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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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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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