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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

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

Be Aware – The IRS is Planning to Use Private Debt Collectors

Beginning as early as Spring 2017, the IRS will begin using private debt collectors to collect unpaid federal income taxes.

The selection of private debt collectors was in response to a law passed by Congress requiring the IRS to outsource tax debts if one of three conditions applies:

  1. more than one year has passed without any interaction between the taxpayer and IRS;
  2. one-third of the statute of limitations has lapsed and there is no IRS collector assigned; or
  3. the IRS is otherwise not working the debt due to lack of resources.

Experts have expressed concern that hiring private debt collectors will add to the problem of scam artists who pose as IRS collectors. Currently, the IRS has a policy of never calling to collect without first mailing a notice, and has urged consumers to ignore scam calls. When private collectors begin calling taxpayers regarding back taxes, it will add to the confusion and make consumers more vulnerable to these scams. Consumer advocate groups are seeking further protections, such as excluding from the program low-income taxpayers and those who owe taxes under the Affordable Care Act. Read more

Estate Tax and Estate Planning Updates

Estate Tax Update

Federal Estate Tax, Gift Tax and Generation-Skipping Tax Exemptions

The 2016 federal exemption against estate and gift taxes is up to $5,450,000 per person adjusted for inflation, up $20,000 from the 2015 exemption which was $5,430,000 per person. This is up from $5,120,000 in 2012. Estates in excess of this exemption amount are subject to a 40% federal estate tax. The federal generation-skipping transfer tax exemption was also increased to $5,450,000 per person.

State Estate Tax Exemption

The 2016 Washington State estate tax exemption is $2,078,000 per person up from $2,054,000 per person in 2015, adjusted for inflation. Washington estates in excess of this amount are subject to a 10% – 20% Washington State Estate Tax. Even though the Washington State estate tax exemption has been increased to $2,078,000, the filing threshold for the Washington State Estate and Transfer Tax Return remains at $2,000,000. Each estate over $2,000,000 is required to file a Washington State Estate and Transfer Tax Return. The exemption amount remained at $2,000,000 during 2012 and 2013, and was first increased to $2,012,000 in 2014.

Federal Gift Tax Annual Exclusion

The federal annual gift tax exclusion remains at $14,000 for 2016.

Estate Planning Update

Supreme Court States Inherited IRAs Are Not Exempt From Creditors’ Claims

If you have an Individual Retirement Account (IRA), funds held in your account are exempt from your creditors. In other words, if you are in a car accident and a judgment is awarded against you, your IRA cannot be seized as payment. However, it was unclear previously whether the beneficiaries who received your IRA following your death would receive the same creditor protection that you received. Recently, in Clark v. Rameker, the US Supreme Court clarified this. The Court reasoned that Inherited IRAs (e.g., IRAs left to a spouse, children, grandchildren, or friends upon a participant’s death) are not “retirement funds” and therefore do not receive creditor protection. The one exception to this rule is for IRAs left to a surviving spouse who then “rolls over” the IRA and treats it as his/her own account. In this case, the IRA will remain creditor protected.

IRA Trusts – Creditor Protection For Inherited IRAs

When one door closes, another opens. In the wake of Clark v. Rameker, IRA Trusts have become much more popular. While an Inherited IRA left to an individual is not protected from that individual’s creditors, an IRA left to an IRA Trust for the benefit of an individual can be protected from that individual’s creditors. An IRA Trust is a trust specifically designed to allow the IRA to remain tax-deferred – stretching the required minimum distributions from the IRA over the life expectancy of the beneficiary. The IRA Trust can allow these distributions to be accumulated in the trust and held for the beneficiary’s benefit, or the distributions can pass directly to the beneficiary. If the IRA Trust includes language that prohibits the IRA Trust beneficiary from voluntarily or involuntarily alienating his or her interest in the IRA Trust (commonly referred to as a “spendthrift” provision), the beneficiary’s creditors cannot reach the funds in the IRA or in the IRA Trust.

Key Asset Protection Strategy – Based on the above we are recommending that clients use an “IRA Trust” as their IRA beneficiary instead of directly to their children in what becomes an “Inherited IRA” on your death which is not protected from creditors. If you have questions or would like to discuss your personal situation, please contact us and we would be happy to discuss how you can protect your hard earned assets for the benefit of your family.

Advice for the financially challenged

Welcome to the Asset Protection Newsletter & Blog, dedicated to helping our readers to protect their hard earned Assets.  [1] This Newsletter and Blog will also provide you with the information that the money center banks do not want you to know.  [2] Now with the extension of the Bush tax cuts there is even more pressure on congress to find more revenue sources by broadening the tax base.

The Federal Government is like a family that is unable to pay its bills without incurring more debt or invading retirement accounts – David Walker, former US Comptroller General, in a politically crafted understatement said, “We’re on an imprudent unsustainable fiscal path”. Read more