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Painter and Associates Blog

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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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