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Tuesday, January 16, 2018

Guest post - Public survey on the new tax reform law

Survey Results from QuestionPro Audience
I have a guest post blog here from Javier Lopez, Marketing Director with QuestionPro Audience. He shares research from his company on how the public views the new tax reform act (Public Law 115-97). The results include that 45% understand the changes “a little.” That’s understandable as there are a lot of changes.  More from Javier …

H.R. 1 was signed on December 22, 2017 becoming Public Law 115-97, unofficially named the Tax Cuts and Jobs Act. QuestionPro Audience conducted a nationwide survey of over 400 respondents from our registered voters panel to learn what Americans think about the recent tax reform.

The majority of respondents are in favor of the new tax code, even though only 32% believe they will receive a tax cut in 2018. 28% opposed the bill, and 31% were unsure how they felt about it. When asked how important of a priority tax reform should be, 75% of respondents felt it is very important, while 17% did not think it was important and 7% did not think it should not be done."

About QuestionPro Audience: With more than 12 years of industry experience, QuestionPro Audience specializes in developing and managing specialty research panels (or niche audiences), having 22 million panelists worldwide and more than 10 specialty panels that cover a wide range of audiences: Likely Voters, College Students, Consumer Electronics, Veterinarians, Healthcare, Builders, to name a few. 

What do you think?

Friday, January 12, 2018

Future of Accounting Podcast - Principles of Good Tax Policy

In early December, I was pleased to participate in visionary Danetha Doe's podcast series on the Future of Accounting. She interviewed me about principles of good tax policy and tax reform. I hope you'll listen and check out the many other interesting topics Danetha has covered already including robotics and other technologies, building your practice, forensic accounting today, and more.

The interview is located here on:
1.      iTunes
2.      LinkedIn
3.      Branding for Accountants website

What do you think?

Tuesday, January 2, 2018

Tax Reform - A few provisions in track changes

I often find it helpful to see how tax legislation changes existing Internal Revenue Code sections. So, I took a few and made the modifications called for in P.L. 115-97 (12/22/17) (the Tax Cuts and Jobs Act), and show how they change the relevant Code section using track changes.  I also include the effective date information.  For the changes to 448, I also include a caution about how the favorable methods changes don't apply to "tax shelters" which could include some limited partnerships and LLCs even though they don't act like a typical tax shelter.

Here are the ones I modified:

Section 1 - tax rates including kiddie tax change

Section 62 - changes to AGI

Section 163 - changes to mortgage interest and the new interest limitation for non-small entities (and tax shelters - see comment above)

Section 274 - changes to entertainment, meals, travel and awards

Section 448 - changes to broaden availability of the cash method of accounting as well as similar changes to unicap (263A), inventory (471) and certain construction contracts (460(e))

Section 451 - changes to timing of income for accrual method taxpayers

Section 1031 - restricts like-kind exchanges to non-dealer real property

Hope you find this useful.  Note, these are just a few of the many changes in P.L. 115-97!

Also see historical links here.

What do you think?

Friday, December 22, 2017

We have tax reform!

Today (12/22/17), President Trump signed H.R. 1, the Tax Cuts and Jobs Act (the name we all know it by, but its real name is something else*) (P.L. 115-97). This is a big deal because there are lots of changes and many will have impacts on other provisions. There is too much to cover in this post, but I'll offer a few observations for individuals to get ready.
  • To know if your taxes are going up or down, you need to run your own numbers. Just because a friend will have a tax decrease or increase doesn't mean you will. Variables include your income level, age of your children, how many itemized deductions you are losing (see next), whether you have a business, and more.
  • No personal or dependency exemption starting in 2018. Instead, you get a $2,000 credit per child under age 17; $500 credit for other dependents. The phase-out threshold is raised ($200,000 if single and $400,000 if married filing jointly).
  • The standard deduction is increased.
  • Key changes to itemized deductions are that interest on home equity debt is no longer deductible starting in 2017, for 2017 and 2018 the medical deduction AGI threshold will be 7.5% for both regular tax and AMT, no casualty or theft loss unless from a federally-declared disaster, no miscellaneous itemized deductions subject to the 2% of AGI threshold, and state tax deduction can't exceed $10,000.  Charitable deductions mostly remains the same except the income threshold for cash donations increases from 50% to 60% and there is no deduction for seating rights at the university athletic stadium. The limitation on itemized deductions for high income taxpayers is repealed starting 2018. Note: No deduction allowed in 2017 for prepayment of 2018 state and local income or property taxes.
  • Tax rates change. The top rate will be 37% rather than today's 39.6%.
  • The capital gain rate structure mostly stays the same.
  • The individual AMT remains but with higher exemption amounts.
  • No alimony deduction or income for agreements entered into after 2018.
Tax reform will warrant some new thinking. For example, many individuals who have itemized in the past might find their standard deduction amount is higher. Fewer people will be subject to AMT. The reason is that common adjustments that caused many individuals to owe AMT are gone or diminished. Home equity debt interest expense and miscellaneous itemized deductions subject to the 2% of AGI threshold are no longer deductible for regular tax. So they won't cause you to owe AMT. Also, your state tax adjustment can't be any larger than $10,000 because that is all you're allowed to deduct for regular tax purposes.

There is a lot to get used to!

Most items go into effect for 2018.  Most individual changes expire after 2025 and we go back to the law as it is today.  One exception to that is that the penalty for an individual not having insurance coverage goes away permanently, starting in 2019 (not 2018). Also, the use of a less favorable inflation index is a permanent change.

Many people will see a tax cut for 2018 and perhaps beyond (at least through 2025).  Here is one example with an explanation of how the tax savings comes about.

EXAMPLE - Married couple, no children, rents an apartment, salary $150,000

2018 Pre-Tax Reform
H.R. 1
W-2 earnings
Standard deduction
Personal exemptions
Taxable income

Tax reduction under H.R. 1

Marginal tax rate

Explanation for tax savings under HR 1:

  • Deductions are $2,700 more resulting in savings under HR 1 
  • Under both current law and HR 1, the first $19,050 is taxed at 10%
  • The next $58,350 is taxed at 15% under current law and at 12% under HR 1 for savings of $1,751
  • The balance of $51,300 under current law is taxed at 25% ($12,825) while the balance under HR 1 of $48,600 is taxed at 22% ($10,692) for a savings of $2,133
  Total savings = $1,751 + $2,133 = $3,884

Will this couple have any costs associated with tax reform? Arguably, yes. Repeal of the insurance mandate for individuals starting in 2019 will mean fewer people purchase health insurance resulting in higher insurance costs for others. (See CBO 's 11/8/17 report on repeal.) Also, this couple's share of the $1.5 trillion debt embedded in H.R. 1 is $1,008/year as spread among all individual filers (see 11/24 post). And perhaps the couple's employers will offer fewer fringe benefits due to law changes. It is also possible that if the employer has tax savings under H.R. 1, it might increase employee wages.

What do you think?

*Final title of H.R. 1 - An Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018.

Thursday, December 21, 2017

Tax reform and alimony

KPIX 5 December 20,2017 story by Mark Sayre
H.R. 1, Tax Cuts and Jobs Act, or per its new catchy title at 12/20/17 - ‘‘An Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year
2018," changes the tax treatment of alimony effective for divorce and separation agreements entered into after 2018. So, going forward for new instruments entered into after 2018, the payor of alimony gets no deduction and the conference report states that the recipient does not pick up income. Also, H.R. 1 removes "alimony and separate maintenance payments" from IRC 61(a) where it is currently listed as an example of gross income.

This has been proposed before, such as in H.R. 1 (113rd Congress), the Tax Reform Act of 2014 by former House Ways and Means Chairman Dave Camp.

This won't affect many taxpayers. Per IRS stats, less than 1% of individual returns report alimony received.

I was interviewed 12/20/17 for a news clip for KPIX-TV (CBS) by Mark Sayre, about this. You might enjoy it, don't miss my first statement.

What do you think about this change?