity bonds, including for stadiums, not tax exempt.

Repeal of technical termination of partnerships when 50% interest sold or exchanged.

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On 11/4/2017 at 9:33 PM, Jack from Ohio said:

I will believe NOTHING, until the IRS issues the regulations.  Till then, nothing changes.

Exactly. I have had several people want to get together and determine what steps need to be taken to prepare for the new plan. What's the point? Even if they pass a tax bill, we don't honestly know what it'll look like right now and it's not a certainty they pass anything.

 

Honestly, taxes NEVER get significantly more simple.

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I may have run these numbers wrong, but my quick look says the 25% flat corporate tax rate would be an INCREASE for small C corporations that show a net profit of $120,000 or less. They would reach a break-even point at roughly $119,650, although the incremental savings ramp up quickly after that point. But I'm just assuming I have the correct info on the rates.

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I will still wait for the pen signature on a tax bill, and the IRS announcing the changes before I do ANY contemplation of the results of any changes. 

To worry about this stuff before this happens is a total waste of time.  I would rather play with my 3 1/2 year old grandson.  At least I will get the pleasure of making him smile and laugh.  

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On 11/4/2017 at 4:33 PM, cbslee said:

Employee expenses not reimbursed by the employer and Home Equity Loan Interest will not be deductible.

The bill uses the words "Original Acquisition Debt", which may mean that we will tracking the original declining principal thru Refis etc. Headache !

If they want simplification, just put a cap on mortgage/HE interest expense of, say, 25k, and drop the acquisition debt BS. It's clear that simplification is not in their genes.

They should get a bunch of us small preparers together to hash out real simplification.

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1 hour ago, Abby Normal said:

If they want simplification, just put a cap on mortgage/HE interest expense of, say, 25k, and drop the acquisition debt BS. It's clear that simplification is not in their genes.

They should get a bunch of us small preparers together to hash out real simplification.

Amen!  I bet we could actually simplify the code to where no one needed a preparer to do their return, or a computer.  But those who want their loopholes will never let THAT happen!

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