Tim's Top Individual Tax Questions
In this episode of The Bottom Line, EisnerAmper Private Business Services Group manager, Tim Schuster, discusses some of the individual taxation questions he’s receiving from clients in the wake of tax reform. Tim tells us about the impact on deductions including itemized, state and local, mortgage interest and qualified business income.
Dave Plaskow: Hello and welcome to The Bottom Line. This podcast examines the everyday business and finance issues faced by closely held and private businesses. We hope to provide you with news you can use in what we like to think of as a jargon-free zone. I’m your host Dave Plaskow and with us is Tim Schuster, a manager in EisnerAmper’s Private Business Services Group. In our last episode we discussed some of the more common business tax questions that Tim has received from clients as a result of the recent tax reform legislation. Today, we’ll look at the individual tax side of things. Hey Tim.
Tim Schuster: Dave, it’s a pleasure.
DP: Tax reform. So, John Q. Public – a lot of questions out there on the individual level. What are the questions that you are most often getting from your clients specifically?
TS: Well, let’s start with my big take away from tax reform and that is that the overall rates have decreased and we still have seven brackets. Across the board personal exemptions have been repealed. Standard deductions, in most cases, have doubled and child care credits have increased.
TS: You know we can talk more specifics later in this podcast on other items as well.
DP: Sure. Are there any other limitations to itemized deductions?
TS: Yes there are. Medical expenses have been expanded for a couple of years by lowering the adjusted gross income limitation back down to 7.5%, like it was a couple of years ago. Currently, it’s 10% for the 2017 tax-filing season. The charitable-contribution adjusted-gross-income limit increased from 50% to 60%. Personal casualty losses have been repealed, except for federally declared disaster areas. All deductions that were subject to 2% floor have been repealed. Some examples of this are investment fees, miscellaneous deductions and job expenses. As a side note, in adjustments for AGI, moving expenses have been completely repealed except for military personnel.
DP: What’s another question you’re getting a lot?
TS: Especially where we are in New Jersey, the new rules for state and local deductions. You know, this impacts a lot of our residents, New York residents, Connecticut listeners. State and local and property tax deductions are now limited to only $10,000. So what does this actually mean? If your real estate taxes paid and assessed were $15,000 and you paid in about $14,000 in state income taxes, you’re limited to a deduction of only $10,000, that’s it - completely capped.
DP: Anything on home ownership?
TS: Absolutely. Mortgage interest is limited to $750,000 of acquisition indebtedness and, this is huge, there has been a partial repeal of deductions of home equity loan indebtedness. It is allowed if it is used for improvements to the home. Under the old law you could take up to $100,000 for anything, which is, if you buy a car, you buy a boat, credit cards and so forth.
DP: What about the new QBI deduction?
TS: This thing is the new kid on the block – section 199(a), or qualified business income deduction. I’m going to try to keep this brief as this subject is extremely voluminous and is extraordinarily technical, but the qualified business income deduction is a new deduction meant for S corporations, limited liability companies, partnerships, and sole proprietorships, commonly known as flow through entities, taken at the individual level, not the entity, regardless of whether you itemized. The deduction is calculated at 20% of the trade business income of those entities. There are limitations based on the owner’s taxable income, W2 salaries of the business and whether or not the business is a service or non-service business.
DP: Got it.
TS: This is probably the most complicated portion of the new law, so …
DP: Remember, jargon free zone!
TS: I know, that’s why I’m trying to keep it there. Business owners who might be able to take advantage of this should be speaking to their tax advisors now, and hopefully it’s one of us. So there may be some tax strategies and planning moves that could be considered now that may not be available if you wait until the end of the year.
DP: And lastly, is there a limitation of taxpayers providing professional services for QBI?
TS: Absolutely, yes. Professional services are defined as those in specific services: consulting, athletics, financial services, brokerage services, accounting, law and actuarial sciences, performing arts and medical services. Engineers and architects are excluded for whatever reason. Without getting too much into the weeds, if you are in the service industry and your taxable income is below $315,000 if you’re married filing jointly, or $175,000 single, you will qualify. Anything over that you may want to consider some tax planning. Again, I really want to emphasize this – these are brand new tax calculations and I highly advise you start having these conversations now with your tax advisor.
DP: Well Tim, that’s some good front-line experience and information that you’ve got there.
DP: How about segueing into one of your New Jersey historical fun facts?
TS: It would be my pleasure. So New Jersey has been deemed the crossroads of the revolution as more battles of the Revolutionary War were fought in New Jersey than any other colony. Not far from where we’re recording this was George Washington’s famous crossing of the Delaware River on Christmas night, which was symbolic on our quarter back in 1999, if I remember correctly.
DP: Tim, thanks again for all this information.
TS: My pleasure.
DP: And thank you for listening to The Bottom Line as part of the EisnerAmper podcast series. If you have any questions, or there’s a topic you’d like us to cover, email us at contact@EisnerAmper.com. And visit EisnerAmper.com for more information on this and a host of other topics. And join us for our next EisnerAmper podcast when we get down to business.
Tim Schuster from EisnerAmper’s Private Business Services Group talks about the family issues and financial burdens for members of the sandwich generation - those individuals who are responsible for raising their children as well as caring for aging parents.
As New Jersey initiates paid employee sick leave The Bottom Line examines the requirements for business owners. Some reasons for which employees can use sick leave include an employee's own personal medical treatment or legal services, or that of a family member.
EisnerAmper’s Private Business Services Group Manager discusses the current unemployment rate and the booming economy despite current trade tariffs. To help attract employees, businesses are offering incentives such as assisting with student loans to attract millennials.
EisnerAmper’s Private Business Services Group partner discusses estate planning and the need to have a will - from an online provider or an estate planning professional - to help your heirs understand your estate asset wishes and the Tax Cuts and Jobs Act estate tax thresholds.
The landmark Supreme Court decision in the Wayfair case on e-commerce taxation allows states to collect sales tax on e-commerce companies, even without brick and mortar locations in that state, affecting all e-commerce companies such as Amazon. Accountant guidance is suggested.
This podcast discusses the DOL and the employee or contractor classification. A DOL audit might also include looking at your social media posts in Facebook, LinkedIn and more. The DOL can also change your employee or contractor classification which could have tax implications.
This episode of The Bottom Line looks at New Jersey Governor Phil Murphy’s inaugural NJ budget. The discussion includes the Governor's proposed New Jersey's state tax on Uber and Airbnb, addressing tax loopholes for hedge funds and New Jersey tax's effect on the gig economy.
This episode of “The Bottom Line” discusses new tax reform changes including C corp and individual taxpayer changes, NOLs, double taxation and bonus depreciation. Tim Schuster came up with a top seven list of business tax reform questions he's been receiving from clients.
In this episode of “The Bottom Line,” Tim Schuster talks about the benefits of retirement savings plans for small businesses, including SEP IRAs, SIMPLE IRAs, and Solo 401(k) plans, as well as eligibility and contribution limits set for small business contributions.
Tim Schuster discusses how starting a college savings account – sooner rather than later – can help alleviate sticker shock for your child’s college education. He talks about the different state-sponsored 529 plans, what you can use the money for, the tax benefits and more.
EisnerAmper’s examines the differences between different Health Spending Accounts including HSAs, HRAs and FSAs. It is recommended you speak with your tax advisor about qualified medical expenses and pending tax reform's affect on health spending accounts.
EisnerAmper's Tim Schuster looks at several categories of SBA loans for working capital. He covers the loan approval process, SBA 504, real estate exclusions and how business advisors can help you make the most of the Small Business Administration (SBA) loan process.
EisnerAmper’s Tim Schuster tackles the issue of succession planning - Companies should have something written down for succession planning purposes as well as take into consideration estate planning, wealth management and valuation when creating their transition plan.
EisnerAmper's private business manager, Tim Schuster discusses the need for proactive disaster planning for private businesses, as well as business interruption insurance in the event that your disaster planning fails. FEMA offers online disaster planning recovery courses.
In this episode, Tim breaks down what a closely held business is, the different business formats such as LLC LLP and S Corp, and how this impacts the role of business advisors. Regardless of business structure, your accountant, banker and lawyer all need to be on the same page.