Act Now on Tax Reform and Save Thousands

You’re losing money every day of 2018 that goes by that you don’t find out about and act on the new opportunities and threats on the tax front.

I have a friend who’s a tax attorney. He loves to chat. Whether by phone, email, Skype or smoke signals, he’s usually good for three to four calls a week.

I haven’t heard from him since late November.

I called his office in the first week of January to see how he was. His secretary said he was at a tax planning conference.

I tried again last week. Same thing. Another meeting of tax lawyers.

I finally texted him that I had a lead on an urgent tax opinion request. That got me a return call.

The opinion request was mine. He’s on the case.

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You see, since the beginning of this year, it seems like all I’ve done is study the Tax Cuts and Jobs Act, the new law governing our tax code.

There’s a good reason for my urgency … you’re losing money every day of 2018 that goes by that you don’t find out about and act on the new opportunities and threats on the tax front.

If you act now, you stand to save potentially thousands of dollars in federal tax this year. The sooner you act, the more you’ll save.

Here are the top things to watch out for … all of which will be covered in detailed how-to editions of The Bauman Letter in the coming months.

Tax Savings for Pass-Through Entities

Pass-throughs are business entities that pay no tax … they “pass-through” their profit or loss to their owners for tax purposes. They include traditional Bauman Letter topics such as limited liability companies (LLCs), partnerships and S corporations.

Starting on January 1, many owners of pass-throughs will pay no federal income tax on 20% of the profit from their businesses. That’s right, zip, nada. For many people, this could mean a big drop in their effective federal income tax rate.

The rules for this giveaway to pass-through owners are straightforward for people whose taxable income is well into the low six figures. After that, they get more complicated.

No matter how you slice it, however, the new tax law creates opportunities for huge tax savings.

    • Action item: If you’re a lawyer, doctor or other professional in private practice, seek tax advice immediately to see how splitting your business into parts could save tens of thousands on your tax bill.

 

    • Action item: If you’re self-employed or operate through an LLC or small partnership, cut your personal salary to the bone immediately. That increases your business’s “profit” … the amount from which you can deduct 20% tax free.

 

    • Action item: Even if you’re employed, consult a tax attorney to see if you’d be better off becoming a consultant. For many, many people, the answer is going to be yes.

 

    • Bonus tip: Owners of shares in real estate investment trusts (REITs) or publicly traded partnerships (PTPs) pay no tax on 20% of their qualified REIT dividends and PTP income.

Elimination of Key Deductions

The professed goal of the tax bill passed in late December was to reduce tax rates and simplify the tax code. The first was partially achieved — until cuts expire in 2025, at least – but the second didn’t happen. Instead, legislators included a few scattershot attempts at “simplification” that could cost you dearly if you don’t prepare for them.

First, when the press began to refer to the “elimination of SALT” late last year, I thought the Trump administration was going to abandon the Cold War-era nuclear arms treaties between the U.S. and Russia. The truth was better, but for many of us, not by much.

Starting this year, you can only deduct a maximum of $10,000 of state and local income and property taxes (SALT) from your federal taxes. For most people that won’t matter because the standard deduction for joint filers has been doubled to $24,000. But for many people —and not just in high-tax states like New York and California — this will mean an effective increase in federal tax.

Legislators in an increasing number of states are considering ways to get around this, however. You know those inside sections of your local newspaper that cover state legislative issues? Time to start reading them.

Second, the new law eliminates all “miscellaneous” deductions … including those for home office expenses. If you’re an employee who works remotely at your employer’s request, or if you run a small business from home, kiss the deduction for business use of your home bye-bye. In my case, for example, that’s a significant tax increase.

Action item: Find out if your state legislators and city councilors are considering steps to convert income and property taxes into forms that could be deducted from federal income tax. Let ‘em know what you think!

Action item: If you work from home, model the tax implications of the loss of the home business-used deduction. You may able to rearrange things to compensate, at least partially.

Bonus tip: Deductions for unreimbursed job expenses, job-search costs, tax preparation fees, home appraisal fees, casualty and theft losses, gambling losses, many investment fees and expenses and losses on IRAs may have been eliminated, depending on upcoming IRS rulings.

Get Ready to Cut Taxes on Your Retirement Income

If you’re not yet retired, and earning the right amount of annual income, I have three action items for you:

      1. If you don’t have one already, open a Roth IRA.
      2. Create a C corporation with your Roth IRA as sole shareholder.
      3. Look out for the March edition of The Bauman Letter for a remarkable hack that can cut our overall taxes on your retirement earnings by as much as 50%.

Ringing off the Hook

My tax lawyer friend apologized profusely when I finally got hold of him. His phone, he said, was “ringing off the hook.”

“So is The Bauman Letter inbox, pal,” I said. “We gotta get busy.”

So must you.

Kind regards,

I'm going to stick my neck out and make a few calls for Wall Street 2018 based on evidence, logic … and history. And we have all year to see how I do…

Ted Bauman

Editor, The Bauman Letter

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  • TerryM43

    So tell me, after all the wealthy Americans and the corporations use the new tax laws to get out of paying taxes, who is going to pay for the essential services of government, education, disaster relief, healthcare, pensions, etc. You continue to fund your military to ridiculous new heights of wasteful spending, largely unchecked and with little to no oversight, with billions being wasted every year. Does it not occur to you and others who are always “gaming the system” that at some point down the road, the whole system will implode due to lack of funds to carry on?

    Most rational people would realize that you cannot go on forever creating such an ever widening gap between those who already have more than they need and those who have so little. Tax savings are a short term gain for long term pain and ultimate destruction of your financial and social systems. Everyone is so intent on filling their pockets while they can with little regard for the ultimate outcome of it all.

    The USA flourished when taxes were higher and more fairly distributed, corporations paid their fair share of taxes and manufacturing sectors were healthy. Years of get rich quick schemes for the senior executives of companies have lost us our manufacturing base and our balanced and fair economic benefits for a much greater number of our citizens. The latest farce of “tax reform” has just handed billions over to people who already have more than they could ever spend. And don’t give me the “trickle down” BS either. We all know that the majority of those that “have” hoard and do not spend. During the Great Depression, the wealthy sat on their fortunes and only made more as people, out of work, could no longer afford to keep their homes. The big banks and the wealthy profited from the misery that swept the nation back then. It is no different now, although there are now more billionaires than every before, so in a sense it is even worse now.

    Coaching people to beat the system is reprehensible at best. What the system needs is real reform, not another diversion of wealth to those who really don’t need it, but take it just because they can.

  • Ben Bushong

    “The rules for this giveaway to pass-through owners are straightforward for people…” Giveaway? That’s the sure sign of someone who lives off of the tax code, and would rather tax breaks be thought of as bad… ALL of these tax cuts should be universal. Just get rid of all of the government’s “picking winners and losers” and go with a flat tax on individual income with zero deductions, and zero subsidies.

  • Jai Lorens

    So true and well said!!!!

  • R Bouchard

    It appears that higher taxes are what you prefer. What a concept! Give the government your money. I am doing what I can to keep what I have earned. It’s my money not theirs.

  • damanondastreet

    I am setting up a fund for those who want to pay more taxes than the law requires them to. I just need a few more suckers like you and it will be a wild success. Send Your Money to. Gaming the System for Profit. Be one of the first to contribute and we will send you a bumper sticker so you can smugly proclaim to everyone how you are saving the country.

  • damanondastreet

    That’s a silly fantasy sold to you by some people Terry M43 hates.

  • damanondastreet

    “Owners of shares in real estate investment trusts (REITs) or publicly traded partnerships (PTPs) pay no tax on 20% of their qualified REIT dividends and PTP income.”

    I not aware of this provision in the new law and apparently neither is Wall Street. How about providing a source since I a very skeptical of the veracity of that statement.

  • damanondastreet

    A sucker born every minute.

  • C3PO

    Please send your tax savings to me, so you don’t feel so bad.

  • CPT

    Ah yes, let’s leave the secrets to the hyper-wealthy who employ personal tax attorneys, and keep the information from the middle-class who otherwise wouldn’t know.

  • bluesman101

    REITs count as pass-throughs, and shareholders are technically owners. Hence the break.

  • oldcowboy37

    Horse pocky, terrym43. getta life!