New tax plan

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Submitted by moneymaker on November 2, 2017 - 10:35am

Guess I won't be buying any expensive house. Not sure if it helps me or hurts me.

Submitted by SK in CV on November 3, 2017 - 4:49am.

harvey wrote:

Maybe I'm misunderstanding the rule, but here's and example of what I thought this was about:

General contractor owns an LLC, brings in $300K net, pays himself $150K salary and takes the rest as pass-thru business income. Currently he gets taxed as if his total income were $300K, which would mean a 33% marginal rate for everything over $191K.

Under proposed rules his W2 income would be $150K and the other $150K would only be taxed at 25%.

I'm not sure where capital invested fits in, but maybe I'm oversimplifying something.

Nope. Doesn’t work that way. First, that GC literally CAN’T pay himself on a W-2. Against current rules. All goes on schedule C if it’s a single member LLC. Under proposed law, substantially all his income would be taxed as if it is all W-2 income. Only passive income is taxed at the preferred rate. Schedule C income, for a business the owner works in, (or a similar LLC, with more than 1 partner, filing a partnership tax return) is, as a matter of law, not passive income, ergo, no tax preference under proposed law.
There probably WILL be ways around that problem, designs that make the tax preferences for that GC possible. That’s the shit I’ve been paid to find. But the law is designed, only non-working interests get the lower rate. It’s for investors. Not for taxpayers who start and grow small business.
And it’s clearly and unequivocally NOT a tax simplification.

Submitted by Coronita on November 3, 2017 - 4:58am.

Meh..don't worry folks...spend happy...better enjoy it yourself instead of handing it over to others... I love my latest Miata with the additional $10k in upgrades... i always wanted to do things that made no financial sense and borderline reckless. Now, I don't feel so guilty for it as it matters a lot less... Lol.....life is too short to get all bent out of shape.

Submitted by SK in CV on November 3, 2017 - 5:00am.

flu wrote:

Well, I am happy that a lot of people now understand what I have said all along.

W2 salaried upper income middle class always get screwed when it comes to any sort of tax reform.... For whatever reasons, politicians always like to think upper income salaried slaves are rich, meanwhile leaving corporations and the really rich alone.

It is that way if we elect Republicans. I understand your logic in not wanting all the power in the hands of one party. But historically, tax cuts for capital is always a target aimed for by republicans. Tax cuts for labor comes from Democrats.

Cuts to taxes on income generated by capital increases inequality, and makes it more difficult, no matter how much you earn from work, from getting rich. They are designed to make rich richer.

Tax preferences for labor, during my lifetime, have only and always come from Democrats. Those are the tax cuts that create jobs. Those are the tax cuts that decrease income inequality.

Submitted by henrysd on November 3, 2017 - 6:31am.

I think there is 70/30 rule on small business to prevent people to abuse the pass-through. 70% income must be paid by his normal tax bracket and only the remaining 30% at low 25% pass-through rate.

When we but Energy MLP, then the pass-through distribution is at 25% delayed tax until we sell it many years later.

Submitted by svelte on November 3, 2017 - 7:17am.

flu wrote:

Well, I am happy that a lot of people now understand what I have said all along.

W2 salaried upper income middle class always get screwed when it comes to any sort of tax reform.... For whatever reasons, politicians always like to think upper income salaried slaves are rich...

It does appear that way.

I wonder if it is because they can get the most bang for their buck that way - lots of $$ in upper middle class, not many voters there (as opposed to lots in middle and lower class), and not much clout with politicians (as opposed to the truly wealthy).

Easy pickins for the tax base.

Submitted by Coronita on November 3, 2017 - 7:36am.

svelte wrote:
flu wrote:

Well, I am happy that a lot of people now understand what I have said all along.

W2 salaried upper income middle class always get screwed when it comes to any sort of tax reform.... For whatever reasons, politicians always like to think upper income salaried slaves are rich...

It does appear that way.

I wonder if it is because they can get the most bang for their buck that way - lots of $$ in upper middle class, not many voters there (as opposed to lots in middle and lower class), and not much clout with politicians (as opposed to the truly wealthy).

Easy pickins for the tax base.

It's this way because the percentage of upper income well educated people in this country are relatively small compared to the majority dipshits, lazy, and Uber wealthy in this country....and because we have this pesky thing called democracy where every vote is the same..and that w2 slaves have very little wiggle room in terms of tax shelters.. So course they will end up bearing the majority of the burden any time any politician talks about tax reform or increasing taxes. I am not suggesting we change our democratic system. It's just how it is.
This isn't tax reform. This is abusing and exploiting what's fvcked up about our tax system even further lol.

Morale of the story... Invest more work less....and tax advantage of the more favorable tax rates for cap gains and dividends and investment income. Learned that one a long long time ago.

Submitted by harvey on November 3, 2017 - 7:38am.

SK in CV wrote:

Nope. Doesn’t work that way. First, that GC literally CAN’T pay himself on a W-2. Against current rules. All goes on schedule C if it’s a single member LLC. Under proposed law, substantially all his income would be taxed as if it is all W-2 income. Only passive income is taxed at the preferred rate. Schedule C income, for a business the owner works in, (or a similar LLC, with more than 1 partner, filing a partnership tax return) is, as a matter of law, not passive income, ergo, no tax preference under proposed law.

Still not following. It's a standard practice to have a single member LLC and pay yourself on a W2, pay the rest as K-1 pass-through. There are payroll companies that specialize in that arrangement, as well as 401K providers, etc. I know many people that do it. I do it.

Looks like the new plan is going to limit the 25% rate on pass-through to 30% of income, so it's not as huge a win for the little guy. And the benefits for my example of executives becoming consultants is probably overstated.

Quote:
There probably WILL be ways around that problem, designs that make the tax preferences for that GC possible. That’s the shit I’ve been paid to find. But the law is designed, only non-working interests get the lower rate. It’s for investors. Not for taxpayers who start and grow small business.
And it’s clearly and unequivocally NOT a tax simplification.

Of course it is simpler ... there are fewer brackets!

I do agree that this plan is basically a con job that that's trying to hide a big handout to the wealthy. Most small business owners are savvy enough to see that. That's why Fox News is already telling them to stop whining:

http://www.foxbusiness.com/features/2017...

Submitted by SK in CV on November 3, 2017 - 8:20am.

harvey wrote:

Still not following. It's a standard practice to have a single member LLC and pay yourself on a W2, pay the rest as K-1 pass-through. There are payroll companies that specialize in that arrangement, as well as 401K providers, etc. I know many people that do it. I do it.

Looks like the new plan is going to limit the 25% rate on pass-through to 30% of income, so it's not as huge a win for the little guy. And the benefits for my example of executives becoming consultants is probably overstated.

I know there are companies that do it. I'm telling you, paying a LLC member on a W-2 is both flat out wrong and not common. I have never seen it for a single member LLC, unless the LLC has elected to be taxed as an S-Corp, where it's mandatory and the only way to pay shareholder employees. The default for single member LLCs is that they are disregarded entities for tax purposes, unless an affirmative check-the-box election is filed. The law is that LLC members cannot be paid as employees (As a practical matter, there are only minimal adverse consequences of doing it wrong, but potentially, it could be pretty expensive if the IRS so chooses). Beyond that, there is zero advantage to doing it other than paying tax through withholding rather than estimated taxes. 401K rules are the same, irrespective of whether LLC members are paid incorrectly as W-2 employees or receive non-W-2 salaries (technically "guaranteed payments")

The 70/30 rule is there, but unless i'm reading it wrong, unless income from an active business is over about $400 to 500K, it won't save anything. The 30% will already be in a lower bracket anyway.

Submitted by scaredyclassic on November 3, 2017 - 8:52am.

saw a 79 year old jazz pianist still touring w a trio last night. dude was really good. not sure what he makes but he seemed much richer and more successful in life than rich guys i run into.

Submitted by plm on November 3, 2017 - 9:29am.

flu][quote=svelte][quote=flu wrote:

Morale of the story... Invest more work less....and tax advantage of the more favorable tax rates for cap gains and dividends and investment income. Learned that one a long long time ago.

I am investing in the market more making nice returns but I don't think tax rates are more favorable for investments. Short term is worse, taxed 3.8 percent higher because of obamacare. Long term isn't much better, taxed at 18.8 or more likely 23.8.

If the trump tax passes, it stays the same and doesn't get any better.

Submitted by The-Shoveler on November 3, 2017 - 11:03am.

IMO if the goal was to stimulate the economy you would give tax breaks to both the little guy (UMC) and the corporations.

The little guy will definitely spend more locally than the top 1% or .01%.

IMO the goal is not to stimulate the economy, the goal seems to be keep the UMC workers in slave mode.

Europe IMO is a lot like that, keep all the working class more or less at the same level.

IMO No one is really concerned about the Gov Debt, it is just a way to keep order.

anyway IMO.

Submitted by moneymaker on November 3, 2017 - 11:46am.

Evidently the 500k would only be applicable to new loans, not existing.

Submitted by henrysd on November 3, 2017 - 12:02pm.

$500K home sale capital gain exclusion rule is tightened. It used to be 2 out of last 5 years, now it is 5 out of last 8 years for tax-free gain on primary home. The amount is the same $250K for single and $500K for couple.

See here:
https://www.marketwatch.com/story/how-th...

Submitted by scaredyclassic on November 3, 2017 - 12:23pm.

what about setting up a side hustle sched c business and deducting expenses.

is that still avail to w2 slaves?

Submitted by spdrun on November 3, 2017 - 12:32pm.

Wouldn't it have to make more than it loses to be legitimate?

Submitted by OwnerOfCalifornia on November 3, 2017 - 12:58pm.

If the bill passes in its current form the $7500 EV tax credit ends 12/31/2017. That's shockingly soon for people in the market for an EV, notably all those Tesla model 3 reservation holders.

Assuming the tax plan bill even passes, I suspect the EV tax credit gets compromised back to its current state (per manufacturer, phase-out begins in 2nd calendar quarter after 200,000th EV sold in US).

Submitted by spdrun on November 3, 2017 - 1:19pm.

Credits for grad students (after 1st year) also will end. Part of the GOP's plan to screw academia for not supporting them?

Submitted by poorgradstudent on November 3, 2017 - 1:32pm.

scaredyclassic wrote:

im actually pissed, this is our highest earnings years ever, over 400k, goddamn republicans in office and i cant catch a break.

This is why I'm hopeful this tax plan will collapse. If people making $200-400k turn on Republicans, they could face some serious political trouble.

I'm curious if the OC Republicans in Red districts will let Issa and friends know this is a bad plan for them. If enough coastal Republicans revolt it could kill the plan.

Submitted by spdrun on November 3, 2017 - 1:52pm.

See, you can't win if you want interesting times...

If it doesn't pass, markets might freak out.
If it does, I suspect it will raise taxes on the average American and actually dampen the economy.

Submitted by Coronita on November 3, 2017 - 4:56pm.

The solution to home ownership when it becomes less obtainable under the new tax rules would be to deregulate banks and offer 100% financed loans again. Lol.

Submitted by FlyerInHi on November 4, 2017 - 1:33pm.

flu wrote:
The solution to home ownership when it becomes less obtainable under the new tax rules would be to deregulate banks and offer 100% financed loans again. Lol.

And when borrowers walk, we can blame the government for “forcing” the banks to lend to losers. Because, you know, the banks are too prudent to do anything so reckless.

Submitted by FlyerInHi on November 4, 2017 - 1:41pm.

flu wrote:
Meh..don't worry folks...spend happy...better enjoy it yourself instead of handing it over to others... I love my latest Miata with the additional $10k in upgrades... i always wanted to do things that made no financial sense and borderline reckless. Now, I don't feel so guilty for it as it matters a lot less... Lol.....life is too short to get all bent out of shape.

Maybe our consumer society is based on consumers working and spending so corporations can earn and invest. The wheel of business goes ‘round.

Submitted by ctr70 on November 5, 2017 - 8:09pm.

I would love to see the home mortgage interest deduction completely taken away. And the only reason it hasn't been yet is due to the powerful Realtor lobby in congress protecting their commissions. It just subsidizes a few homeowners in wealthy areas and does not do much good. The vast majority of the country can't use it. It also helps to artificially inflate home prices on the coast (as does low rates and prop 13 in CA).

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