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Painter and Associates Blog

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Qualified Business Income Deduction

One of the most significant additions to the Tax Cuts and Jobs Act (“TCJA”) was the addition of the Deduction for Qualified Business Income.  TCJA substantially lowered the corporate tax rate from 35% to just 21%. Many members of Congress, however, realized businesses run by smaller companies including sole-proprietors, independent contractors and pass-through businesses (such as LLCs and partnerships) should also receive lower taxes.

Thus, Congress implemented the Qualified Business Income Deduction.  Initially, this deduction was limited to “non-personal” service business.  Ostensibly, this made ineligible certain industries such as law, accounting, health, brokerage services, financial services and real estate agents and brokers, to name a few.

To address this issue, Congress at the last minute, allowed these "personal" service businesses to take advantage of the Deduction for Qualified Business Income subject to phase outs at certain income levels. 

Under TCJA, the exception provides that if the business owners’ taxable income is less than $157,500 for single filers and $315,000 for married filers, then the taxpayer is eligible for the full 20% deduction.  Above this level, the deduction is phased out over the next $50,000 in taxable income for single persons and $100,000 for married filers. Even then, a second exception may be available subject to 50% of W2 wages paid by the business or 25% of the W2 wages paid by the business plus 2.5% of the depreciation costs basis of tangible property at end of year.

 

Please contact Painter & Associates to review and set-up your business so that you can take advantage of the TCJA.

 

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The Tax Cuts and Jobs Act- Implications for Homeowners Part III

The Tax Cuts and Jobs Act (“TCJA”) signed into law by President Trump, was the largest overhaul of the U.S. Tax Code since 1986.  These changes impacted almost all aspects of American life including home ownership. Over the last few posts we have detailed what has stayed the same and what has changed. In this post, we specifically look at those changes that may have an impact on those going through a divorce and how to account for changes in child credits, child deductions and spousal support.

   

Child Credit

TCJA increased the child tax credit to $2,000 from $1,000 for children 16 years of age and younger. The income phase out was significantly increased to $500,000 for all filers.

Student Loan Deduction

Retains current law of allowing deductibility of loan debt up to $2,500 subject to phase outs for income.

Spousal Support

TCJA eliminates spousal support deductions for all divorces and separations executed after December 31, 2018.  Also, any changes to pre-2019 agreements after December 31, 2018 can lose its deduction unless the modification agreement specifically states that the TCJA does not apply to the post-2018 modification.

Of course, for pre-2019 spousal support to qualify for an above the line deduction specific requirements must be met such as:

  1. Spousal support contained in written agreement
  2. Payment must be to or on behalf of spouse/ex-spouse
  3. Payment cannot be state to not be Alimony
  4. Ex-spouse cannot live in same house or file jointly
  5. Payment must be made in cash or cash equivalent
  6. Cannot be Child Support
  7. Payer’s return must include Payee’s social security number
  8. No obligations for Payments to Continue after Recipient’s Death

Contact Painter & Associates to help you navigate the TCJA and its implication of your divorce and dissolution

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The Tax Cuts and Jobs Act- Implications for Homeowners and Real Estate Investors Part II

The Tax Cuts and Jobs Act (“TCJA”) signed into law by President Trump, was the largest overhaul of the U.S. Tax Code since 1986.  These changes impacted almost all aspects of American life including home ownership. Over the next few posts we will detail what has stayed the same and what has changed.

Deduction for State and Local Taxes

In one of the more controversial provisions of the TCJA, an itemized deduction of up to $10,000 is allowed for payment of state and local property, income and sales tax.  The limit applies to both married and single filers.  Initially, the bills in both the House and Senate removed this deduction altogether; however, it was re-inserted with caps on the deduction in the final bill.

This provision has potential substantial impact on homeowners in areas with high property taxes. 

Standard Deduction/Personal Exemptions

The standard deduction has been increased to $24,000 for those married and filing jointly and $12,000 for single filers.  This was done in large part to simplify the tax returns.  It also eliminates in many cases the need for itemized deductions except for those persons who can itemize over $12,000/$24,000 respectively.

With this increase, the personal exemptions have been repealed.

Mortgage Credit Certificates

The tax credit remains.

 

Contact Painter & Associates to help you navigate the TCJA.

 

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The Tax Cuts and Jobs Act- Implications for Homeowners and Real Estate Investors

The Tax Cuts and Jobs Act (“TCJA”) signed into law by President Trump, was the largest overhaul of the U.S. Tax Code since 1986. These changes impacted almost all aspects of American life including home ownership. Over the next few posts we will detail what has stayed the same and what has changed.

Exclusion for Sale of Principal Residence and Deduction of Mortgage Interest.

To begin with, the TCJA retains the exclusion of gain on a sale of a principal residence. This allows taxpayers to exclude the first $250,000 ($500,000 if married filing jointly) from the sale of a principal residence so long as eligibility requirements are met.  Both the original House and Senate would have changed this.

Further, the TCJA still allows deductions for mortgage interest, but the final bill reduces the limit on deductible mortgage debt to $750,000 for new loans taken out after December 14, 2017. Also, homeowners that refinance mortgage debt after 12/14/17 up to $1million can still deduct mortgage interest so long as the new loan does not exceed the loan being refinanced.

The TCJA also repeals the allowance for a deduction of interest paid on home equity debt through 12/31/25; however, the deduction is still allowed if the loan proceeds are used to substantially improve the home itself.  In other words, interest on home equity loans to finance the purchase of cars, education, etc. is no longer deductible.

For second homes, interest remains deductible subject to the $1million/$750,000 limits set forth above.

These and other changes to the U.S. Tax Code have significant implications on numerous everyday legal issues our clients encounter, including real estate transactions, probate, estate planning, divorce and business planning.

Our next blog post will address the deduction for State and Local Taxes, Standard Deduction and Personal Exemptions. Contact Painter & Associates to help you navigate the TCJA.

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Why Establishing an LLC is a Good Idea for Real Estate Investors

One of the most common reasons persons establish a limited liability company, or LLC, is to create a level of protection and separation from the business owner and the business itself.  In other words, an LLC is established to protect an individual’s personal assets and risk-management.

As people today are willing to file a lawsuit over the most ridiculous things at the drop of a hat, it is even more important than ever to protect real estate assets with an LLC.

Real estate is a magnet for lawsuits.  First, real estate is an asset that can be used to satisfy any judgment a prospective Plaintiff may win. Second, as the property owner, the law looks to you to ensure that the property is safe for everyone that comes on the property; and if someone gets injured, regardless of fault, the property owner is going to be a target to compensate for the injured party’s damages.

Despite these risks, real estate continues, and will continue, to be a hotbed of investing.  Many of these investors make more than $75,000/year and most investors plan on buying new property in the upcoming year.  It is essential to understand how to protect your investment and plan accordingly.

Usually, however, most investors in real estate resist forming for an LLC for a variety of reasons: accounting, lawyer fees, hassle or creating certain inefficiencies in running the investment with one of more LLCs holding real estate.  But despite this resistance, a real estate investor need to weigh the desire to limit liability in investment risk taking v. the investor’s responsibility of potentially having to make whole an injured person.

The question each investor needs to ask:  Have I protected adequately my hard earn investment and potential returns?

Asset protection is just as important, if not more important, than good tax planning.  You need to protect yourself from bad things that happen to all good, honest hard-working people, and when bad things happen, are you going to be able to retain your assets.

Moreover, merely because you have an LLC does not make you safe. To begin with, if you do not respect the “corporate form” of the LLC a good plaintiff’s attorney can “pierce the corporate veil” and set aside the entity to potentially gain access to your personal assets.

The most common veil piercing factors are:

  • Failure to use separate bank accounts;
  • Mixing of personal and company funds;
  • Lack of annual reports/Operating Agreements/Resolutions

All fine and dandy, but you say, “I don’t want an LLC.”  Fine.  But remember as one person stated:

“Of the 18 million businesses in the U.S. over 70% of them are unincorporated proprietorships. Many small business owners make the mistake of putting real estate property in joint ownership and elect not to form an LLC due to the cost, effort, and time associated. But, as with anything that’s worth the time and money, it’s wise to do this upfront work if you want the ability to accumulate greater wealth. Getting the best start, right from the start, avoids the inevitable consequences of short-sighted thinking that you don’t need real estate asset protection.”

Finally, no matter what, if you have an LLC or nor, protect your property with proper insurance coverage. Moreover, if you do have an LLC make sure that the insurance policy names the LLC as the insured and the coverage is appropriate for the type of real estate. 

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Real Estate Asset Protection

Under Ohio law, if you own real estate in your name, rather than through an entity such as a limited liability company, all of your assets are at risk and could be lost if a problem arises as to the property.

Owning real estate for investment, especially residential and commercial real estate is inherently risky. Life happens, accidents happen, and people can and do get hurt on the property. When injury or death occurs on property that they do not own, that person or their heirs look inevitably to the owner of the property to recover damages.

There are several steps that can and should be taken to protect you, your family and your assets against any potential liability and damage.

First and foremost, make sure your property is insured.  But remember, however, damages can exceed the amount of insurance coverage you have in place. For instance, if you have a $1,000,000 policy in place and an injured person suffers damages in the amount of $2,000,000 you have a problem.  You may be personally liable for the $1,000,000 above the insurance policy in place thus putting your personal assets in jeopardy.

To avoid risking your personal assets should a damage claim exceed your insurance policy limits, the second line of defense is putting your property in a limited liability company (“LLC”). 

Thus, in the scenario above, if a court awarded damages in excess of the insurance coverage and the property was in an LLC and correctly operated, the injured person most likely should only be able to collect against the LLC’s assets and your personal assets outside the LLC should be protected.

The cost to form and hold property in an LLC in Ohio is insignificant to the potential damages you could suffer by failing to take basic steps to minimize your risk and protect your assets.

Contact the attorneys at Painter & Associates, LLC to begin the process of protecting your investment and hard work.

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How Will the Tax Cuts & Jobs Act Affect Your Business?

Although highly-debated, controversial and sometime without a policy justification the new Tax Cuts and Jobs Act signed into law by President Trump lets owners of certain passthrough entities deduct 20% of specific types of income earned by those businesses.  In doing so, Congress was attempting to mollify concern that only big corporation, "C-corps," would benefit from tax cuts. 

However, not all income is deductible for passthrough entities.  For example, "reasonable compensation" paid to owners is not eligible for deduction. Rather, only earnings from capital is meant to get relief.  Further, passive income is also ineligible for the deduction to stop passthroughs from being used as a tax-shelter. 

Moreover, if an owner's taxable income is too high, the deduction becomes subject to several limitations.  For instance, the deduction phases out for joint filers with taxable income between $315,000 and $475,000; for individuals $157,500 and $207,500.  Additionally, taxable income above these limits coming from firms providing services such as law, accounting, medicine and other professional activities is not eligible for the deduction.  

New to the bill, however, is a 20% deduction for qualified dividends paid by real estate investment trusts, qualified publicly traded partnership income and cooperative dividends.  Additionally, special rules apply to agricultural or horticultural cooperatives. 

Experts are interested into how the IRS will police and define these new laws and rule.  Several have already commented that tax planning may include setting up numerous companies to shift profits and income to the more tax-favored business.  One way is to have the operations split from the physical location and have the operations side of the business pay above average market-price in rents to a newly formed real estate investment trust.

As businesses, accountants and lawyers delve into and work with the new law, many new tax planning strategies will develop.  Work with an attorney at Painter & Associates to develop the best tax planning strategy for your business.

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Trump's Tax Cuts and Jobs Act Junks Alimony Deduction

President Trump's tax overhaul bill reaches just about every aspect of American life-including divorce actions.

The new tax law scraps a 75-year old provision that allows a deduction for alimony payments.  Currently, the spouse paying alimony is allowed to deduct such payments from taxes and the spouse receiving such payments must include monies received through alimony as taxable income. This deduction allowed for strategic financial planning for those persons going through divorce to attempt to cope with the expenses in running two separate households.   

Under President Trump's new tax reform bill, beginning with separation agreement signed on or after January 1, 2019 the deduction for alimony payments will no longer be allowed.   

Thus, if you are thinking about divorce and spousal support may be an issue and you want to take advantage of the spousal support deduction, you have until December 31, 2018 to enter into a separation agreement to take advantage of the deduction.   

Of course, if you are the spouse that may be receiving alimony payments, there is incentive to wait until after January 1, 2019 to enter into a separation agreement.

Note, however, that spousal support may effect child support payments as calculated under Ohio law.   

To effectively evaluate the financial implications of this change in the tax law, contact an attorney at Painter & Associates to assist you with this and all other matters related to divorce law. 

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Nathan Painter Named Rising Star

Once again, Nathan Painter has been named a Rising Star by Super Lawyersan honor reserved for those lawyers who exhibit excellence in practice. He has earned this designation every year since 2014 and also earned it in 2011 & 2012. 

Super Lawyers selects attorneys using a patented multiphase selection process. Peer nominations and evaluations are combined with third party research. Each candidate is evaluated on 12 indicators of peer recognition and professional achievement. Selections are made on an annual, state-by-state basis.

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Farmers, Start Planning Now to Defend Against Estate Taxes

With debate continuing over current plans for tax reform, an old nemesis for farmers is also being debated:  The Estate Tax.  

Farmers operate under a unique and challenging set of circumstances unlike those of any other industry.  The Estate Tax is one of those factors that makes operating a farm, and passing it on to younger generations, such a challenge.  Under the current tax code, and as farmers are land rich and cash poor, the Estate Tax may force a family to sell certain assets (land and equipment) to have cash in order to pay the Estate Tax bill so the next generation can continue the farm.  Over time, this unfairly penalizes farmers for their hard work and puts unnecessary pressure on future generations.

In order to avoid the Estate Tax and other taxes, farmers should look into estate planning devices to prevent or lessen the burden that a death of a loved one or business partner may have on a farming operation.  Such estate planning devices include trusts, life insurance, and gifting of assets to others.

In addition, farmers should consult an attorney and an accountant about using pass-through business entities, such as a Limited Liability Company, so that operations can continue uninterrupted and assets protected from liability and, potentially, Estate Taxes.  

Painter & Associates, with attorneys that come from an agricultural background, understand the unique needs of farmers and their families.  We can assist your family or business to preserve and pass on your farm, and all your hard work, to succeeding generations or business partners.

Also, Painter & Associates urges Congress to reduce the individual tax rate for those farmers, continue to allow farmers to use cash-accounting, keep step-up in basis on assets after death, immediate expensing, business interest expense deduction and decreases to the capital gains tax.

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