Tag Archives: tax bill

Your Money: How to get 20 percent off your tax bill

FILE PHOTO: Copies of tax regulations are seen during a markup on the "Tax Cuts and Jobs Act" on Capitol Hill in Washington, U.S., November 15, 2017. REUTERS/Aaron P. Bernstein/File Photo

By Beth Pinsker

NEW YORK (Reuters) – Tax filing season for 2018 returns starts this week, and the most complicated changes brought about by the Tax Cut and Jobs Act are still barely comprehensible.

There are some 30 million filers who need to pay attention, ranging from Uber drivers to day traders to professional athletes. Anyone who files a Schedule C for profit or loss from a business might qualify for a 20 percent deduction off certain income.

The issue is so new that tax experts have not even settled on a name for it. Some refer to the changes by the number of the section of tax code that pertains, 199A.

Some prefer a more generic-but-wordy approach: “20 percent pass-through deduction.” And some go both wordy and obscure, referring to it as the “Qualified Business Income deduction.”

Mastering the ins and outs during the past year has been a marathon, with a sprint in the last two weeks when final regulations emerged from the partially shuttered Internal Revenue Service, resulting in more than 300 pages of arcane accounting language.

“It took a lot of coffee and a lot of late nights,” said Jeff Levine, a CPA and certified financial planner who heads Blueprint Wealth Alliance, based in Garden City, New York.

Levine estimates he spent 50 to 60 hours just digesting the new paperwork. He has written more than 100,000 words about the new regulations for other tax professionals.

If you do not have that kind of time to put into decoding the new tax laws, here are Levine’s responses to some key questions:

1. Do you need professional help this year?

The truth is, not even tax professionals or DIY software may get the new regulations completely right at the moment. Since the final regulations came out, many back-end algorithms still need to be tweaked. Accountants who created their own spreadsheets to do the calculations may need to make adjustments.

Levine thinks it might take years to sort through the new tax law, and there will no doubt be court cases – all for regulations set to expire in 2026.

At some point, whatever tax program you or your tax preparer use should be able to calculate the basics, but there is a bit more to it than that.

“The software only does so much. It might tell you the right number, it might be wrong. But it will not be able to think outside the box,” Levine said.

If, for instance, your software asks you: What is my depreciable property immediately after acquisition?

And you say: What are you even talking about? Then it may be best to ask for help.

2. What can you save?

A 20 percent reduction in taxes sounds worth the effort to figure out the math, right?

For those with business income that qualifies, the savings can be significant. Say you are single and have $50,000 in income to claim from a tutoring gig, after all of your expenses and other Schedule C deductions. Your taxable income after taking out half the self-employment tax and the new $12,000 standard deduction would be just over $34,000.

The new qualified business income deduction then lowers that by 20 percent – which is about $6,900. And that would slash your tax owed by just over $800.

Go up the income scale to $150,000 and your savings is more like $6,000.

But go up the income scale too far, and you hit the caps. These start at $315,000 for married couples and half that for singles. At that point, the phase-outs start and whole swaths of occupations start to get no deduction at all – zero.

3. What kind of planning do I need to do?

If you are close to any of the caps, you could benefit in big ways from holistic financial planning, Levine said. He recently worked with a young doctor in New York who was married and right at the cap. Levine helped her set up a defined benefit retirement pension plan to lower her income by $78,000. He saved her $35,000 on her taxes, and the deferred income will come back to her when she retires.

Moves like this can be complicated because deferring income into retirement accounts to save on taxes now can actually end up costing you down the road since you have to pay taxes on it when you start getting payments.

Levine said the 199A deduction has changed his strategic thinking in some cases because today’s 20 percent deduction is very enticing.

“The key point is that nothing should go without being checked,” Levine said.

 

(Editing by Lauren Young and David Gregorio)

Trump signs tax, government spending bills into law

U.S. President Donald Trump sits at his desk before signing tax overhaul legislation in the Oval Office of the White House in Washington, U.S., December 22, 2017.

By Susan Heavey and Lisa Lambert

WASHINGTON (Reuters) – U.S. President Donald Trump signed Republicans’ massive $1.5 trillion tax overhaul into law on Friday, cementing the biggest legislative victory of his first year in office, and also approved a short-term spending bill that averts a possible government shutdown.

Trump said he wanted to sign the tax bill before leaving Washington on Friday for his Mar-a-Lago estate in Florida, rather than stage a more formal ceremony in January, so he could keep his promise to finish work before Christmas.

“I didn’t want you folks to say I wasn’t keeping my promise. I’m keeping my promise,” he told reporters in the White House.

The two pieces of legislation represent Trump’s most significant accomplishment with Congress since taking office in January, as well as a sign of what awaits when he returns from Florida after the Christmas holiday.

The tax package, the largest such overhaul since the 1980s, slashes the corporate rate from 35 percent to 21 percent and temporarily reduces the tax burden for most individuals as well.

Trump praised several companies that have announced employee bonuses in the wake of the bill’s passage, naming AT&T, Boeing, Wells Fargo, Comcast and Sinclair Broadcast Group.

“Corporations are literally going wild over this,” he said.

Democrats had opposed the bill as a giveaway to the wealthy that would add $1.5 trillion to the $20 trillion national debt during the next decade.

The spending bill extends federal funding through Jan. 19, largely at current levels. It does nothing to resolve broader disputes over immigration, healthcare and military spending.

Republicans also are divided over whether to follow up their sweeping overhaul of the U.S. tax code with a dramatic restructuring of federal benefit programs.

House Speaker Paul Ryan has said he would like to revamp welfare and health programs but Senate Republican Leader Mitch McConnell told National Public Radio on Monday that he was not interested in cutting those programs without Democratic support.

Trump’s year also closes with significant turnover of many top staffers who had been in the White House since early in his term. On Friday, the White House confirmed Deputy Chief of Staff Rick Dearborn and Jeremy Katz, who worked under White House economic adviser Gary Cohn, were leaving.

(Additional reporting by Makini Brice; Writing by Andy Sullivan; Editing by Bill Trott)

U.S. House gives final approval to tax bill, delivers victory to Trump

President Trump celebrates with Congressional Republican on the South Lawn of the White House.

By David Morgan and Amanda Becker

WASHINGTON (Reuters) – The Republican-controlled U.S. House of Representatives gave final approval on Wednesday to the biggest overhaul of the U.S. tax code in 30 years, sending a sweeping $1.5 trillion tax bill to President Donald Trump for his signature.

In sealing Trump’s first major legislative victory, Republicans steamrolled opposition from Democrats to pass a bill that slashes taxes for corporations and the wealthy while giving mixed, temporary tax relief to middle-class Americans.

The House approved the measure, 224-201, passing it for the second time in two days after a procedural foul-up forced another vote on Wednesday. The Senate had passed it 51-48 in the early hours of Wednesday.

“We are making America great again,” Trump said, echoing his campaign slogan at a White House celebration with Republican lawmakers. “Ultimately what does it mean? It means jobs, jobs, jobs.”

Trump, who emphasized a tax cut for middle-class Americans during his 2016 campaign, said at an earlier Cabinet meeting that lowering the corporate tax rate from 35 percent to 21 percent was “probably the biggest factor in this plan.”

It was uncertain when the bill would be signed. White House economic adviser Gary Cohn said the timing depended on whether automatic spending cuts triggered by the legislation could be waived. If so, the president will sign it before the end of the year, he said.

The administration expects the waiver to be included in a spending resolution Congress will pass later this week, a White House official told reporters.

BUSINESS FRIENDLY

In addition to cutting the U.S. corporate income tax rate to 21 percent, the debt-financed legislation gives other business owners a new 20 percent deduction on business income and reshapes how the government taxes multinational corporations along the lines the country’s largest businesses have recommended for years.

Millions of Americans would stop itemizing deductions under the bill, putting tax breaks that incentivize home ownership and charitable donations out of their reach, but also making tax returns somewhat simpler and shorter.

The bill keeps the present number of tax brackets but adjusts many of the rates and income levels for each one. The top tax rate for high earners is reduced. The estate tax on inheritances is changed so far fewer people will pay.

Once signed, taxpayers likely would see the first changes to their paycheck tax withholdings in February. Most households will not see the full effect of the tax plan on their income until they file their 2018 taxes in early 2019.

In two provisions added to secure needed Republican votes, the legislation also allows oil drilling in Alaska’s Arctic National Wildlife Refuge and removes a tax penalty under the Obamacare health law for Americans who do not obtain health insurance.

“We have essentially repealed Obamacare and we’ll come up with something that will be much better,” Trump said.

Democrats were united in opposition to the tax legislation, calling it a giveaway to the wealthy that will widen the income gap between rich and poor, while adding $1.5 trillion over the next decade to the $20 trillion national debt. Trump promised in 2016 he would eliminate the national debt as president.

“PILLAGING”

“Today the Republicans take their victory lap for successfully pillaging the American middle class to benefit the powerful and the privileged,” House Democratic leader Nancy Pelosi said.

Opinion polls show the tax bill is unpopular with the public and Democrats promised to make Republicans pay for their vote during next year’s congressional elections, when all 435 House seats and 34 of the 100 Senate seats will be up for grabs.

“Republicans will rue the day they passed this bill,” Senate Democratic leader Chuck Schumer told reporters. “We are going to continue hammering away about why this bill is so unpopular.”

U.S. House Speaker Paul Ryan defended the bill, saying support would grow for after it passes and Americans felt relief. “I think minds are going to change,” Ryan said on ABC’s “Good Morning America” television program.

A few Republicans, a party once defined by fiscal hawkishness, have protested the deficit-spending encompassed in the bill. But most voted for it anyway, saying it would help businesses and individuals while boosting an already expanding economy they see as not growing fast enough.

In the House, 12 Republicans voted against the tax bill. All but one, Walter Jones of North Carolina, were from the high-tax states of New York, New Jersey and California, which will be hit by the bill’s cap on deductions for state and local taxes.

Despite Trump administration promises that the tax overhaul would focus on the middle class and not cut taxes for the rich, the nonpartisan Tax Policy Center, a think tank in Washington, estimated middle-income households would see an average tax cut of $900 next year under the bill, while the wealthiest 1 percent of Americans would see an average cut of $51,000.

The House was forced to vote again after the Senate parliamentarian ruled three minor provisions violated arcane Senate rules. To proceed, the Senate deleted the three provisions and then approved the bill.

Because the House and Senate must approve the same legislation before Trump can sign it into law, the Senate’s late Tuesday vote sent the bill back to the House.

Graphic: Republican tax bill’s tax brackets and rates – http://tmsnrt.rs/2BJnrIV

Graphic: U.S. debt level since 1950 – http://reut.rs/2B3Yl3C

(Reporting by David Morgan and Amanda Becker; Additional reporting by Richard Cowan, Roberta Rampton, Gina Chon and Susan Heavey; Writing by John Whitesides; Editing by Jeffrey Benkoe and Bill Trott)

Student tax breaks survive the tax bill, make the most of them

Graduates celebrate receiving a Masters in Business Administration from Columbia University during the year's commencement ceremony in New York in this May 18, 2005 file photo. dreams of many college seniors. REUTERS/Chip East/Files

By Gail MarksJarvis

CHICAGO (Reuters) – If you are going to college, getting extra training for a job, or paying off student loans, there are myriad tax breaks worth thousands of dollars to people burdened by college costs.

Although many were threatened in early versions of the tax bills crafted by the Senate and House and Representatives, students can breathe a sigh of relief that the benefits all remain. Tax experts suggest using these strategies before the end of December to get every penny possible:

* Student loan interest deduction

About 12.4 million borrowers make use of this deduction. You can deduct up to $2,500 in interest per year, which can result in tax savings that for some top $600.

The deduction depends on how much you have paid in a single tax year toward your student loans and also depends on your income.

If your loan payments made so far for 2017 do not qualify for the $2,500 maximum deduction and you are still paying off student loans, consider paying more before the end of the year to boost the deduction, said Mark Kantrowitz, publisher of www.Cappex.com. You can find out how much interest you have paid so far this year from the student loan servicer that collects your monthly payments.

To take the full $2,500 deduction, an individual cannot have a modified adjusted gross income over $65,000, and for couples $135,000. For individuals with incomes up to $80,000 and for married couples earning up to $165,000, smaller deductions apply.

Paying extra by Dec. 31 would be particularly wise if your income next year is likely to put you over the income cutoff, said Gil Charney, director of tax and policy analysis for The Tax Institute at H&R Block.

* College credits

Both the American Opportunity Credit and Lifetime Learning Credit provide tax breaks to help pay for education, but apply to different stages.

For undergrads, the American Opportunity Credit is worth up to $2,500 per year, but can be used only for the first four years of college. Students must attend at least half-time.

If you have not paid enough tuition and fees to qualify for the full credit this year and have been billed for the first quarter or semester in 2018, consider paying the bill now to maximize the 2017 credit, Charney said. The credit covers 100 percent of the first $2,000 in tuition and fees paid in a year; then 25 percent of the next $2,000.

Remember, there are income limits. You can’t get the full credit with modified adjusted gross income over $80,000; $160,000 for couples.

If your income will exceed the limit in 2018 but qualifies in 2017, this would be the year to capture as much as possible.

The same strategy applies to the Lifetime Learning Credit, which is valuable to part-time students, graduate students or workers trying to enhance job opportunities with an extra course or training.

The Lifetime Learning Credit is worth $2,000, or 20 percent of the first $10,000 spent in a year. So consider paying ahead for 2018 education, especially if you are near an income cutoff: over $56,000 in modified adjusted gross income for individuals, or $112,000 for couples for the maximum credit.

Keep in mind that if two spouses are going to school they cannot both claim the $2,000; it is a maximum per household. The American Opportunity Credit is kinder because it applies per student. Parents with three children in college at the same time could claim the credit for each child and do it annually for the four years a child is in an undergraduate program.

For more details, see IRS Publication 970

The opinions expressed here are those of the author, a columnist for Reuters.

(Editing by Beth Pinsker and Leslie Adler)

Fidelity clients suffer second website glitch in week

News of the Dow Jones Industrial average passing 20,000 and Boeing's stock price play on television at a Fidelity Investments office in Cambridge, Massachusetts, U.S., January 25, 2017. REUTERS/Brian Snyder

BOSTON (Reuters) – For the second time in a week, some clients at Fidelity Investments could not access their online accounts at the powerhouse retail trading brokerage on Monday morning in a glitch described by the company as a technical issue.

The latest problems began early morning, just as investors geared up to make trades in a surging stock market fueled by a tax bill that could slash corporate tax rates to 20 percent from 35 percent.

Fidelity spokesman Mike Aalto said some clients were unable to log in to their accounts during the first hours of trading.

The issue was not resolved until later in the morning, around 11 a.m. EST (1600 GMT), he said.

“We are still looking into what the cause was,” Aalto said.

Boston-based Fidelity, known for its stable of mutual funds, operates a large online brokerage with nearly 25 million customer accounts. Fidelity said Monday’s issue had a sporadic affect on customer accounts.

On Nov. 29, Fidelity clients also experienced problems accessing their accounts because of what the company called an internal technical issue. Fidelity declined to give more details about what caused the issues.

 

(Reporting By Tim McLaughlin and Svea Herbst-Bayliss; Editing by Chizu Nomiyama and Marguerita Choy)