Update on the GOP tax plan: What’s in it, and how does it affect me?

By Matt Barusch

In the Dec. 13 issue of the JCR Weekly, NCRA’s Government Relations Department analyzed the tax reform legislation making its way through Congress. Since then, Congress passed its comprehensive tax reform package just before the end of the year. This update covers the final form of the legislation and how it will affect your wallets in the years to come.

In the past 31 years, Congress has tinkered with and tweaked small components of the overall tax code but has failed to achieve comprehensive reform. With the passage of the Tax Cuts and Jobs Act, the Republican-led Congress has achieved one of its most coveted agenda items.

The final version of the bill, signed by President Donald Trump, reduces individual tax rates across all seven brackets, reductions that expire after the year 2025. The highest tax rate is reduced from 39.6 percent to 37 percent, and the threshold at which the top rate kicks in is raised to $500,000 for individuals and $600,000 for married couples. This change brings significant tax breaks to wealthy taxpayers. The standard deduction is nearly doubled to $12,000, and personal exemptions are eliminated. Many other itemized deductions are affected by this legislation as well. State and local tax deductions are limited to $10,000, and medical expense deductions have been expanded by reducing the threshold to 7.5 percent of annual income. This deduction will be particularly important for low-income families with large medical expenses. Also, the new law doubles the child tax credit to $2,000, and it has a larger refundable portion that would allow more lower-income families to benefit. Benefits to middle-class Americans have been preserved in the bill, such as the student loan interest deduction and graduate student tuition waivers. This bill doesn’t make changes to retirement accounts like 401(k) plans.

Concerning corporate taxes, the new law lowers the top corporate tax rate from 35 percent to 21 percent. This is the largest tax cut in the bill, the largest corporate tax rate cut in U.S. history, and the permanent rate of taxation for corporations. Business interest deductions would be capped at 30 percent of income. Pass-through entities get a 20 percent deduction of their income tax-free, changes that expire after 2025. The term pass-through companies refers to business income that is passed through to the business owner’s individual tax return. These companies include S corporations, LLCs, partnerships, and sole proprietorships. The new law also repeals, by 2019, the individual mandate penalty for purchasing health insurance created by the Affordable Care Act.

Matt Barusch is NCRA’s Manager of State Government Relations. He can be reached at mbarusch@ncra.org.

The GOP tax plan: What’s in it, and how does it affect me?

By Matt Barusch and Dave Wenhold

For the first time in decades, Congress appears to be on the verge of comprehensively reforming the U.S. tax system. In the past 31 years, Congress (regardless of the party in power) has tinkered with and tweaked small components of the overall tax code but has failed to achieve comprehensive reform.

For the last few weeks, the Republican-led Congress’ focus has been on simplifying the tax code and cutting taxes with the intent to spur economic growth. The House of Representatives and the Senate have each passed their own version of tax reform packages, dubbed the Tax Cuts and Jobs Act. The two bills will now meet in conference committee to reconcile their differences and produce a final product to send to President Trump’s desk.

But what is in those bills? What is most likely to be included in the final product? How will this affect me and how much will I pay in taxes? NCRA’s Government Relations Department has been hard at work analyzing the different tax bills, and here is a breakdown of what is in these bills.

Let’s start with the commonalities: provisions included in both the House and Senate bills. Both bills lower individual income tax rates and reduce the corporate income tax rate from 35 percent to 20 percent. These changes are intended to allow corporations to re-invest in their business infrastructures and hire more workers. Both bills also double the current estate tax exemption for individuals to $11 million, which the House bill repeals in 2024 and the Senate bill makes permanent.

With the intent of simplifying the tax code, the House bill eliminates most tax deductions in favor of doubling the standard deduction. The House bill also collapses the current seven-bracket classification system to four and eliminates many itemized deductions. State and local taxes (as well as medical, business, and classroom expenses) will no longer be deductible. These deductions were eliminated in favor of the higher standard deduction.

The Senate bill maintains the current seven individual brackets but lowers the effective rates and changes the income levels to which they apply. This changes after 2025, when the bracket reverts to current law. You can see how the tax brackets break down for single and joint filers in both bills here. The Senate bill also gets rid of the individual mandate penalty for purchasing health insurance created by the Affordable Care Act, one of the main reasons for tax reform in the Republicans’ minds.

There is also a provision in both the House and Senate bills that might eliminate the deductibility of association membership dues as a business expense, but we are working to make sure Congress clarifies their intent. According to Jim Clarke, ASAE’s Senior Vice President of Public Policy, “vague language in a provision eliminating deductions for entertainment expenses could, possibly as an unintended consequence, be interpreted to apply to association membership dues.”

The House bill increases the federal deficit by $1.08 trillion over the next 10 years, according to the Tax Foundation.

While there are a lot of moving parts in these bills, nothing is set in stone, and NCRA and our lobbying team are monitoring these events and speaking with our friends on Capitol Hill. You are encouraged to do the same! It is important for your elected officials to hear from you on your opinions. Contact them to let them know how this bill affects you and your family. For more information on how to reach out to your elected officials, contact NCRA’s Government Relations Department at GovRelations@ncra.org.

Matt Barusch is NCRA’s Manager of State Government Relations. He can be reached at mbarusch@ncra.org. Dave Wenhold, CAE, PLC, is NCRA’s legislative counsel.

Set your business up for success in 2017

As entrepreneurs close one year, many use the opportunity to set themselves up for success in the following year. One way to do this is to start looking at maximizing tax opportunities at the end of the year. Some of the top tax write-offs for self-employed people and business owners, according to TurboTax, are IRAs, home-office use, and educational expenses. Work-related memberships, such as to a state or national organization, are also common write-offs for many entrepreneurs.

“I get my court reporting machine serviced before the end of the year, and as a company, we pay our tax bill before the year turns, top off our office supplies, and reorder tchotchkes in our marketing closet,” says Debbie Dusseljee, RPR, CRC, reporter and owner of CompuScripts, located in Columbia, S.C.

Kathy A. Cortopassi, RMR, CRR, CRC, of Crown Point, Ind., had a long list for the end of the year, partly because she’s finding more reporting work even as she continues working as a CART captioner. Her list includes a new laser printer, a scanner, a new lightweight screen for CART, an LED display sign, and a few more iPads for realtime. She also mentioned that she bought a new machine at the NCRA Convention & Expo this past year, which will be part of her tax deductions. When asked why, she responded: “All the kids are gone, which means I don’t have those deductions anymore, so I have more room for deductions — er, toys!”

“I purchased a new scanner/photocopier/printer — it does everything but fly — and we will be purchasing a new telephone system by the end of the year,” says Jan Schmitt, RPR, of Schmitt Reporting & Video in Vancouver, Wash. “We also pay all bills and taxes and attempt to liquidate the checking account.”

“Our server is five years old so we are upgrading to the next level to handle our predicted growth pattern,” says Christine Phipps, RPR, a firm owner based in North Palm Beach, Fla., and an NCRA Director. “We also pay all outstanding invoices, in addition to rents due in January.”

Tax deductions don’t always come in the form of buying office supplies and equipment. For example, Robin Nodland, RDR, CRR, a principal in LNS Court Reporting based in Portland, Ore., says: “We give a sizeable donation to Oregon Lawyers against Hunger, which works in cooperation with the Oregon Food Bank. This is a wonderful way to recognize our clients, many of whom are on the board of this organization, and also make a donation to a worthy cause in our state. It’s a win-win.”

Schmitt mentioned that her company picks out a different charitable group each year. Michael Pace, CEO and president of Argen Blando Court Reporting & Video in Denver, Colo., mentioned that his company plans to give to both Justice and Mercy Legal Aid Clinic and Dolls for Daughters this year. Many charitable contributions can qualify as tax deductions against a business’s annual tax liability.

Pace suggested an article on charitable contributions from the Small Business Administration for those considering making donations.

Since each person’s personal and business situation is unique, it’s important to remember to assess the each individual’s personal situation.

“In all cases, seek the counsel of your tax advisor before making an important decision regarding taxes,” says NCRA CEO Mike Nelson, CAE. “If you do not have someone to provide guidance to you, consider consulting an Enrolled Agent. They are federally licensed tax experts who specialize in tax matters.”

NCRA offers members information on issues, state requirements

Members can find information on the certification, notary, and read-and-sign requirements of various states through the National Court Reporters Association website. This section of the website, which members must sign in to access, was compiled through NCRA’s Government Relations department and the National Committee of State Associations (NCSA). Dubbed the “State of the Nation Activities Report,” or SONAR, the data bank provides state leaders the information they need when dealing with state or national issues. In addition, SONAR can give members a way to compare various pieces of information across the states. These include certification requirements, certification boards, official fee schedule, firm registration, notary requirements, pay rates for officials, read-and-sign requirements, and state tax rules. It also allows members to look up information by state, so that members who are considering a move to a different state can research the requirements. If any of the information on your state is out of date, contact Adam Finkel at afinkel@ncra.org. Information on this can be found at NCRA.org/SONAR.

What to do when you can’t pay your tax bill in full

In an article for Forbes, Kelly Phillips Erb has seven suggestions if a taxpayer is unable to pay his or her entire tax bill. Solutions range from making monthly installments to asking for additional time, although Erb stresses that it’s important to file anyway.

Read more.

Tax tips for freelancers and small business owners

March 16 is the deadline for first-quarter taxes for U.S. business owners and freelancers who file quarterly, and April 15 is the deadline for individual tax returns. For small businesses and freelancers, filing taxes can be complicated, and suggestions for deductions should always be run by a tax professional. In the meantime, here are a few ideas to consider.

The ultimate list of freelancer tax deductions

A Jan. 28 post on the Freelancers Union blog describes over a dozen potential tax deductions for freelancers. The author’s points range from the requirements to claim a home office to which form to use when claiming medical care expenses to bank and legal fees that should not be forgotten. Read more.

Prepare for tax season now

Before the end of the year is a great time to get ready for tax season and maximize any tax savings you get from deductions for the past year.

Some of the top tax write-offs for self-employed people and business owners, according to TurboTax, are IRAs and using part of a home for business purposes.

Any and all equipment/supplies purchased for office or home [office]; i.e., printers, laptops, cases of paper, and ink,” top the list of Candy Morgan, RPR, a court reporter in Orlando, Fla. In addition, Morgan reminds others that the federal rate for mileage is 56 cents a mile (although confirm current rates).  “We just have to keep a log with numbers from the odometer. We cannot write off driving to and from the office from home, but the trip to the office can be in the middle of the day. And, definitely, all parking and tolls,” Morgan reminds.

“The accounts receivable that I’ve struggled getting paid for over the last several months I write off as bad debt expense at the end of the year,” says Linda C. Larson, RPR, CRI, a freelancer and agency owner in Carlisle, Pa.

“Maximize your tax savings by taking advantage of purchasing new equipment. Don’t forget that machine maintenance, software upgrades, and service contracts can be considered tax breaks. In addition, in states that require licenses or certifications, those fees as well as any fees that support continuing education requirements for those licenses also can be used as a tax deduction,” reminds Phil Liberatore, owner of Philip Liberatore, CPA, a company based in La Mirada, Calif

Finally, if you have questions about what you can and cannot claim as tax breaks, be sure to contact a certified accountant or tax preparer.