Well, the House of Representatives and the Senate have passed their Tax Reform packages, and now we will wait for the reconcilation to find out what tax laws we will have for 2018 onward.
Now let me say that the top 1% of the tax population (over approximately $465,000 a year in income) should be very happy – it seems they and large corporations are going to be getting a lot of the tax savings in this bill, whether it be reduced rates, reduction or repeal of the AMT (Alternative Minimum Tax) and reduction of the Estate Tax. Lower income people will also get some additional tax savings.
What about the middle class (those earning between $60,000 and $140,000 a year)? They will either get a small tax break or get screwed depending on how their income and deductions pencil out.
Let’s talk about people in the entertainment field and sales people on payroll with their companies. I have many people in this area who write off all of their out of pocket expenses not reimbursed by their employers on Schedule A as miscellaneous itemized deductions.
Guess what, guys? In both versions of tax reform, these types of itemized deductions go bye-bye! Also you are going to lose your state income tax and SDI (State Disability) that is withheld from your payroll checks or paid with your tax returns. You may also lose your medical deductions, if any (still up in the air) and part of your mortgage interest (equity line and/or second houses will probably go away, plus the maximum loan that qualifies may go from $1,000,000 to $500,000).
If the AMT does get repealed (or reduced) these losses may be mitigated, but all the same, you will probably lose some serious deductions; now you may save taxes because of the tax bracket changes and the increased standard deduction, but that is more of a case by case basis (I calculated my 2017 with and without the estimated changes and ended up with more taxable income but less tax because I had income shifting from the 25 percent bracket to the 12 percent, resulting in tax savings of around $1,000, but I didn’t have any miscellaneous itemized deductions.)
Many people in these fields may want to consider serious tax planning in 2018 to see if they have significant tax increases because of the above items. If so, you may want to consider:
* Shifting to a sole proprietorship, LLC or corporation to preserve all of those un-reimbursed expenses.
* Try to get as much of your expenses reimbursed as possible.
Well, look at the bright side. You may not need to keep an automobile log anymore to justify your un-reimbursed mileage or expenses!
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