1. By Frank Stitely, CPA, CVA Stitely & Karstetter, CPAs
Tax Reform: How to Make the Tax Reform Act Work for You and Your Clients
By Frank Stitely, CPA, CVA
Stitely & Karstetter, CPAs

2. The Tax Lady Says…
The New Tax Act created lots of winners and losers.

3. And the winners are… Business owners
People without a lot of itemized deductions
People with children under 17 years of age
People who used to pay alternative minimum tax
Everybody (to some extent)

4. Business Owners!!!! 20% pass thru deduction for:
Sole proprietors
S corporations
Partnerships
Limited by industry and income phase outs
Expanded depreciation deduction
21% C corporation flat tax rate
Qualified Opportunity Zone companies

5. People without many itemized deductions
New higher standard deduction
Single $12,000
Head of Household $18,000
Married $24,000
Additional deduction for the elderly
$1,600 for single
$2,600 for married

6. People with rug rats (children)
New $2,000 credit per rug rat under age 17
New $500 credit for other dependents
Higher phase out for the credit $200,000 AGI (single) or $400,000 AGI (married)

7. People who used to pay AMT
What is the Alternative Minimum Tax?
The AMT primarily affected people in the $200K to $500K income range.
Now it primarily affects people with greater than $1 million in income.
Many people were able to use AMT credit carryforwards.

8. Everybody (let’s party)!!!!!!!
3% rate cut (2.6% for the highest bracket)
Expanded tax brackets. More income is taxed at lower brackets.

9. And the losers are…
Employees with W-2 income greater than $500,000 with lots of exemptions
Salespeople and employees with lots of business expenses
People with large investment management fees
People (and companies) with net operating losses
DINCs (double income, no kids)

10. High W-2 income Under withheld from new IRS withholding tables
State and local tax deduction limited to $10,000
State and local income taxes (high tax states really hurt)
Real estate taxes
Personal property taxes

11. Salespeople and Employees with Business Expenses
Unreimbursed expenses are no longer deductible
Area with highest incidence of tax cheating
Treasury recovers money from cheating
IRS can redirect money spent auditing this

12. People with Large Investment Management Fees
Investment management fees are no longer deductible.
Tax preparation and legal fees (nonbusiness) are no longer deductible.

13. People (or businesses) with large net operating losses
Losses can only be carried forward.
Losses can only offset up to 80% of income.
Losses from 2017 or prior are still usable as before.

14. DINCs (double income, no kids)
Personal exemptions are gone.
$10,000 limitation on state and local taxes.
BTW, kids should not claim themselves anymore, if possible.

15. Maximizing the gain, minimizing the pain
Maximizing the the 20% pass thru deduction
Fixing salary withholding
Reclaiming business expenses for salespeople and employees
Bunching itemizing deductions

16. Maximizing the 20% pass thru deduction
No one is a consultant anymore
Few firms are truly consultants under the tax code.
Change NAICS codes, business descriptions and web sites to remove “consulting.”
Look at S corporations vs. partnerships vs. sole proprietorships.
High income owners need salaries expense to avoid phase out.
Sole owner S corporations have salaries.
S corporation salaries – how low can you go?
Owner salaries reduce the deduction.
Why zero salary won’t work.
Pension considerations with reduced salaries.
Plans based on % of salary may not be as good anymore.
401(k) plans may be a way to keep salaries low but pension contribution higher than with an SEP.

17. Fixing salary withholding
Example of the problem
Family W-2 income $250K with $25K federal withholding
Withholding is only 10% of income (not going to work)
Ending up owing $10K - $15K (and not very happy)
People, who got tax cuts, sometimes owed more money.
Withholding went down more than taxes.
Withholding tables still reference exemptions, when exemptions don’t exist anymore.
Nobody knows what an exemption is at this point for withholding purposes.
Focus on average tax rate to adjust withholding.
May need a professional to do this. (Math is hard.)

18. Reclaiming business expenses for salespeople and employees
Get employer to reimburse for expenses in exchange for lower gross compensation.
Unwillingness to do this says a lot about the employer.
Win-win for everybody
May wish to become independent contractor.
Run the numbers first!!!
Must pay both halves of Social Security and Medicare
Great potential pension benefits
20% pass thru deduction

19. Bunch deductions for two years into one year.
Bunch deductions to maximize deductions in years when you can itemize. Take the standard deduction in others.
Medical expenses
Charity
Mortgage interest (extra payment)
Charity deduction through RMD (required minimum distribution from IRA)
The only sensible way to donate if you’re over 70 years old.
Money goes directly from IRA to charity.
Limited to $100K.
Deduction from gross income – not an itemized deduction.
Reduces income for all kinds of areas – like taxability of Social Security and deductible medical expenses.

20. Questions????????????
The Tax Lady thanks you for supporting the Loudoun Estate Planning Council.
Please contact her care of:
Frank Stitely, CPA, CVA
(703)