How will the GOP tax plan affect you?

[stickyshift]

Assuming that the Senate version (which looks to me to be the most aggressive plan) becomes law, how would you be affected? I have assumed that since I've been paying AMT all along, the new law would not change things much for me. Any other thoughts?

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[tiredguy]

Looks like I would pay more under the House version, about the same with Senate version. I might come out ahead with the expanded child tax credit but very minor changes during reconciliation have the potential to be very damaging.

Unfortunately, depending on your circumstances, you can't assume you will still be paying AMT - for instance if SALT deductions pushed you into AMT previously, their reduction may put you back to paying regular taxes at a higher rate.

 

[Thrombus]

I haven’t seen what the numbers are for pass through small business income. If they are 25% or so that would be excellent.

Still, the government taking this much of a persons income is robbery. 40%+, 25%, whatever.....its BS!! With so many able bodied people living the drug addicted, welfare lifestyle it is harmful for all to be stealing this much from those who work!!

 

[stickyshift]

I haven’t seen what the numbers are for pass through small business income. If they are 25% or so that would be excellent.

Still, the government taking this much of a persons income is robbery. 40%+, 25%, whatever.....its BS!! With so many able bodied people living the drug addicted, welfare lifestyle it is harmful for all to be stealing this much from those who work!!

I don’t think the rate for pass through small business income will save us- I’ve heard that service industries, e.g. law firms, medical practices, are excluded.

 

[Thrombus]

I don’t think the rate for pass through small business income will save us- I’ve heard that service industries, e.g. law firms, medical practices, are excluded.

Looks like you are right. That really sucks! Screw these people. We should pay no more than 15%. All the welfare we give to able bodied deadbeats is sickening.

 

[octopusprime]

Looks like you are right. That really sucks! Screw these people. We should pay no more than 15%. All the welfare we give to able bodied deadbeats is sickening.

Yeah I've heard that too...law firms and private medical practices will be exempt, with the "intent" being that small businesses with greater employment capabilities than law firms and medical practices will expand their business...fts.
We'll likely be screwed in the end, though you might at least find yourself in a lower bracket.

 

[LADoc00]

There is alot of misinformation here.

Munchin FLOATED the idea in the press of excluding service corps and partnerships altogether because the possibility of abuse but this isnt in the actual passed bills to satisfy Dems who saw this a huge handout to small business Repubs. But in the end, they passed the bills with zero Dem support so no compromise was needed.

Senate version: Senate bill would automatically limit the deduction to half of the W-2 wages of the pass-through entity or its share to the individual taxpayer. The W-2 rule would not apply, however, if the filer's taxable income is under $500,000 if married, $250,000 if single.

Once again though we need to see what the reconciliation process will bring. Overall physicians who are employed in CA, NY, MA and other high income tax states are HOSED guaranteed. Im thinking a 2% net hit by 2025. Pretty neutral to small gain for those employed in Texas, FL etc.

 

[deleted314957]

The estate (death) tax will phase out completely by 2024. Won't save me anything but will be great for my kids and Grandson and it will make
estate planning a snap.

 

[LADoc00]

I just literally went line by line through Title III: Small Business Tax Reform and there is NADA in terms of limiting physician owned S corporations applying the lower tax rate. All of that does not appear to have made in the actual law.

EC. 4. 25 PERCENT MAXIMUM RATE ON BUSINESS INCOME OF INDIVIDUALS.

“(a) Reduction In Tax To Achieve 25 Percent Maximum Rate.—The tax imposed by section 1 shall be reduced by the sum of—

“(1) 10 percent of the lesser of—

“(A) qualified business income, or

“(B) the excess (if any) of—

“(i) taxable income reduced by net capital gain (as defined in section 1(h)(11)(A)), over

“(ii) the maximum dollar amount for the 25-percent rate bracket which applies to the taxpayer under section 1 for the taxable year, and

“(2) 4.6 percent of the excess (if any) of—

“(A) the lesser of—

“(i) qualified business income, or

“(ii) the excess (if any) determined under paragraph (1)(B), over

“(B) the excess of—

“(i) the maximum dollar amount for the 35-percent rate bracket which applies to the taxpayer under section 1 for the taxable year, over

“(ii) the maximum dollar amount for the 25-percent rate bracket which applies to the taxpayer under section 1 for the taxable year.

 

[LADoc00]

Okay deeper dive, you can not only read the entire 450 page document or at least around 100 pages of the relevant subsections which I just did or you can simply the review the legal summary Congress and the Senate provides:

• establishes a 25% maximum rate on the business income of individuals
• reduces the corporate tax rate from a maximum of 35% to a flat 20% rate (25% for personal services corporations),

That is VERBATIM. There are no "but, exceptions, exclusions, ineligible lists etc" Not fake news, not CNN talking heads and not MSNBC morning show analysis. That is actual legally provided summary from the government.

I think we are all good boys!

 

[AZpath]

Okay deeper dive, you can not only read the entire 450 page document or at least around 100 pages of the relevant subsections which I just did or you can simply the review the legal summary Congress and the Senate provides:

• establishes a 25% maximum rate on the business income of individuals
• reduces the corporate tax rate from a maximum of 35% to a flat 20% rate (25% for personal services corporations),

That is VERBATIM. There are not "but, exceptions, exclusions, ineligible lists etc" Not fake news, not CNN talking heads and not MSNBC morning show analysis. That is actual legally provided summary from the government.

I think we are all good boys!

I though the Senate bill was a 23% deduction. ( It includes service corporations) ??

 

[LADoc00]

I though the Senate bill was a 23% deduction. ( It includes service corporations) ??

Yes. Oh yes.

Lets say you give yourself 100,000 in W2 wages from your practice and 400,000 in shareholder distribution from a S corporation as pass through income (pass through income by the way is literally never used in the actual law).

The 100,000 of W2 wages you pass medicare, social security taxes on (7% ish) as a payroll tax. And you now get zero a SALT deduction.
The 400,000 then is treated as business profit and the first 23% you pay ZERO taxes on. 92,000 coming to you out of the box.
Then on the remaining 308,000 you are paying 25%. No payroll tax whatsoever. Meaning 77,000 in taxes.

That is an effective rate of 19.25% in this example. Combined with the around 25,000 paid for the 100,000 as W2 income you are paying a total of $102,000.

This is hugely different than the guy who is getting 500,000 as a wage employee. he will pay about $150,000, a difference of 40%.

 

[LADoc00]

they have like 3 weeks now for the reconciliation and signing. I can guarantee there will be cracks and loopholes politicians wont see or imagine. Once this is signed by Trump I will cozy up next to the fire with a cup of Earl Grey and plot my way through those loopholes and report back.

 

[stickyshift]

Yes. Oh yes.

Lets say you give yourself 100,000 in W2 wages from your practice and 400,000 in shareholder distribution from a S corporation as pass through income (pass through income by the way is literally never used in the actual law).

The 100,000 of W2 wages you pass medicare, social security taxes on (7% ish) as a payroll tax. And you now get zero a SALT deduction.
The 400,000 then is treated as business profit and the first 23% you pay ZERO taxes on. 92,000 coming to you out of the box.
Then on the remaining 308,000 you are paying 25%. No payroll tax whatsoever. Meaning 77,000 in taxes.

That is an effective rate of 19.25% in this example. Combined with the around 25,000 paid for the 100,000 as W2 income you are paying a total of $102,000.

This is hugely different than the guy who is getting 500,000 as a wage employee. he will pay about $150,000, a difference of 40%.

But what about the 60/40 rule for S-corps? The scenario that you laid out assumes a salary that is much less than your profits/distributions. I thought that the IRS stipulates you have to pay yourself a "reasonable compensation," which is why many accountants suggest the 60/40 rule to avoid trouble: 60% salary/40% distribution.

 

[LADoc00]

But what about the 60/40 rule for S-corps? The scenario that you laid out assumes a salary that is much less than your profits/distributions. I thought that the IRS stipulates you have to pay yourself a "reasonable compensation," which is why many accountants suggest the 60/40 rule to avoid trouble: 60% salary/40% distribution.

There is literally NO law in the tax code that states a 60/40 rule ie 60 salary:40 distribution. I have literally never done that, ever. For one you are basically self flagellating by paying a huge portion of your income being subjected to payroll taxes, which is bad.

"60/40 rule" is a fictional construct created by lazy accountants who want to ensure their clients stand a theoretical small chance at an audit (this is actually unproven and likely false btw).

The actual law states you must take a "reasonable compensation" for your position in the company as W2 income. Reasonable compensation is not defined in the law nor it is clarified in case law beyond the better known Spicer, Radke and Grey judgements.

Basically taking ZERO salary is bad but beyond that the decision is a business one. Even at zero salary, per the IRS over 30000+ business file returns each year having paid no salaries out and no adverse actions are ever taken.

Now if you create a 401K and want to maximize that savings vehicle, you create an artificial floor you need to be at or "minimum taxable wage base" which for 2017 is 120,000/year and for 2018 is 128,400/year.

So there you have it, most smart S corps set their officer salaries literally right at the minimum taxable wage base to minimize payroll tax and maximize 401K savings.

I should charge for all this advice but Im feeling generous today.

 

[octopusprime]

There is literally NO law in the tax code that states a 60/40 rule ie 60 salary:40 distribution. I have literally never done that, ever. For one you are basically self flagellating by paying a huge portion of your income being subjected to payroll taxes, which is bad.

"60/40 rule" is a fictional construct created by lazy accountants who want to ensure their clients stand a theoretical small chance at an audit (this is actually unproven and likely false btw).

The actual law states you must take a "reasonable compensation" for your position in the company as W2 income. Reasonable compensation is not defined in the law nor it is clarified in case law beyond the better known Spicer, Radke and Grey judgements.

Basically taking ZERO salary is bad but beyond that the decision is a business one. Even at zero salary, per the IRS over 30000+ business file returns each year having paid no salaries out and no adverse actions are ever taken.

Now if you create a 401K and want to maximize that savings vehicle, you create an artificial floor you need to be at or "minimum taxable wage base" which for 2017 is 120,000/year and for 2018 is 128,400/year.

So there you have it, most smart S corps set their officer salaries literally right at the minimum taxable wage base to minimize payroll tax and maximize 401K savings.

I should charge for all this advice but Im feeling generous today.

If you're paying the monies out in distributions annually (like a salary), whether it's a monthly payouts or minimal salary with scheduled bonuses/distributions, I don't think it matters...it's still considered short term...unless you're reinvesting the money in assets or keeping the money in accounts without routine payouts, it's still going to be taxed the same.

 

[octopusprime]

For the sake of math let's say you have 10 partners and you collect 5mil in receipts...your K1 is still going to list your gross income as 500k if you pay out all the receipts in distributions annually.

 

[LADoc00]

For the sake of math let's say you have 10 partners and you collect 5mil in receipts...your K1 is still going to list your gross income as 500k if you pay out all the receipts in distributions annually.

Octo, for 2017 yes of course. Whether I put 400K or 100K into the distribution of shareholder bin is immaterial ASIDE from payroll taxes which used to cap at around 100k but Obama uncapped that to infinity with his massive tax overhaul. Before it was immaterial because most everyone hit the max for social sec/medicare.

NOW though, how you get paid matters alot, in fact it matters immensely per the Tax reform passed late last Friday. Which is the point of this thread...

 

[LADoc00]

Holy crap, the tax bill completely eliminates the tax deduction for alimony payments. I mean outright eliminates it. This is apocalyptic for couples getting a divorce now because you are getting taxed at both ends: from the spouse paying AND the spouse receiving! hahaha. GOP just engineered an elimination of divorce using the tax code. If you get a divorce now you are basically destitute.

 

[AZpath]

Pass-through" businesses that pay taxes through the individual side of the tax code would get a 20 percent deduction, and businesses would get to immediately write off investments for the next five years.


This the conference deal between the House and Senate. I have not seen the text.

 

[LADoc00]

Pass-through" businesses that pay taxes through the individual side of the tax code would get a 20 percent deduction, and businesses would get to immediately write off investments for the next five years.


This the conference deal between the House and Senate. I have not seen the text.

Yup and top marginal rate of only 37%. Even with no SALT deductions and a crappy sub 1m mortgage interest deduction, Im still massively winning.

20% deduction definitely is going to change the way I pay myself. I need to math it all out but Im pondering a total retirement savings change to take into account a much lower W-2 wage amount.

 

[LNsquasher]

But they are keeping the individual AMT, right? If so, that is a real drag.

 

[tiredguy]

But they are keeping the individual AMT, right? If so, that is a real drag.

I heard that while they are keeping the AMT, the Senate version is modified in the reconciled version. We may not know more certainly until this weekend, but at least one source states it will only apply to individuals making >$500,000 and couples making >$1M.

House, Senate Republicans Reach Deal on Final Tax Bill

 

[AZpath]

May want to do some tax planning today.
Keeping keeping your cash on the books until January may result in a massive tax saving

 

[AZpath]

Read this is the final text they are going to vote on.

http://docs.house.gov/billsthisweek/20171218/CRPT-115HRPT-466.pdf

The deduction is on pages 28-40.

Hard to understand all the rules. Tell us what you think.

S corps do qualify ?
Now a 20% deduction
Deduction capped at income levels above 157K individuals and 315K Married

 

[LADoc00]

I havent done the math but the phase in deduction for pass through wont affect you unless you are above 157,000x2+100,000 which is >414K married of only taxable income not gross. So deduct out your 401K contributions etc. first. Might be a good idea to game retirement to modulate your total net taxable income much more precisely now.

Regardless I think the general idea that somehow the tax code was simpler with these changes is not true hahaha.

 

[icpshootyz]

Regardless I think the general idea that somehow the tax code was simpler with these changes is not true hahaha.

That's what I don't get - the supposed purpose of this "tax reform" was to simplify the tax code and eliminate loopholes and deductions. We were supposed to be able to file our taxes "on a postcard". Seems like complete nonsense now. They just lowered brackets, added different loopholes, and fiddled a little with deductions. If they REALLY wanted to simplify our taxes they'd do automatic filing and get the middlemen (HR Block, accountants, etc) out of the equation altogether. They already have all my info direct from my employer, bank accounts, and investment brokers. Zero reason for me to re-enter it at filing time.

 

[Thrombus]

They need a law that says:
Corporations, pay 15% of all profits.
Individuals:
-Pay 15% of all earned income.
-Pay 15% of all investment income.

Are you on drugs? Extra work for you until you get off drugs! You pay 50% of all income.
Are you neglecting your kids? Extra work for you until you start to be responsible (like 3rd year medical school hours). You pay 80% of your income and your kids will be raised by foster parents.
Are you disabled? Apply for benefits and charity.
Are you not disabled? You get no benefits until you are 67 and get SS/Medicare.

Thank you.

 

[LADoc00]

yah honestly now Im freaking out because of some investments earlier in the year I short changed all my estimated payments and now am looking at a 120000 bill due in 2 weeks...hmmm will need to do some quick thinking to get out of this one.

I cant imagine the mental gymnastics I will need to do to figure out the 2018 changes!

 

[LADoc00]

Okay here is what we do:

YES the limit on married filing is 314,000 per year GROSS income. That is a disaster for doctors, lawyers, dentists and accountants.

What you do though is form a new corporation that is NOT service, such as equipment leasing or RE. You then "bill" your professional company for leasing fees to drain the $ out of the medical corporation which now sucks into a pass through RE entity or equipment company which gets the 20% deduction regardless of income level. This should work and be 100% legal but yah this is turning into a total trainwreck...and I voted for Trump....

 

[icpshootyz]

...total trainwreck...Trump....

There, I simplified it for you.

 

[cmz]

yah honestly now Im freaking out because of some investments earlier in the year I short changed all my estimated payments and now am looking at a 120000 bill due in 2 weeks...hmmm will need to do some quick thinking to get out of this one.

I cant imagine the mental gymnastics I will need to do to figure out the 2018 changes!

Start a business and declare a huge loss. Problem solved.

 

[Thrombus]

Okay here is what we do:

YES the limit on married filing is 314,000 per year GROSS income. That is a disaster for doctors, lawyers, dentists and accountants.

What you do though is form a new corporation that is NOT service, such as equipment leasing or RE. You then "bill" your professional company for leasing fees to drain the $ out of the medical corporation which now sucks into a pass through RE entity or equipment company which gets the 20% deduction regardless of income level. This should work and be 100% legal but yah this is turning into a total trainwreck...and I voted for Trump....

Given that the lawyers and accountants are in the same boat as us as "professional service" industries, treated completely different under the tax law (which should make it UnConstitutional), I would expect a fairly easy work-around.

Damn these politicians! 15% taxes should be way more than enough for the Damn Government!

 

[LADoc00]

Anyone thinking of allowing patients to pay in BTC or other cryptocurrency?? I have a ton of docs in my area that are giving solid discounts for vetted payments off exchanges in the big 4: BTC, ETH, BCH and LTC...I guess now Ripple too.

 

[cmz]

Anyone thinking of allowing patients to pay in BTC or other cryptocurrency?? I have a ton of docs in my area that are giving solid discounts for vetted payments off exchanges in the big 4: BTC, ETH, BCH and LTC...I guess now Ripple too.

Have you had any employees who wish to be paid in BTC?

 

[LADoc00]

Have you had any employees who wish to be paid in BTC?

yes, in fact literally every single one even my private housekeeper who even in broken English seems to think she needs some.

I have resisted doing this for my medical practice because if all of the sudden EDD which is built around taking payroll taxes notices this $$ goes missing, I would expect guys in windbreakers carrying battering rams would show up at my house...

But for my new biz, yes I will pay EVERYONE in BTC, in fact I wont accept fiat government currency in any form whatsoever.

My brother works in the cryptocurrency market and has a coworker who even though his contracted salary was 42000/yr has a net worth of 14m now because he was living rent free in the proverbial mom's basement...apparently crypto millionaires are the new cool as he never dated before but now has strippers massaging him during his xbox-fests..

 

[turtle1966]

Any tax maneuver likely will not be worth the time, effort and money put into it, because the primary intent of the Law is not to enrich the high income earning physicians or lawyers, who are not the primary builders of Nation's wealth.

The Law is intended to fill the coffers of the Corporations, through which our Capitalistic system fights and competes economically with China Inc, Japan Inc, Asia Inc and Europeans. Our competitors are up in arms, as they should be, because they see through the intent of the Law.

Money that is shifted from Government to Corporations will be divided amongst the management, workers, owners (stockholders) and lenders (bond holders). It will be an interesting squabble. Ultimately, the money will be far better spent than in the hands of bureaucrats.

Godspeed the USA and Trump!

 

[LADoc00]

why are high income lawyers and doctors not on par with other pass through businesses? Color me intrigued why you think doctors/lawyers dont employee anyone, dont innovate etc.

I hate when government picks winners and losers and then tries to rationalize their decisions based on b.s.

 

[Path2009]

So I'm interested that now the dust has settled how the tax plan is going to affect everyone. Has anyone done some rough calculations?

 

[Sulfinator]

My rough calculations are that it is going to be a wash between getting a break with a lower marginal tax rate and taking a hit by getting capped on SALT deductions.


Sent from my iPhone using SDN mobile

 

[LADoc00]

Im getting a minimal benefit but Im getting hosed in California SALT. I need to leave...

 

[Sulfinator]

Im getting a minimal benefit but Im getting hosed in California SALT. I need to leave...

Hey, we’re looking to hire. Want to quit Cali and move to a place with lower SALT (although you would still likely exceed the $10k cap)?


Sent from my iPhone using SDN mobile

 

[deleted314957]

Cali is a beautiful place but has become a socioeconomic sewer.
Very tough to get ahead when you are being robbed blind. NYC
too-fed, state and city income tax!?!

 

[icpshootyz]

Cali is a beautiful place but has become a socioeconomic sewer.
Very tough to get ahead when you are being robbed blind. NYC
too-fed, state and city income tax!?!

If those places were so bad, people wouldn't be willing to pay so much to live there. That says something. Besides, no MD's are starving in Cali or NYC. They may not have 6000sf homes like MD's in Idaho or Wyoming, but for many (including myself) that's perfectly fine.

 

[medgator]

I predict FL, TX etc. will see big booms in population (even more than they would otherwise), as the SALT deduction limitation will make these no income tax states even more attractive to re-locate to.

 

[LADoc00]

Cali is a beautiful place but has become a socioeconomic sewer.
Very tough to get ahead when you are being robbed blind. NYC
too-fed, state and city income tax!?!

California absolutely is a trainwreck but I have several generations of military heroes of my family buried here important to my own personal metaphysical consciousness that dont allow me to leave as easy perhaps as other physicians I have known. I do however day dream about it constantly, I have even applied and got positions in other states half a dozen times only to stand down at the end.

A shadow of myself would think such notions are primitive and sentimental, the cold rational Sam Harris version of myself, but for now that shadow is kept at bay. Not sure if one day I will break and just leave though.