Tax Reform

[LdiJ]

What is the name of your state (only U.S. law)? NA

Everybody in our practice has been studying the Tax Reform Act today and there are a lot of things in it that are going to seriously upset our clients. My boss is a bit freaked out.

Schedule A Misc deductions subject to the 2% limitation are gone completely. That happens to include all employee business expenses including mileage.

Alimony deduction is gone.

Meals and Entertainment deduction appears to be gone. This is going to seriously impact a lot of businesses.

Employee business meals for the convenience of the employer are reduced to a 50% deduction and must be de minimus.

The deduction for subsidizing employee parking is gone.

The new 20% deduction is complicated and nearly impossible to understand.

That is just a handful of things that we have checked and double checked today.

 

[quincy]

What is the name of your state (only U.S. law)? NA

Everybody in our practice has been studying the Tax Reform Act today and there are a lot of things in it that are going to seriously upset our clients. My boss is a bit freaked out.

Schedule A Misc deductions subject to the 2% limitation are gone completely. That happens to include all employee business expenses including mileage.

Alimony deduction is gone.

Meals and Entertainment deduction appears to be gone. This is going to seriously impact a lot of businesses.

Employee business meals for the convenience of the employer are reduced to a 50% deduction and must be de minimus.

The deduction for subsidizing employee parking is gone.

The new 20% deduction is complicated and nearly impossible to understand.

That is just a handful of things that we have checked and double checked today.

Your boss is not the only one freaked out by the tax mess created by Congress. States are now busy trying to find ways to undo the damages.

 

[adjusterjack]

I thought I read someplace that the personal exemptions are gone.

 

[FlyingRon]

OK, for those of us not rich enough to own a congressman, this is what it means to you.

First, there's a small tweak in the tax rates. The richest and lower brackets see 3%. Others see less. If you were upper middle classs, you'll see a 2% increase

SINGLE

INCOME old new
$0 - $9,525 10% 10%
$9,525 - $38,700 15% 12%
$38,700-$82,500 25% 22%
$82.500 - $93,700 25% 24%
$93,700-$157,500 28% 24%
$157,500-$195,450 28% 32%
$195,450 - $200,000 33% 32%
$200,000 - $424,950 33% 35%
$424,950-$426,700 35% 35%
$426,700 - $500,000 39.6% 35%
> $500,000 39.6% 37%

MARRIED JOINT

$0 - $19,050 10% 10%
$19,050-$77,400 15% 12%
$77,400-$156,150 25% 22%
$156,150-$165,000 28% 22%
$165,000-$237,950 28% 24%
$237,950-$315,000 33% 24%
$315,000-$400,000 33% 32%
$400,000-$424,950 33% 35%
$424,950-$480,050 35% 35%
$480,050-$600,000 39.6% 35%
> $600,000 39.6% 37%

The top level 20% bracket for single taxpayers long term capital was lowered a few thousand.

The standard deduction went up from $6,350 to $12,000 for single, $12,700 to $24,000 for married jointly.

Exemptions are indeed gone.
Childcare tax credit doubles to $2000. Also an adult dependent care credit of $500 is available.
The phaseout for the childcare credit goes up to $200K from $75,000


On itemized deductions:

a temporary (2017 and 2018 only) drop in the floor for medical deductions to 7.5% AGI rather than 10. Goes back to where it was in 2019
Your total state and local tax and property tax deduction is capped at $10,000.
Mortgage deductions limited to acquisition debt on first home only, up to $750K (was on up to two homes up to $1,000,000 and included home equity loan interest).
Miscellaneous stuff like tax preparation fees and unreimbursed business expenses (i.e., the teacher paying for supplies out her own pocket deductoin) is eliminated.
​

Alimony is no longer deductibe by the payer or taxable to the recipient.

Estate tax exemption goes up from $5.5MM to $11MM

AMT remains though the floors are adjusted upwards about 25%.

Health insurance mandate tax is gone.

Take this simplification for what it is. It's not meant to be exhaustive but I think I hit the major changes as it applies to individuals.

Notable things that weren't changed: Educational deductions of various sources and the $250,000/500,000 tax principal residence capital gains exclusion are still there.

 

[PayrollHRGuy]

Excellent post FlyingRon.

 

[quincy]

Thanks, FlyingRon.

My tax pro will have to let me know how screwed we are, especially with our rental homes. My brain doesn't do numbers.

 

[Shadowbunny]

Thanks, FlyingRon.

My tax pro will have to let me know how screwed we are, especially with our rental homes. My brain doesn't do numbers.

I'm right there with you, quincy. I did my own (and later, our own), taxes for years. When we became LLs I tapped out. To quote Jimmy Buffet "Math Suks".

 

[FlyingRon]

I did my own taxes when I was younger. Then my mom became a tax attorney and I let her do mine. Then I decided it was more than I should ask of her and paid an accountant to do it. For the past couple of years now that I'm retired, I just use TurboTax.

Your rental stuff shouldn't be affected too much. The changes to the property tax and interest deductions on the itemized deductions doesn't apply to the rentals as you'll take that off the top on the sched E.

 

[LdiJ]

I thought I read someplace that the personal exemptions are gone.

Yes, the personal exemptions are gone.

 

[LdiJ]

OK, for those of us not rich enough to own a congressman, this is what it means to you.

First, there's a small tweak in the tax rates. The richest and lower brackets see 3%. Others see less. If you were upper middle classs, you'll see a 2% increase

SINGLE

INCOME old new
$0 - $9,525 10% 10%
$9,525 - $38,700 15% 12%
$38,700-$82,500 25% 22%
$82.500 - $93,700 25% 24%
$93,700-$157,500 28% 24%
$157,500-$195,450 28% 32%
$195,450 - $200,000 33% 32%
$200,000 - $424,950 33% 35%
$424,950-$426,700 35% 35%
$426,700 - $500,000 39.6% 35%
> $500,000 39.6% 37%

MARRIED JOINT

$0 - $19,050 10% 10%
$19,050-$77,400 15% 12%
$77,400-$156,150 25% 22%
$156,150-$165,000 28% 22%
$165,000-$237,950 28% 24%
$237,950-$315,000 33% 24%
$315,000-$400,000 33% 32%
$400,000-$424,950 33% 35%
$424,950-$480,050 35% 35%
$480,050-$600,000 39.6% 35%
> $600,000 39.6% 37%

The top level 20% bracket for single taxpayers long term capital was lowered a few thousand.

The standard deduction went up from $6,350 to $12,000 for single, $12,700 to $24,000 for married jointly.

Exemptions are indeed gone.
Childcare tax credit doubles to $2000. Also an adult dependent care credit of $500 is available.
The phaseout for the childcare credit goes up to $200K from $75,000


On itemized deductions:

a temporary (2017 and 2018 only) drop in the floor for medical deductions to 7.5% AGI rather than 10. Goes back to where it was in 2019
Your total state and local tax and property tax deduction is capped at $10,000.
Mortgage deductions limited to acquisition debt on first home only, up to $750K (was on up to two homes up to $1,000,000 and included home equity loan interest).
Miscellaneous stuff like tax preparation fees and unreimbursed business expenses (i.e., the teacher paying for supplies out her own pocket deductoin) is eliminated.
​

Alimony is no longer deductibe by the payer or taxable to the recipient.

Estate tax exemption goes up from $5.5MM to $11MM

AMT remains though the floors are adjusted upwards about 25%.

Health insurance mandate tax is gone.

Take this simplification for what it is. It's not meant to be exhaustive but I think I hit the major changes as it applies to individuals.

Notable things that weren't changed: Educational deductions of various sources and the $250,000/500,000 tax principal residence capital gains exclusion are still there.

You said Childcare Tax Credit when you meant Child Tax Credit. That might confuse some people.

 

[LdiJ]

What I am finding is that for almost everybody, there is something in the bill that really hurts. One of our tech employees here has a husband who works downtown. Parking is very expensive and his company subsidizes his parking. Now that companies can no longer deduct that, they are really afraid that the subsidy will stop. Its a small thing in the overall scheme of things but for some people it is truly needed.

Another bad thing about the bill is that withholding is going to be a lot harder to figure out. I dread having to help clients with that.

 

[adjusterjack]

Looks like I'm one of the few that actually benefits.

Based on my 2016 figures my 2018 taxes will be about $80 lower.

Whoopee!

 

[Taxing Matters]

What I am finding is that for almost everybody, there is something in the bill that really hurts.

You have to look at the overall effect of all the changes to sort out whether any particular taxpayer benefits or pays more under this bill. So far for most of my clients the net effect is to save tax. The bill is a boon to me, more clients with need for advice and it saves me tax, too. But for all that, I still am very concerned about the effect this bill will have on the public debt. I don’t trust that Congress fill find sufficient things to cut to balance that out.

 

[LdiJ]

You have to look at the overall effect of all the changes to sort out whether any particular taxpayer benefits or pays more under this bill. So far for most of my clients the net effect is to save tax. The bill is a boon to me, more clients with need for advice and it saves me tax, too. But for all that, I still am very concerned about the effect this bill will have on the public debt. I don’t trust that Congress fill find sufficient things to cut to balance that out.

I see a net benefit for my taxes, but I do not like the numbers I get when I have parents with dependent children. It seems to work best for people without children.

I too am very concerned about the net effect on the public debt. I am also concerned that the things that they took away from companies will overshadow any reduction in tax due to the lowering of the corporate rate.

My boss for example does a lot of business entertaining which brings our firm new clients. He also feeds us a LOT, in order to keep us working at our desks and not taking lunch hours during the busiest times of the tax season, during training seminars that we conduct, and at other times, and he is going to take a hit there. The company Christmas party and the end of the tax season celebration are probably going to have to go, and that will damage morale.

The whole argument that was made for the reductions in corporate and business rates was for there to be a trickle down effect. Now, I never believed in that in the first place, but it certainly cannot be true if there are offsets that cost the companies more than they save with the lower tax rates.

 

[Taxing Matters]

My boss for example does a lot of business entertaining which brings our firm new clients. He also feeds us a LOT, in order to keep us working at our desks and not taking lunch hours during the busiest times of the tax season, during training seminars that we conduct, and at other times, and he is going to take a hit there. The company Christmas party and the end of the tax season celebration are probably going to have to go, and that will damage morale.

The reform in this area does not trouble me much. I have long thought the deduction for meals and entertainment was badly abused and that the justification for the deduction in the first place was not very strong. Businesses that find entertaining clients beneficial will still do so, but at least now the rest of us won’t be partially subsidizing it. And rare will be the business that the loss of this deduction will outweigh the lowering of the tax rates and other benefits for business in this bill.

As to the employee benefits, if your employer only found it worth doing because it was deductible then the benefit must not have been that great to begin with.