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Archive for the ‘president trump’ Category

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.

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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.

Continue reading on, Forbes.com

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

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As tends to happen this time of year, I awoke this morning to find that a friendly Elf had mysteriously manifested itself in my living room. Only this time, Oscar wasn’t alone. He was toting along something else that, like Oscar, wasn’t here when I went to bed, but that had miraculously became a reality as I dozed: 479-pages of brand new tax law.

That’s right…in the wee hours of the night, as visions of corporate cuts and repealed death taxes danced in Paul Ryan’s head, the Senate overcame the last big hurdle as it speeds towards the most significant tax reform in 31 years, passing its version of HR 1 by a 51-49 vote.

The work is not technically done, however, as the House and Senate must agree on a bill. And while there may be some sticking points — the treatment of pass-through businesses, education incentives, and medical expenses to name a few — the path is cleared for the President to achieve his signature legislative victory and sign a $1.5 trillion tax cut package into law, just in time for Christmas.

Here are a few highlights of the plan:

  • The top individual rate is reduced from 39.6% to 38.5%, and the threshold at which the top rate kicks in is increased from $418,000 for a single/$480,000 for married filing jointly to $500,000/$1,000,000. Further down the brackets, rates are reduced as well, for full detail, see here.
  • The top rate on the income earned by owners of “flow through” businesses — S corporations and partnerships — is reduced from 39.6% to a shade below 30%.
  • The standard deduction is doubled from $6,350 for a single/ $12,700 if married to $12,000/$24,000.
  • Deductions for personal exemptions are repealed, but the child tax credit is increased from $1,000 to $2,000.

Continue reading on, Forbes.com

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

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If the current state of tax reform were a football game, it would be the 1987 AFC Championship. The GOP would be the Cleveland Browns, driving to certain victory in a tied-up tilt with the Denver Broncos. The passage of the House bill leaves the GOP with 1st and goal from the 8, and all that’s left for the Senate to do is pound the ball into the end zone and start packing for the Super Bowl.

But if you think that advantaged position leaves a GOP triumph assured, I’d suggest you Google the name “Earnest Byner.”

Up to this point, nothing has slowed the tax reform train, largely because opponents have been given neither the opportunity nor the time to do so. With Republican control of the House, passage of the House bill was assured on a strict party-line basis. And even if some Republicans had unvoiced concerns, the process moved from publishing of proposed legislation (November 2nd) to mark-up by the House Ways and Means Committee (November 6th) to a full vote (November 16th) so quickly, that few had a chance to fully absorb the ramifications of the bill.

That pace, of course, was no accident. The House wanted to get the bill passed as quickly as possible; yes, in part to take a major step towards the legislative victory that has eluded the GOP since President Trump took over in January, but perhaps more importantly, because the sooner the bill was passed, the less likely that information would become available regarding the plan that would make it more difficult to justify voting for.

Things are different in the Senate, however. Republicans don’t enjoy the same comfortable majority that thy do in the House; in fact, Republicans currently control only 52 seats, and using the streamlined budget reconciliation process, 51 votes are needed to get a tax bill through the Senate. As a result, the GOP can afford only two defections (a 50-50 tie would lead to Vice President Pence voting the deciding “yea” vote), meaning if tax reform is going to fall apart, it was always going to fall apart in the Senate, rather than the House.

Perhaps more troubling for the Senate, however, has been the pace. A vote is not scheduled until next week at the earliest, and based on what most tax pundits have learned about the bill, time is its biggest enemy. Because with time, the many faults of the proposal become public, putting pressure on three Republican Senators to cast reform-killing “nay” votes.

Continue reading on, Forbes.com

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

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What a week. Last Thursday, the House released its vision for tax reform, launching a flurry of analysis by the tax geeks, hand-wringing by the middle class, and defensive measures by the GOP.

Then, late last night, just as the House Ways and Means Committee culminated a four-day mark-up of HR 1 by voting to advance the bill along party lines, the Senate decided it was time to get in the mix by releasing its plan to revise the tax law.

There’s a lot to take in, clearly. It was hard enough to fully grasp how current law compared to the House bill, but now we’ve got to layer on the Senate proposal, which varies from both current policy and the House proposal in several significant ways.

What follows is a summary of the opening week of “tax reform season,’ with an item-by-item comparison of current law, the updated House proposal, and the newly-published Senate bill.

Let’s get to it…

Continue reading on, Forbes.com

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

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Hey, you. Yes, you. Big corporation that just HAD to have a huge tax cut. Well, you got your way: of the $1.5 trillion in tax breaks in the House bill, nearly $1 trillion of it winds up right in your already-plump pockets.

But you might want to wipe that smug look off your face. Sure, the corporate rate will plummet from 35% to 20% if the bill becomes law, but the House’s proposal wasn’t ALL good news for big business. Like any tax bill, there was some give and take.
Let’s take a look:

Take: Borrowing Got More Expensive

Businesses borrow money; probably more than they should. What makes it palatable, however, is that a deduction is currently allowed for the interest expense, reducing the after-tax cost of borrowing.

The House bill would end that gravy train, however, by disallowing a businesses’ net interest expense (interest expense in excess of income) in excess of 30% of the company’s EBITDA. That’s right, you heard me…EBITDA is now factoring into tax calculations. Please give me more of that sweet, sweet simplicity.

Continue reading on, Forbes.com

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

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Earlier today, the House of Representatives released its vision of tax reform, and there’s a lot to digest. Over 420 pages, in fact. Luckily, there has been no shortage of quality coverage of the bill around the interwebs, detailing the changes to tax rates and personal exemptions and the like.

But with 420 pages, some things are sure to slip through the cracks, and it is to these less publicized items that this column intends to draw attention.

Of course, there are both unexpected tax breaks and increases hidden within the bowls of the bill, but lest you forget, I’m generally a miserable person who prefers to dwell on the negative. As a result, let’s take a look at six tax breaks that you very likely didn’t realize you will lose if today’s bill becomes law.

#1: Divorce just got even more expensive

Under current law, alimony payments are deductible by the payor, and considered taxable income to the payee. And because you people are simply incapable of remaining faithful, there is a lot of alimony paid each year, about $10 billion to be exact.

Continue reading on, Forbes.com

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

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