At first blush, you might think I’m a little late to the game with my annual “New Year’s Resolution” post. But my delay was actually a stroke of strategic genius. By waiting a few days to publish, I was allowing ample time for all of your original goals for 2018 to fail miserably. And look at you now: It’s only January 5th, and you’re already back on gluten. You’ve giving Jim a second chance. And you told the guy at the gym that you needed a full refund because you tore a muscle that, according to the latest medical research, does not actually exist.

But you can still salvage 2018. You can still leave the year a better person than the one who entered. Now, I can’t whip you into shape, or get you to put down the pizza, or convince you that Jim is the worst (and he is), but I can make you a better tax professional. All you need to do are these five things:

Embrace the Moment

No, no…I’m not suggesting that we put down our phone and spend more time with our kids. That never works, and for good reason. After all, the stuff on Twitter is far more interesting than anything Junior has to say.

What I am suggesting, however, is that as tax professionals, we look at the recent overhaul of the tax law not as a burden, but as an opportunity. Allow me to explain what I mean with a little story:

A few months ago, my 8 year old boy was invited to a birthday party at the local bowling alley. It wasn’t one of those “drop off and bail” parties, so I had to stick around for the duration. I didn’t know any of the other parents, so the prospect of killing two hours with 10 total strangers quickly grew uncomfortable, made only more so by the fact that like any tried-and-true tax guy, I’m inherently anti-social to being with.

Eventually, the conversation among the adults turned where it always does when no one knows what else to say: discussing what we do for a living. When it was my turn, I fessed up: I was a CPA who made my living in the tax law.

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Authored by Tony Nitti, Withum Partner and writer for Forbes.com.

Two short weeks ago, we dissected perhaps the most widely-anticipated but least-understood aspect of the Tax Cuts and Jobs Act: the new deduction available to business owners. As a reminder, under the new law, after January 1, 2018, the owner of a:

  • sole proprietorship reported directly on Schedule C
  • rental activity reported directly on Schedule E
  • S corporation, or
  • partnership…

…is entitled to take a deduction equal to 20% of the “qualified business income” earned from the business.

Qualified business income is best thought of as the ordinary, non-investment income of the business. Stated in another way, this is the revenue the business was designed to generate, less the applicable expenses. So we ignore things like interest or dividend income or capital gains from the sale of property.

The deduction, however, is limited to the LESSER OF:

  • 20% of qualified business income, or
  • 50% of the total W-2 wages paid by the business.

There is also an alternative limitation based on the owner’s allocable share of 2.5% of the unadjusted basis of certain business assets, but let’s cast that aside for today.

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Authored by Tony Nitti, Withum Partner and writer for Forbes.com.

When you arose from your Titos-induced slumber on the morning of January 1st, it was more than just your pants and dignity that had gone missing. While you were ringing in the New Year, the Internal Revenue Code you’d come to know and love had disappeared, replaced by the Tax Cuts and Jobs Act, the most comprehensive overhaul of the tax law in 31 years.

Fortunately for you, with enough money, both trousers and self-respect are easily recouped. An understanding of the tax law, however? That can’t be bought. As a result, you’ve got to start over, diving into the wholesale changes that took effect on New Year’s Day in hopes of regaining the same level of comfort you enjoyed with the previous version. And that’s not going to be a quick process, because as we’re quickly learning, for every straightforward tweak to the law– the doubling of the standard deduction, the elimination of personal exemptions — there is a corresponding influx of complexity that requires you to pop on the ol’ thinking cap.

In last week’s Tax Geek Tuesday, we took on perhaps the most intimidating and impactful provision of the new law: the “20% of qualified business income” deduction available to sole proprietors and owners of pass-through entities. It was a productive endeavor, but our work is far from over.

Today, we’ll move on to the next big challenge posed by the new law: understanding the changes that have been made to the way we depreciate assets purchased for use in a business.

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Authored by Tony Nitti, Withum Partner and writer for Forbes.com.

If you make your living in the tax world, you know David Kirk, even if you don’t think you know David Kirk.

If you’ve ever applied for a late S corporation election, you know David Kirk. If you’ve ever computed a client’s liability for the net investment income tax, you know David Kirk. And if you’ve ever been wowed by the acting chops on the guy who played Captain Kirk in that Star Trek-themed training video the IRS put out, well then, you know David Kirk.

OK, I made that last one up. But David Kirk is still one impressive dude.

After earning his undergraduate degree at Syracuse, Kirk added a law degree (University of Pittsburgh) and LLM (Georgetown) to his resume before joining the IRS as an attorney with the Office of the Chief Counsel. Within Chief Counsel, Kirk landed with the Passthroughs and Special Industries division, where he specialized in the treatment of partnerships, S corporations, estates and trusts.

While with the IRS, Kirk worked tirelessly to make our lives easier. He authored Revenue Procedure 2013-30 – which offers late relief from a missed S corporation, QSub, or entity classification election — sparing advisors from many a rough conversation with clients.

Kirk’s magnum opus, however, was his work as the primary author of the regulations under Section 1411, the provision of the Affordable Care Act that imposes a 3.8% surtax on net investment income. At a time when practitioners were struggling to keep up with an abundance of new law – the repair regulations, the individual mandate, and the expiration of the Bush tax cuts, to name a few – Kirk’s proposed and final regulations under Section 1411 provided much needed guidance in a way advisors could understand and implement.

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Authored by Tony Nitti, Withum Partner and writer for Forbes.com.

On December 22nd, President Trump signed into law the Tax Cuts and Jobs Act, finalizing a once-in-a-generation overhaul of the existing Code and leaving the once-burdensome tax law so simple, we’ll all be preparing our returns on postcards come the spring of 2019.

Simple. That’s rich. I’ll make a deal with you: how about we spend some time diving into just one aspect of the bill — the new deduction bestowed upon owners of sole proprietorships, S corporations, and partnerships — and then you decide for yourself just how simple this all will be?

For those of you who are familiar with the format of a “Tax Geek Tuesday,” you know what to expect. For those of you who are new to this space, what we do here is beat the heck out of a narrow area of the tax law. In great, painstaking, long-form level of detail. The hope, of course, is that we can accomplish what Congress can’t: making the law more manageable for those who need to apply it. Let’s get to it.

Entity Choice Under Current Law

If you want to operate a business, there are four main choices for doing so:

  1. C corporation
  2. Sole proprietorship
  3. S corporation partnership

Owners of a “C corporation” are subject to double taxation. When income is earned by the corporation, it is first taxed at the business level, at a top tax rate of 35% under current law. Then, when the corporation distributes the income to the shareholder, the shareholder pays tax on the dividend, at a top rate of 23.8%. Thus, from a federal tax perspective, owners of a C corporation pay a combined total rate on the income earned by the business of 50.47% (35% + (65% * 23.8%)).

Of course, you don’t have to operate as a C corporation. Instead, you can operate a business as a sole proprietorship. Or as an S corporation. Or as a partnership. And what do these three business types have in common? They all offer a single level of taxation: when income is earned at the business level, it is generally not taxed at that level; rather, the income of the business is ultimately taxed only once, at the individual level.

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Authored by Tony Nitti, Withum Partner and writer for Forbes.com.

Neither snow nor rain nor crippling deficits nor a monumental upset in Alabama stays these Republicans from the swift completion of passing a tax bill that few understand and even fewer seem to want.

That’s right; undeterred by nonpartisan proof from the Joint Committee of Taxation that the $1.5 trillion in proposed tax cuts will not “pay for themselves,” and unwilling to wait for Doug Jones, the new Democratic Senator from Alabama, to take his seat and possibly jeopardize their goals, the GOP continues its spirited yet shameful sprint towards the most comprehensive overhaul of the tax law in 31 years.

Let’s review: Last month, the House of Representatives went from proposing 479 pages of legislation in the form of HR 1 — the Tax Cuts and Jobs Act — to passing the bill in a mere two weeks. Not to be undone, the Senate managed to surpass the hilariously-harried pace set by its counterparts in the House, taking its version of HR 1 to a floor vote just days after the 429 pages of legislative text were made available.

The making of many things — from movies to marriages to mac and cheese — can be rushed without adverse consequences. Not so with the tax law. It’s very nature – a complex morass of provisions that interact with one another in nuanced and often unanticipated ways — requires a deliberate approach; something the Senate, in particular, refused to acknowledge. In fact, in such a hurry was the Senate to pass its bill that it asked its 100 members to vote on a piece of legislation that had been radically redesigned just hours earlier; quite famously, the “final” version of HR 1 was replete with margins full of hand-written text and multiple strikethroughs and redactions.

The results were predictably hilarious. While the bill passed by a 51-49 margin, as a result of the numerous 11th-hour negotiations, the Senate managed to make a $289 billion mistake in its drafting of the legislation; inadvertently killing off a tremendously popular incentive — the research and development credit — that it had intended to keep.

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Authored by Tony Nitti, Withum Partner and writer for Forbes.com.

After a dizzying few weeks, tax reform enters its final stages. At present, the House has passed its Republican-led bill, while the Senate has done the same with its GOP-led version of HR 1. Now, the two sides will come together, crafting a final piece of legislation that — once it passes the House and Senate a second time — will be signed into law by the President.

As the two chambers go to conference, you may be confused as to which bill to root for. After all, there are a lot of moving parts (many of which you can read about here). Ultimately, unless you have a rental empire, you probably won’t love either option in its entirety; instead, your allegiance will be determined at a more granular level. You’ll pick your preferences à la carte, taking item A from the House bill, item B from the Senate bill, and so on.

But one thing is clear: if you are a fan of education — whether its getting one or giving one — you will be praying for the House bill to die a quick, painful death, because the House’s version of HR 1 declares what can only be described as a war on education.

Let’s take a look at how the House appears to go out of its way to strip every imaginable tax break currently afforded to students and teachers, at every step in the educational life cycle.

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Authored by Tony Nitti, Withum Partner and writer for Forbes.com.