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TAXPAYERS MOST AFFECTED BY TAX REFORM

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6 GROUPS OF TAXPAYERS MOST AFFECTED BY TAX REFORM

MICHAEL LAW, CPA - CANOPY ON MAY 20, 2018

Due to the tax reform passed in December, many taxpayers will be seeing tax changes in their 2018 tax return. Some changes are positive and some negative, and
it is important to keep as updated as possible with the ever-changing tax environment, especially if your clients are among the groups affected.
Let’s take a look at a few of the groups of taxpayers who will be affected the most.

 

TAXPAYERS WHO WILL BENEFIT FROM TAX REFORM


Most individual taxpayers will have less tax to pay next year, but there are a few groups in particular that will see significant tax savings.

 

INFRASTRUCTURE/FIXED ASSETS


For federal purposes, taxpayers who heavily invest in fixed-assets have almost full write off of depreciable assets they are purchasing. Before this law change,
these taxpayers who bought equipment had to depreciate the cost over five or 10 years. Going forward, almost the only thing they have to depreciate for federal
purposes is real property—the buildings they are buying.
The changes to depreciation is one of the few changes that had an early effective date. The accelerated depreciation started for assets placed in service mid-
September 2017.

 

CORPORATIONS


Corporations now pay lower marginal rates than most other taxpayers. The decreased corporate tax rate is significant enough that some business entities are
considering switching their businesses from being taxed as partnerships to being taxed as corporations. Some are electing out of S-corp status to become C-corps.
expect we will hear of more businesses doing this as the year progresses

 

PASS-THROUGH ENTITIES


To benefit taxpayers who are not corporations, Congress made a new “pass-through“ deduction. The name is a bit of a misnomer since a sole proprietor who files
Schedule C could also take the deduction. The deduction is almost like getting 20 percent of the business’s income tax free.
This new provision has specific limitations for accountants, engineers, and lawyers when their income exceeds certain thresholds. As with anything new, there ar
a lot of questions about what does and does not qualify. The IRS expects to provide additional guidance in July.

 

TAXPAYERS WHO WILL BE NEGATIVELY AFFECTED BY TAX REFORM

 

PROFESSIONAL ATHLETES


Professional athletes will be among the taxpayers hardest hit by tax reform. They used to be able to deduct training fees, out of town fees, equipment fees, etc. as
two percent itemized deductions, but those deductions were eliminated as of January 1, 2018. Because they will still make high wages that place them in the top
marginal tax brackets, they will pay even more in taxes next year.


 

SMALL WAGE CONTRACTORS


Contractors who work for wages instead of as independent contractors will be negatively affected by the new tax law. This situation often comes up in union trade
jobs. Like the athletes mentioned previously, these contractors have lost the ability to deduct business production expenses like uniforms, tools, and safety clothin
against their wage income with the loss of two percent itemized deductions. These tradesmen may include construction workers, electricians, iron workers,
plumbers, etc.
If these wage-earning taxpayers could switch to independent contractors, it might be beneficial in order to deduct the expenses, but switching could prove difficul
California, for example, is trying to make it so more independent contractors will be considered employees.


 

TAXPAYERS WHO ENTERTAIN


Taxpayers who wine and dine or recruit clients and employees have lost many of their meal and entertainment deductions. Entertainment expenses such as
renting box seats or rooms at stadiums are no longer tax deductible. There is some debate in CPA circles if a meal expense for working out of town is 50 percent
deductible. Hopefully the IRS will provide more guidance on this deduction restriction before the end of the year.


There are many other tax changes to be aware of outside of those mentioned in this post. One of the best ways to keep informed is to read a lot of different notices
newsletters, updates, and publications.

The Attorneys and Accountants Retirement Act revived one more time 😉

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Per Keynesian economics, these are the good times and we are supposed to be paying back at least part of what we spent to stimulate the economy during the last rough time. It's weird how we always seem to forget that part.

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2 hours ago, Roberts said:

Per Keynesian economics, these are the good times and we are supposed to be paying back at least part of what we spent to stimulate the economy during the last rough time. It's weird how we always seem to forget that part.

Seems so simple, doesn't it.

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He doesn’t mention expats that own foreign corporations. Regardless of size, they are expected to cough up a percentage of their E&P as a repatriation tax, Then if in a ‘low tax’ country, are subject to the GILTI tax for 2018 on. 

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I have a lot of non-profits who have a 990-T for gambling who are generally in the 15% corporate tax rate, they will now be in the 21% corporate rate and only get to use 80% of their NOL's. I find that frustrating because they aren't in the business to make a profit, every dollar they earn goes towards taxes, allowable expenses, and donating to good causes. They already pay more in gambling taxes, federal/ state corporate taxes, and other taxes on their profits than they actually get to donate. 

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I visit a Casino and they give me food and board. I wonder if they will be able to deduct the meals they give me. They also give me tickets to shows and other events.

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