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The New Act

The “Big Winners” of The New Act

The “Big Winners.”

We are one month away from the end of the first year under The Tax Cuts and Jobs Act of 2017 (the “New Act”). In prior articles we discussed that the tax rate for C-Corporations was reduced from 35% to 21% clearly making all 1.7 million of the C-Corporations strong contenders for the “Big Winners” First Place Award 1. We also discussed the Impact on the 141.2 million Individual Taxpayers whose tax rate was reduced from 39.6% to 37% 2. Individuals also saw their state and local tax deduction limited to $10,000.

In this Holiday Edition we discuss how the New Act treats “pass-through” entities such as Sub S Corporations, Limited Liability Companies, Partnerships and Sole Proprietorships 3. Then we will conclude by announcing the “Big Winners” under the New Act.

The New Act was advertised as legislation intended to provide tax code “Simplification” and “Middle-Class Relief”.

The New Act changes the tax structure for “pass-through” entitles by providing a new deduction of up to 20% of “Qualified Business Income” or the “operating profits” of a Trade or Business. New Code Section 199A contains all the complicated rules governing this deduction including income limits for the phasing out of the deduction for certain Specified Service Businesses including most professional service providers. This reduces the effective tax rate for “pass-through” entities from 39.6% to 29.6%. Read more

Estate Planning Seminar Announcement

Estate Planning Seminar

Wednesday, January 30, 2019

5:30 to 7:00 pm

Canterwood Country Club in Gig Harbor, WA

For those interested in Estate Planning and Wealth Management I am privileged to be able to extend this Invitation in association with RBC Wealth Management. The date is Wednesday January 30, 2019 from 5:30 to 7:00 pm at Canterwood Country Club. Come and obtain some meaningful information and have some fun! Complimentary gourmet meal immediately after the seminar. There are no costs of any kind and no obligation. Space is limited. You can RSVP to (253) 274-4363.

Are sexual harassment settlement payments tax deductible?

As we look closer at Trump’s new Tax Cuts and Jobs Act of 2017 we ask; Are sexual harassment settlement payments tax deductible? Are inventors’ tax rates going up while composers and musicians continue to get a break?

Changes for Corporations – A Summary

Denial of Deduction for Settlements Subject to a Nondisclosure Agreement Paid in Connection with Sexual Harassment or Sexual Abuse – Effective for amounts paid or incurred after the date of the Act’s enactment, no deduction for any settlement, payout, or attorney fees stemming from a sexual harassment or sexual abuse matter if the payments are subject to a nondisclosure agreement of any kind. Interestingly, all payments made prior to 1/1/18 are still tax deductible and going forward, the denial of the deduction only applies to those payments made in connection with a nondisclosure agreement. Read more

tax cuts and reform

The Tax Cuts and Jobs Act of 2017 is now the “law of the land” starting in 2018

Tax laws have significantly changed with the passage of The Tax Cuts and Jobs Act of 2017. Our focus in this article is on the impact of this new law on individuals. Future newsletters will address the impact on Corporations, Pass-Through Entities, Trusts & Estates and Exempt Organizations.

Changes for Individuals – A Summary

  • Capital Gains rates remain at 20%
  • The Obamacare surtax of 3.8% on net investment income remains
  • The Medicare .9% surtax on wages and other ordinary income remains
  • The “Kiddie Tax” is new. It taxes minors like they are a trust. Rates start at 37% on unearned income over $12,500 annually
  • No more retroactive re-characterization of contributions to IRAs, as traditional or as Roth, or visa-versa
  • Personal exemptions were merged into the doubled Standard Deduction
  • The “Teacher Deduction” was doubled from $250 per year to $500 per year maximum deduction for classroom supplies
  • The Mortgage Interest deduction remains available on loans up to $1,000,000, but for homes acquired after 1/1/18, the mortgage amount is reduced to $750,000 and the deduction of HELOC interest has been eliminated
  • No more miscellaneous deductions or deductions for tax preparation fees
  • No more moving expense deduction except for Armed Forces members forced to move under military order

If you have any questions or would like to schedule a free consultation, please contact us at:

Port Orchard Office: (360) 876-6425

Seattle Office: (360) 509-4329

We hope these tax tips are helpful. Wishing all of our clients and friends a Prosperous New Year! From the Law Offices of Seward and Associates, Attorneys at Law

The Tax Cuts and Jobs Act of 2017. Key year-end tax planning tips.

Tax law changes are coming so we have some key year-end tax planning tips and summaries of The Tax Cuts and Jobs Act of 2017.

Our focus in this article is this proposed law and the potential major changes to both the income tax laws and the estate and gift tax laws that we can likely expect. See our planning tips below.

Changes to Income Tax Laws – A Summary

  • Corporate rates – corporate tax rates are reduced to a flat 20% rate which is 2.5% below the average marginal rate for corporations worldwide. The intention is to make US corporations more competitive in the global marketplace. To partially pay for this, Congress increased the tax rate for C Corporations with taxable income up to $50,000 a year from 15% to 20%, but for most, rates will go down. If your income tax rates will be decreasing, then accelerate income to the current year to take advantage of the lower tax rates while you can.
  • The Section 179 expense – This deduction allows expensing the full cost of assets used in a trade or business. It will be increased from a current maximum deduction of $500,000 to a maximum deduction of $5,000,000 through 2022 with a 50% bonus for new property (except for depreciable real property). So, you can buy that jet or a fleet of bulldozers now.
  • Section 1031 “like kind” real estate exchanges – If you are contemplating a Section 1031 “like kind” exchange – Complete the transaction as soon as possible as there will be severe limits to the benefits of this section going forward.

Read more

New tax cuts are “pending” and investment diversification as an asset protection strategy is more important than ever.

Have you considered diversifying your investments from the stock market to income-producing real estate?

We are seeing increased investment in income producing real estate such as apartments. The investment vehicle of choice for protection of business and personal assets and preferred tax treatment is the single member limited liability company (“LLC”) [1].

Single member LLCs – This entity is disregarded by the IRS for income tax purposes so all the tax benefits flow through to the member/investor on his or her 1040 personal tax return. The LLC files no tax return. Tax benefits include depreciation and interest deductions to offset the taxable rental income. Depreciation is a valuable non-cash deduction and it is based on the full purchase price excluding the land. The deduction is based on the premise that the improvements have a limited useful life so the investment is returned pro-rata over the useful life of the asset through depreciation deductions. This also lowers the tax payer’s basis in the property which increases the taxable gain on sale. That is where the magic of IRS Section 1031 comes into play.

IRS Section 1031 Like-Kind Exchanges – 1031 exchange tax deferral is available on sale if the net proceeds are reinvested in a qualifying “like kind” replacement property generally within 6 months of the sale. [2]The theory of tax deferral is that it is more of a theoretical gain if the investment continues in similar replacement property. This theory ignores the “step-up” in basis that is gained when the investor dies, and the “gain” avoids tax entirely. With the pending “tax cuts” this tax benefit may well be the first “offset” to go away.

Positive Leverage – With 75% positive leverage, a typical investment example follows:

A Typical Transaction:

A $1,000,000 purchase price, determined at a .06 capitalization rate, would look like this at the closing:

1) $250,000 cash down (this can be bifurcated into 5 LLC’s investing $50,000 each) and;

2) $750,000 in debt at a 4% interest rate, secured by the Property.

In this example, there is positive leverage on the $750,000 in debt of 2%. This is possible in the early years if interest rates stay at these historically low levels.

We are available to answer any questions you may have and we offer free consultations for anyone interested in discussing these investment diversification options. Call us at (360) 876-6425.


1. The 2003 Ashley Albright, Debtor, Case No. 01-11367 in the United States Bankruptcy Court for the District of Colorado made it more difficult for single-member LLCs where the member is in Chapter 7 to protect the business assets of the LLC from the trustee. Protection still exists from most creditors and personal assets continue to be protected from creditors of the LLC.

2. Property held for investment or for use in a trade or business qualify and the “like kind” requirements are very broad in terms of the kinds of real estate that qualifies. For example, an easement can be sold and reinvested in a fee interest.

Photo by Sweet Ice Cream Photography on Unsplash

Maria Therese Fujiye

Welcome our new associate Maria Therese Fujiye!

Maria Therese is native to the Pacific Northwest and received her Juris Doctorate from Seattle University School of Law in 2016. During law school, Maria Therese worked as an editorial assistant for a small editing company and externed in the legal department at the Allen Institute for Brain Science. She also co-authored a book chapter exploring the utility of certification marks on public health.

Prior to starting her legal career, Maria Therese worked for the University of California, San Francisco, on a psycho-oncology project aimed at reducing fear of cancer recurrence in early stage breast cancer survivors.

Maria’s law practice areas include health care, estate planning, real estate, probate, elder law and bankruptcy.

Managing Medical Bills

Health insurance does not necessarily translate into affordable healthcare.

Typically, people use their credit cards to help pay their medical bills, thereby shifting family budgets even further into the negative.[1] Thus, not surprisingly, healthcare cost is one of the primary reasons people declare bankruptcy.[2]
The stress from financial troubles can be just as devastating as coping with the physical and emotional challenges that accompany a serious illness. Between 2011 to 2014, roughly one in five persons under age 65 was in a family that had difficulty paying medical expenses in the past 12 months,[3] and in 2015, the percentage of adults who delayed or did not receive needed medical care for cost reasons increased as the number of diagnostic conditions increased.[4] And among insured with medical bill problems, a 2016 survey found that over 60 percent reported using most of their savings.[5] Read more

Prepare Your Spouse to Handle the Finances

When a spouse passes away, having some difficulties is to be expected. With planning, those difficulties can be limited to emotions and not finances.

Upon losing a spouse one of the biggest problems people often face is understanding and handling family finances. This is a particularly acute issue for many older women who have left management of financial matters primarily up to their husbands. It can also be a problem for older men, if their wives handled everything. Regardless of which spouse predeceases, a lack of knowledge about the finances can cause increased emotional and financial stress at the most inopportune time. This is a mostly avoidable problem. Read more