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Pass-Thru Income Deduction

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Re: Pass-Thru Income Deduction

#51

Post by rsync »

CPLX wrote: post #47
tunesmith wrote: post #16

Does this change the incentives on how S-Corps structure salary versus distribution? Sometimes people keep salary low (but still "reasonable") and distributions high to limit FICA. Other times people inflate their salary (and keep distributions low) to be able to contribute more to 401k profit-matches and social security. Since it's a pass-through, it seems like taxable income might be roughly the same either way, so…

> to be able to contribute more to... social security I don't think that makes a whole lot of sense. Do people actually do that?

I doubt many people expand their salary to maximize social security contributions but I can say with certainty that people expand their salary to allow maximal 401k contributions, which your parent also referred to ...

Re: Pass-Thru Income Deduction

#52

Post by munk-a »

joelrunyon wrote: post #6
cornellwright wrote: post #2

One of the worst things about the current tax code (and soon-to-be new tax law) is the cost of compliance. You can argue about high tax or low tax and who should pay more than whom, but cost and time to comply does not create any value and is an artificial way that we make our country less competitive. This article is a clear example of that, laying out 10 different things you need to know with complicated formulas f…

This. I think I would be willing to pay a higher total flat tax if it was just simpler. Right now, I spend a few thousand/year and an annoying amount of time to make sure I'm doing it right.

I think everyone* wants this, and this is how it works in Sweden where most people get mailed a pre-filled tax form and just have to vet the information and direct the refund/pay the bill. In the US there is a not small industry of tax preparers that exists solely due to the complexity of our tax code. The complexity is there to keep H&R Block, TurboTax etc... in business by encouraging middle/low income people to keep returning to them every year.

I am amazed at how far from the stated goal of "We want you to do your taxes on an index card" this bill is going to come out as... and saddened that the majority of voters supporting the GOP won't feel fleeced by it.

*(with the exception of those preparers that very much want to keep the complexity and rich people/large businesses that can exploit loopholes effectively)

Re: Pass-Thru Income Deduction

#53

Post by tuna-piano »

As someone with a pass-they entity (s Corp) who has done my own personal and business taxes (with payroll for myself from gusto/ zen payroll)... this all seems so complicated i expect to hire an accountant for the first time next year.

How the hell is this being touted as making the tax code simpler?

Re: Pass-Thru Income Deduction

#54

Post by jfaucett »

emodendroket wrote: post #46
jfaucett wrote: post #15

Earlier quoted context omitted.

completely agree with this sentiment. I've often wished a test city/state would be allowed to just do a flat tax and completely remove all tax code and see what happens. Obviously the convolutedness is a barrier to entry to small startups and a unfair advantage for established market entities. Also I'd love to see an experiment on a zero tax law that basically amounted to no taxes unless the business/person earned a…

Flat tax rates end up being pretty unfair when we're thinking about individuals because the less money you make the more it hurts you to give up 30% of your income. Maybe, arguably, flat tax would be OK for businesses, but it would be very regressive if applied to personal income tax.

Yes, I'd like to see experimenting with only a sales tax as well, so no income tax at all. You could then test a combination of the sales tax only with a flat corporate tax. These are all things hypothesized about and there has been a little bit of testing, but we really need to get on the ball with actually applying the scientific method to policy if we want to build more rapid progress in improving our societies.

Re: Pass-Thru Income Deduction

#55

Post by munk-a »

freehunter wrote: post #19
Stratoscope wrote: post #14

I'm no expert, but from what I've seen, many people who are reading this should not get their hopes up. If you're a software developer operating either as a sole proprietorship or as an S corporation, I don't think you'll get the deduction. (If you have an LLC, that doesn't mean anything to the IRS; it's treated either as a "disregarded entity", i.e. a sole proprietorship, or as an S or C corp if you've taken that el…

> Also, if you’re a one person business, it seems pretty tricky to argue against the position that the principal asset of the business is the reputation or skill of the 1 employee doing the work. What if you're a one-person business but you're a reseller or a consignment shop like most mom-and-pop stores? That takes very little skill or reputation. Not trying to argue, that's an actual legitimate question I have.

As a business we can assume you're bringing something to the table, that bests your competitors, is it the skill with which you've built your distribution chain? Your reputation for being able to move goods?

I don't see how that vague wording couldn't be expanded to cover everyone, it'd certain cover Trump with his self-professed "Brand Name Value" pretty much all he ever sells is his name.

Re: Pass-Thru Income Deduction

#56

Post by pascalxus »

the_cat_kittles wrote: post #33

if you are happy that you can save some money this way, i think you are super lame. i am sad that over paid people like me and most of yall are now even less responsible for helping poor people (among other things, i know... )

First of all, this bill mainly helps those earning less than 315K per family If you're making a big salary working for tech, your not as well off as you think. You may be earning x10 more than a the average "poor" person, but after income taxes, sales tax, property tax, etc, it's barely x5 to x6. And if google forces you to live on the penninsula, then your living costs are x5 to x10. I'm sure there are plenty of high tech working families in 150k to 250k range who are barely making ends meat. Those with kids will be especially hit hard: the exemption for those kids is now gone. Millenials in CA are being hit really hard with this housing crisis: the birth rate is at it's lowest it's ever been since the great depression in 1933.

Re: Pass-Thru Income Deduction

#57

Post by munk-a »

pascalxus wrote: post #56
the_cat_kittles wrote: post #33

if you are happy that you can save some money this way, i think you are super lame. i am sad that over paid people like me and most of yall are now even less responsible for helping poor people (among other things, i know... )

First of all, this bill mainly helps those earning less than 315K per family If you're making a big salary working for tech, your not as well off as you think. You may be earning x10 more than a the average "poor" person, but after income taxes, sales tax, property tax, etc, it's barely x5 to x6. And if google forces you to live on the penninsula, then your living costs are x5 to x10. I'm sure there are plenty of hig…

Granted, everything about this is in constant flux but... I thought the child exemptions were back in and stronger than before?

Also, are you getting value out of living on the penninsula? If so, is it worth the cost you're paying? If not... move. There are plenty of companies outside of SV and now quite a few of the companies there have very flexible remote working options.

As for your 10x income being reduced to 6x, do you honestly feel justified making more than 2x as someone else? Why are you as a person worth twice any other person?

Re: Pass-Thru Income Deduction

#58

Post by SeattleCPA »

A friend pointed me to this discussion since it references the blog posts I've done at evergreen small business...

I've read through the thread of comments and first thing I would add is, this will all become at least a little clearer once we get some detailed guidance later next year.

One other thing to share: If you have pass-thru income, be sure you understand before the new year starts how the limitations work and how the deduction formula works. You can possibly increase your savings by maximizing qualified business income (the number that gets plugged into the formula) and by doing things to sidestep the limitations.

Example: If you need wages, look at the S corporation option.

Another example: If you're in a partnership, make sure you're not artificially depressing your qualified business income by using guaranteed payments.

Re: Pass-Thru Income Deduction

#60

Post by chii »

wbl wrote: post #45
techsupporter wrote: post #41

Earlier quoted context omitted.

> I've often wished a test city/state would be allowed to just do a flat tax I don't want a flat tax (as in "all income taxed at 15%," let's say) because a flat tax has an unfair impact on people at lower income levels. But, otherwise, I agree with your entire post. Here's my ideal law, with the caveat that I have zero legal training beyond six seasons of Law and Order and four seasons of Suits: (1) The following mar…

Define earned.

Any money, cash, or equivalent, that you are in posession of at time T, that you did not have possession of at time T-1.
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