How the new tax bill will effect our clients: Victory…..or not?

The Senate passed the much anticipated tax overhaul bill this morning. If enacted into law, sweeping changes to both individuals and businesses are on the horizon. In reviewing aspects of the legislation, here are some quick, off the cuff observations:

Repeal of the state and local income tax deduction, (SALT):

For our clients whom are not affected by the alternative minimum tax, (AMT) the result will be an effective increase in tax. All other changes aside, losing that deduction will increase taxable income. Both the House and the Senate bills allow for real estate tax deductions of $10,000. Many of our clients, if not all, pay far in excess of $10,000. Another increase in taxable income.
Victory or Defeat: DEFEAT

Lower tax rate for pass-throughs:
This is great for the business owner, but what is a business? Does real estate qualify as a “business”. The intent of the tax reduction is to spur investment. Therefore it would follow that only operating businesses, employing workers, investing in machinery and equipment, would qualify for the lower rates. This provision complicates tax preparation as the lower rate requires a side calculation similar to that of the capital gains tax reported on Schedule D.
Victory or Defeat: VICTORY

Elimination of the medical expense deduction:

This is a disaster for the elderly whom are paying for assisted living. Under the current law, un-reimbursed qualifying medical expenses are fully deductible. We have several clients whom are paying very little or no taxes by this offset. They will now be paying tens of thousands of dollars.
Victory or Defeat: DEFEAT

Stockpiled foreign profits:
Would be taxed at 14.5% and 7.5% for liquid and illiquid profits, respectively. This money needs to be repatriated. Hopefully, that money will be reinvested in the US therefore creating jobs and economic investment.
Victory or Defeat: VICTORY

Limitation on interest deduction for businesses:
The bill limits such deduction to 30% of income, which is more that the zero deduction bantered around before. With immediate expensing of capital investment it follows that interest would not be deductible. But borrowing is leverage. Businesses need to borrow as their customers are borrowing form them in the form of accounts receivable.
Victory or Defeat: DEFEAT

Overall the bill creates a lot of new opportunities for tax strategies which will keep everyone busy for months to come. There remain many unknowns, which will become clearer only after the President signs a bill. Tax simplification is a joke, except for the low-income earner, whom may be able to file on a postcard. Identity Theft?
Stay tuned by following our Facebook page @BoyerCpas for more updates.
-Keith

Contact us today

Your 2021 Tax Filing Deadline is just days away!


Scroll to Top