It seems we are getting a new tax bill (Law)

[BulldogTom]

Reports are that the new bill is coming out at 5:30 Eastern Time.  Sen. Corker and Sen Rubio, who were potential holdouts, signaled they will vote for it.  That should give the senate enough votes (along with VP Pence if needed) to pass it in that chamber. The house is pretty solid on voting for it.   Looks like we may get a new tax code after all.

I am scheduled for a tax update class on 1/5.   I bet I will need to take another one sometime during tax season.   Buckle up folks, we have to learn a new set of laws, learn how to interpret them, and advise our clients on the best tax moves they can make, all while trying to get our 2017 returns out the door.   It is going to be an interesting year to say the least.

Tom
Modesto, CA

[Medlin Software, Dennis]

As usual, a gift of continued full employment for those who have to manage what those we elect regurgitate.

[Jack from Ohio]

Job security for certain.

[jklcpa]

Here is the full text conference report from the House docs: 

http://docs.house.gov/billsthisweek/20171218/CRPT-115HRPT-466.pdf

[BulldogTom]

I am very interested to see how the pass through tax deduction will work.  It applies to Sole Proprietors, which is interesting.  But I think it excludes us Tax Preparers (along with Doctors, Engineers, other professionals)......but we will have to see how the final bill spells that out.

Tom
Modesto, CA

[bbstacker]

I've taken a very brief look at the conference report provided by jklcpa but cannot find the tax rate table for corporations.  I do see where it indicates a maximum rate of 21%.  Is the 15% bracket still in place? If so, was the bracket expanded so more taxable income is taxed at a 15% rate?

[Lee B]

22 minutes ago, jfreinert said:

I've taken a very brief look at the conference report provided by jklcpa but cannot find the tax rate table for corporations.  I do see where it indicates a maximum rate of 21%.  Is the 15% bracket still in place? If so, was the bracket expanded so more taxable income is taxed at a 15% rate?

No the 15 % rate was was discarded, so small regular corporations will end up paying an additional $ 3,000 of tax every year on the first $ 50,000 of taxable income.

Not very small  business friendly !

[Lee B]

1 hour ago, BulldogTom said:

I am very interested to see how the pass through tax deduction will work.  It applies to Sole Proprietors, which is interesting.  But I think it excludes us Tax Preparers (along with Doctors, Engineers, other professionals)......but we will have to see how the final bill spells that out.

Tom
Modesto, CA

They went with senate version which allows the pass through deduction for  service businesses, attorneys, accountants etc.

up to MFS $ 157,500 and MFJ $ 315,000 before a phase out , limited by 50 % of W-2 Income.

What I am curious about is does the deduction still apply, if your marginal tax rate is below 25 % ?

 

[Jack from Ohio]

I have nothing to discuss until there is Presidential ink dried on the bill.  Till then, all is still political gossip.

[easytax]

Everything we "think" we know now is maybe not what it actually is and can change once complete picture is finalized.   /// all in perspective :

 

[Lee B]

Just finished recalculating my 2016 ta return under the new law.

Despite my taxable income going up due the loss of my personal exemptions, the change in tax rates/brackets resulted in a $ 700 savings in my federal taxes.

If I qualify for the 20 % pass thru deduction, that would save me another $ 2,000.

Happy Holidays

[BulldogTom]

20 hours ago, cbslee said:

They went with senate version which allows the pass through deduction for  service businesses, attorneys, accountants etc.

up to MFS $ 157,500 and MFJ $ 315,000 before a phase out , limited by 50 % of W-2 Income.

What I am curious about is does the deduction still apply, if your marginal tax rate is below 25 % ?

 

Excellent question.

Tom
Modesto, CA

[BulldogTom]

15 hours ago, Jack from Ohio said:

I have nothing to discuss until there is Presidential ink dried on the bill.  Till then, all is still political gossip.

I think we can read the tea leaves on this one.   The House is going to pass it.  With Corker and Rubio signing on to vote yes, the numbers are just there for this to pass in the Senate as well.   I think the ink will be dry by Christmas as the President has indicated.

Tom
Modesto, CA

 

[Jack from Ohio]

7 hours ago, BulldogTom said:

I think we can read the tea leaves on this one.   The House is going to pass it.  With Corker and Rubio signing on to vote yes, the numbers are just there for this to pass in the Senate as well.   I think the ink will be dry by Christmas as the President has indicated.

Tom
Modesto, CA

 

I disagree with your optimism on all counts.  Till the ink is dry, NOTHING is certain or sacred when it come to the Legislature trying to pass something as convoluted as a tax bill.

 

[Randall]

Maybe this week or die.

[easytax]

Even if it passes then the "work" only begins ///// here is an excerpt from an article in "Tax Pro Today" that basically makes the point ==== until it is totally done, what we think we know may NOT be what is really there for all intents and purposes:

---------------------------------------- excerpt begins ---------------------------------

While it is normal for a major tax bill to beget a technical corrections act, the speed with which this one was drafted, plus the last-minute changes, almost certainly will require voluminous legislative language to correct its mistakes. And although the IRS may comply with the Trump two-for-one mandate, expect the regulations explaining the law’s requirements to be voluminous. For example, the measure in the 21^st Century Cures Act that allows small employers to reimburse their employees’ health insurance took one page of legislative language, but it took 59 pages for the IRS to set out the requirements that must be met.

And it may take a while for a technical corrections bill to see daylight, ...

[Randall]

The immediate concerns for IRS and us is what might be in it that pertains to 2017.

[SaraEA]

All I see so far is that the medical expense deduction for 2017 and 2018 will go back to amounts above 7.5% AGI.  Under current law, for 2017 forward the threshold was to be 10%, even for those 65 or older.

[Roberts]

Just a heads up (from what I understand). You are prohibited from prepaying your state income tax in an attempt to take the deduction this year.

You MAY be able to prepay your property tax and get the deduction - that hasn't been determined. From what I've read, the bill doesn't clarify it and the IRS will have to make a ruling on what Congress meant.

[Lee B]

42 minutes ago, Roberts said:

Just a heads up (from what I understand). You are prohibited from prepaying your state income tax in an attempt to take the deduction this year.

You MAY be able to prepay your property tax and get the deduction - that hasn't been determined. From what I've read, the bill doesn't clarify it and the IRS will have to make a ruling on what Congress meant.

There is commentary on the Tax Section of the AICPA website that says, "there is no authority for the prepayment of any of these 2018 taxes and the deduction them on your 2017 tax return."

[Roberts]

The argument is that since they specifically disallowed personal income tax from being prepaid, the lack of clarity could mean the previous law is in place. A lot of websites are quoting tax professionals suggesting people pre-pay. I don't know of anyone where pre-paying would be that beneficial. IMO the higher standard deduction is going to wipe out the benefit of itemizing for a lot of clients. For senior couples it'll be $26,600. That's a lot of my people.

In my area the $10k in real estate tax allowance is going to cover most clients if they do need to itemize.

Darien Shanske, a tax law expert at the UC Davis School of Law says the IRS will have to make a determination.

[BulldogTom]

1 hour ago, Roberts said:

In my area the $10k in real estate tax allowance is going to cover most clients if they do need to itemize.

In my area, the combined CA taxes plus Property taxes will exceed the 10K cap next year for my middle income clients. 

Tom
Modesto, CA

[BHoffman]

Tom,  do you think the expanded CTC will offset the lower write off for those taxes for your middle income clients?  

A lot of my middle income clients are eligible for the CTC, and a bunch of them will be taking the standard deduction instead of having to itemize since their mortgage interest isn’t that much.  I’m curious about how much my Sch A fees are going to drop.  

The DPAD is repealed and replaced by the 20% deduction available to pass throughs.  Almost all of my business clients will be eligible for it.  It’s going to be nice to forego the whole DPAD calculation.   No more like kind exchange calculations for vehicles and equipment, just real property.   If only they had addressed look back interest, my other bane, this would have approached bliss for me.  I think they did raise the revenue requirement for reporting on the accrual basis from ave $10m to ave $25m.  

So far, so good but it’s too early to tell.  I think the real proof isn’t going to be evident until after we are finished with the tax season when this all takes effect.  

 

[BulldogTom]

I don't think so, because they are losing the Personal Exemption for the kids as well as for themselves.  

What I am really trying to do is have my clients harvest deductions this year that may be less valuable or not usable next year.  I think what is going to make up for the loss of those deductions is the lower tax rates and expanded tax brackets.

Tom
Modesto, CA

 

[Lee B]

Copied from the beginning of the section of the new tax law dealing with Pass Through Entity Deductions:

 

‘‘SEC. 199A. QUALIFIED BUSINESS INCOME. 14 ‘‘(a) IN GENERAL.—In the case of a taxpayer other than a corporation, there shall be allowed as a deduction  for any taxable year an amount equal to the sum of

Tom, the key word here is taxpayer.  Since PTS, LLC & S Corp are not "taxpayers, then the deduction can be taken by individuals, trust and estates.