tax cut bill- my understanding

[New York Enrolled Agent]

The best place to look is at the publications of the Joint Committee on Taxation. They are pretty much bi-partisan and give detailed reports including the current law and the proposed law. They are written in usually easy-to-understand language.

I'll past JCX-50-17 which is the report on the House Bill. I don't believe the Senate has given the statutory language yet but rather an overview of the provisions - hence no formal JCT report yet.

https://www.jct.gov/publications.htm...rtdown&id=5031

Here is one for the Senate:
https://www.jct.gov/publications.htm...rtdown&id=5032

[kathyc2]

A webinar presenter said that the 70/30 split on pass through is mandatory, even for those that are not over the 25% marginal rate. Also, if their W-2 is not high enough the SE tax on the difference will be made up on the 1040. I haven't had a chance to verify or dispute, but if someone else has, please let us know. If true, that would really stink.

[New York Enrolled Agent]

I was at a continuing ed class Friday where the instructor said this bill is changing so fast that the only way to have the most up to date info is to read the committee reports. I have never done that, and wonder which committees I should be looking at. Has anyone set up automatic email alerts?

The best place to look is at the publications of the Joint Committee on Taxation. They are pretty much bi-partisan and give detailed reports including the current law and the proposed law. They are written in usually easy-to-understand language.

I'll past JCX-50-17 which is the report on the House Bill. I don't believe the Senate has given the statutory language yet but rather an overview of the provisions - hence no formal JCT report yet.

https://www.jct.gov/publications.htm...rtdown&id=5031

[KarenMM]

Does anyone read the committee reports?

I was at a continuing ed class Friday where the instructor said this bill is changing so fast that the only way to have the most up to date info is to read the committee reports. I have never done that, and wonder which committees I should be looking at. Has anyone set up automatic email alerts?

[ATSMAN]

I guess if they retain the differential tax rate between a Sch C accountant or a Sch C junk dealer e got a problem!

[New York Enrolled Agent]

Did I read that medical deduction is all but lost? My nursing home patients will pay tax ontop of the NH fees?

House bill - yes
Senate bill - no

[TAX4US]

Did I read that medical deduction is all but lost? My nursing home patients will pay tax ontop of the NH fees?

[kathyc2]

Repeal of DPAD is going to hurt some of my clients. Just ran some numbers on a client that is in the 400K range, and has a 24K DPAD deduction. After running numbers for elimination of DPAD and some itemized, and using new rates, I'm coming up the they will go from 97K in FIT to 106K. If salary were adjusted to 70% to get "lower" pass through rate, FIT would be reduced by 10K, but increase in both side of MC and SS tax would be 12K.

[ttbtaxes]

The proposed corporate tax would be 20% and 25% for personal services corporations. The breakeven should be at $68,750 so those corporations whose taxable income would normally be lower are getting a tax increase while those in excess of $68,750 are getting a tax break.

It does seem wrong to increase the tax on small corporations that would normally be in the 15% bracket.

[JohnH]

Seems to me the 25% flat corporate tax rate would be an INCREASE for small C corporations earning $120,000 or less. According to my back-of-the-envelope calculations they would reach a break-even point at roughly $119,650, although the incremental savings ramp up quickly after that point. But maybe I'm missing something.

[kathyc2]

The detail of how they are coming up with the 1.5T can be found here: https://www.jct.gov/publications.htm...rtdown&id=5026

I've summarized it as follows:

Items that reduce revenue:
rate changes -1089
higher std deduction -913
1600/300 credit -640
subtotal -2642
Items that increase revenue:
repeal personal exemption 1568
education changes 48
some itemized ded eliminated 1253
subtotal 2869
Items that favor higher income:
25% pass through rate -448
amt repeal -696
estate tax repeal -172
subtotal -1316
other provisions 160
total individual changes -929

corporate -846
foreign trans 285
other 3
total -1487

Sorry, the formatting looked right when posted, then it got all unformatted.

[kathyc2]

I don't understand all the mechanics of it, but something about the way they set it up to be passed through reconciliation (only 51 votes needed in Senate) they are limited to 1.5T over 10 years of additional deficits on paper.

IMO, that's the reason estate tax repeal also does not happen fully until 2024; less years in the 10 year window for it to show up in deficits.

The $300 credit is only for years 2018-22. After that it goes away. We all know it will be extended as pols don't want to "take away" a credit. But, they only have to use the 4 years in their 1.5T calculations.

[Snaggletooth]

I thought the $300 was a credit, not a deduction.

It is indeed a credit, but doesn't mean it can't be phased out. For most taxpayers who actually pay taxes, a $300 credit is worth less than a $4000 exemption. For those who don't pay, it will help them provided the credit is refundable.

As for "erosion", isn't the Pease limitation removed? And the standard deduction of course never phases out.

I don't know Robert. That was the biggest part of my question.

As for "sweeping", well maybe it will end up being swept into the dustbin, who knows? California economy, where they raised taxes, is doing well, while Kansas economy, where they cut taxes, went down.

Interesting observation. Most people are taught to believe that lower taxes help the economy, and higher taxes drains the economy with non-productive wealth. My own belief is it doesn't have to be that way if the spending that results is wisely spent. In general, I don't think that happens.

The captions as shown incorrectly attribute Robert's quote to include some of my answers. Some people are smart enough to fix this display. Not me.

[Rapid Robert]

But if there are no personal exemptions, then this won't happen, right? Or will the erosion affect the $300 per listed people on the return?

This is no doubt the most sweeping bill since 1986, maybe even more so.

Are you looking at credit phase-outs and deduction phase-outs as being roughly equivalent? I thought the $300 was a credit, not a deduction.

As for "erosion", isn't the Pease limitation removed? And the standard deduction of course never phases out.

As for "sweeping", well maybe it will end up being swept into the dustbin, who knows? California economy, where they raised taxes, is doing well, while Kansas economy, where they cut taxes, went down.

[Snaggletooth]

Something for Everyone? Erosion?

Yes, it appears there is something for everyone. Also losses for everyone as well.

There is a factor I call "erosion", when sufficient levels of income occur, the deductibility of itemized deductions and personal exemption begin to erode away. In fact, the personal exemptions can erode away completely. But if there are no personal exemptions, then this won't happen, right? Or will the erosion affect the $300 per listed people on the return?

This is no doubt the most sweeping bill since 1986, maybe even more so.