Pass-through tax

Seems that pass-through business still needs to pay individual tax rate with a 20% deduction. Even this 20% deduction has many restrictions such as income amount etc.

What does this sentence really means? “A limitation on the deduction would be phased in based on W-2 wages above a threshold amount of taxable income.” Does it mean that if your w-2 wages is too high (over 157k/315k?), you won’t get the 20% deduction on pass through income?

“The exclusion from the definition of a qualified business for specified service trades or businesses phases in for a taxpayer with taxable income in excess of $157,500 or $315,000 in the case of a joint return.”

How taxes on pass-through businesses would work under the GOP tax plan

For tax years after 2017 and before 2026, individuals would be allowed to deduct 20% of “qualified business income” from a partnership, S corporation, or sole proprietorships, as well as 20% of qualified real estate investment trust (REIT) dividends, qualified cooperative dividends, and qualified publicly traded partnership income. (Special rules would apply to specified agricultural or horticultural cooperatives.)

A limitation on the deduction would be phased in based on W-2 wages above a threshold amount of taxable income. The deduction would also be disallowed for specified service trades or businesses with income above a threshold.

For these purposes, “qualified business income” would mean the net amount of qualified items of income, gain, deduction, and loss with respect to the qualified trade or business of the taxpayer. These items must be effectively connected with the conduct of a trade or business within the United States. They do not include specified investment-related income, deductions, or losses.

“Qualified business income” would not include an S corporation shareholder’s reasonable compensation, guaranteed payments, or — to the extent provided in regulations — payments to a partner who is acting in a capacity other than his or her capacity as a partner.

“Specified service trades or businesses” include any trade or business in the fields of accounting, health, law, consulting, athletics, financial services, brokerage services, or any business where the principal asset of the business is the reputation or skill of one or more of its employees.

The exclusion from the definition of a qualified business for specified service trades or businesses phases in for a taxpayer with taxable income in excess of $157,500 or $315,000 in the case of a joint return.

For each qualified trade or business, the taxpayer is allowed to deduct 20% of the qualified business income with respect to such trade or business. Generally, the deduction is limited to 50% of the W-2 wages paid with respect to the business. Alternatively, capital-intensive businesses may yield a higher benefit under a rule that takes into consideration 25% of wages paid plus a portion of the business’s basis in its tangible assets. However, if the taxpayer’s income is below the threshold amount, the deductible amount for each qualified trade or business is equal to 20% of the qualified business income with respect to each respective trade or business.

https://www.forbes.com/sites/redfin/2017/12/20/landlords-just-got-a-big-tax-break/#34295c95290c

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This will create more competition for small landlords and many single family houses will become owner occupied. Rent will be lower which is good for tenants.

Economy is complex system. This policy may benefit the tenants and the large apartment owners, might be bad for the small landlords.

As small landlords sell single family rentals due to lower rent, housing crisis will actually disappear.

Too much demand around here from people wanting to actually live in the SFHs so not worried. Keep in mind the allure of the Bay Area for not just its jobs. This is a wonderful area to live in.

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That’s a lot of hyperbole. People should price healthcare before they think about it. Don’t forget healthcare premiums are increasing by a minimum of 10% a year. Exchange plans increased by over 25%.

Sorry, do I understand correctly that essentially if you are an independent contractor who would normally pay 15% taxes on top of your regular W2 rates (for SS and Medicare etc.), you are getting a deduction that would offset that increase?

I don’t see how that benefits the wealthy, but it sure would make being a WAHM more palatable.

Being taxed an additional 15% on top of my husband’s highest tax rate is really pretty pathetic.

Starting to enjoy the ride as a regular folk?

Remember, it was an easy fix, a well thought out process, but instead we had a rush to vote for a tax reform replacing 70,000 pages for what? 500? 5K pages?

I just know that those idiots wouldn’t be hired in the Silicon Valley with that type of ignorance. They had 30 years to have a plan in hand, but no! 1 month? And some of them republicans had not read the bill? Are you F…ing kidding me!

We will have a general meeting one of these days at our office to talk about the new changes. It will disrupt some progress some companies had with the prior laws.

Those who never faced the A,B,Cs of legality won’t understand why any law is so extensive on documentation, so many John versus Mary books to read. Throwing away some of them will have great repercussions on everybody or some people, I hope is not me.

Sorry, no access but it sounds like again the IRS will need to come out with full interpretation for us to follow…

https://www.wsj.com/articles/tax-law-leaves-business-owners-with-big-decision-to-c-or-not-to-c-1519295401

Sorry, no access …

https://www.wsj.com/articles/when-married-filing-separately-lowers-your-tax-bill-1519381801

It can if you have a huge income gap.

https://www.bloomberg.com/news/features/2018-04-13/the-tax-break-for-business-is-still-confusing-everyone

For rental porperty owner, is there also this taxable income limitation? If you have a W2 income, do you need to put all your rentals to LLC and make sure that LLC taxable income is below the limit?

“ Business owners who want to take the full 20 percent deduction on qualified business income must have taxable income below $157,500 if single or $315,000 if married”

Rich Professionals Are Using Pension Plans as a Tax Dodge

https://www.bloomberg.com/news/articles/2018-08-15/rich-professionals-barred-from-tax-break-find-pension-painkiller

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When you are in the financial industry, you read the following a lot:

““They don’t pay taxes until they pull the money out, typically when they’re in retirement and in a much lower tax bracket.””

If you are single, and earn more than 34K a year, or married and earning $44K, your SS check will be taxed 85%. Just Google it.

So, anybody thinking that they will be in a lower tax bracket is either a delusional person, or an ignorant person. Because the way this country is going, with so much debt, eventually taxes are going to be higher.

But, dream on! :joy:

Also, most businesses in this area bring $1M in gross income. Easy to put 10%-15% aside before any taxes or the use of any other tax loophole, put it into a reinsurance program, a year an 1 day later, put it back into the business. Now they are taxed on their 90% gross income. Of course, for the business man that doesn’t want to pay taxes at all, there’s another deal, but that is for open minded people, and I haven’t seen anybody anywhere. :innocent::innocent:

So much to learn, even how to reduce the mortgage payments to 7-10 years without a paying one penny more than what you are paying now, thus saving $100Ks…

Oh well…:joy: