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  • Senate Tax Bill Summary

    It's not quite time for the Republicans to take a victory lap, but they've certainly cleared the most difficult hurdle. Since the Senate was the harder obstacle, the final bill is far more likely to look like the Senate bill than the House bill.

    A brief summary of the Senate bill passed early this morning:

    Deductions:

    Standard deduction will be doubled. Exemptions will be gone. State and local income taxes are no longer deductible. Property taxes up to $10K are deductible and mortgage interest on first $1M is still deductible.

    This will result in far fewer people itemizing, including many high income professionals.

    Brackets:

    There are 7 brackets. Don't pay much attention to the %s or the brackets. Basically, every bracket is 2-5% less. So what was 15% is now 12%. What was 25% is now 22% etc. The 35% bracket goes all the way to $1M for marrieds, then the top bracket is 38.5%.

    AMT:

    Unfortunately, the Senate bill does not completely remove the AMT, but at least it will hit fewer of us.

    Pass-Through Entities:

    Basically, pass-through entities like The White Coat Investor, LLC and my physician partnership, will not have to pay taxes on business profits at 35% or 38.5%. That'll be somewhere just under 30%.

    Two caveats, however.

    # 1 If you make over $500K ($250K single), and are in a service business (i.e. a high income professional,) you don't get that break. You pay at 35-38.5%.

    # 2 If you make over $500K ($250K single) the deduction is limited to 1/2 of what you take as wages. So if you make $1M, and pay yourself $300K in wages, you don't get that break on all $700K. You only get it on $150K. The rest is paid at 35%. You still would save the Medicare tax on that distribution.

    Estate Tax

    Exemption Doubled.

    Overall, this will lower the tax bill for most doctors and simplify tax filing for many. Those in high income tax states won't see as much benefit as those in lower tax states as much of what they gain in the brackets they lose with the loss of the state income tax deduction. There are a few other interesting changes, but they'll have a minor effect on the lives of most high income professionals compared to what I note above.

    ALL DISCUSSION ON THE FORUM OF THIS BILL NEEDS TO TAKE PLACE IN THIS THREAD. AD HOMINEM ATTACKS AGAINST OTHER FORUM MEMBERS, POLITICIANS, POLITICAL PARTIES ETC WILL NOT BE TOLERATED. FOCUS YOUR DISCUSSION ON WHAT THE BILL DOES AND DOES NOT DO, NOT HOW YOU FEEL ABOUT IT OR THE MOTIVES OF THE POLITICIANS WHO VOTED FOR OR AGAINST IT.  IF PEOPLE CANNOT ABIDE BY THIS RULE, THE THREAD WILL BE LOCKED AND FURTHER DISCUSSION OF THE BILL WON'T BE ALLOWED UNTIL IT IS SIGNED INTO LAW.
    Helping those who wear the white coat get a fair shake on Wall Street since 2011

  • #2
    Question about the pass through caveats.. so if you are single and have a salary of 250k you get the lower rate. If the salary is 300k would the extra 50k be at the personal rates or the entire 300k?

    Comment


    • #3
      I've been hit by the AMT the last few years. How does it change with this bill? I was under the impression that they just left it alone.

      I live in a high tax state and I think it will be a wash for me or I may pay more taxes.

      Picked a bad year to buy a house, have a kid and move to a high tax state. Bad luck.

      Comment


      • #4
        And did they end tlh?

        Comment


        • #5
          Other details:

          Corporate tax rate:  20%, starting in 2019

          -I believe there are wider bands for taxation of dividends received by corporations however

          Individual Tax Changes:  Only apply through 2025 unless otherwise stated

          Medical Expense Deduction:  7.5% threshold for 2017 and 2018

          Tax-Advantaged College Savings Accounts:  Extended to public, private, and religious K-12 schools

          ACA:  Repeal of individual mandate starting in 2019, stabilization with other subsidies

          Sale of Home:  5/8 years to get the capital gains exemption, don't see where prior exceptions are taken away

          Moving Expense Deduction:  Suspended, unless qualifying under subsection g

          Bicycle Commuting Reimbusement:  Suspended (sorry mustachians)

           

          Havent seen anything about stopping Backdoor Roth or TLH.

          Comment


          • #6




            A brief summary of the Senate bill passed early this morning:

            Pass-Through Entities:

            Basically, pass-through entities like The White Coat Investor, LLC and my physician partnership, will not have to pay taxes on business profits at 35% or 38.5%. That’ll be somewhere just under 30%.

            Two caveats, however.

            # 1 If you make over $500K ($250K single), and are in a service business (i.e. a high income professional,) you don’t get that break. You pay at 35-38.5%.

            # 2 If you make over $500K ($250K single) the deduction is limited to 1/2 of what you take as wages. So if you make $1M, and pay yourself $300K in wages, you don’t get that break on all $700K. You only get it on $150K. The rest is paid at 35%. You still would save the Medicare tax on that distribution.
            Click to expand...


            This is very confusing to me.  You, white coat investor, are a physician and I assume you make over 500k. You are in a service business. You own an S Corp with pass through income. How do you qualify for the lower pass through rate?

            I also own an S Corp, am a physician, and get paid pass through income (non-W2).  I am very confused as I have no idea how my pass through income will be taxed.

            Comment


            • #7







              A brief summary of the Senate bill passed early this morning:

              Pass-Through Entities:

              Basically, pass-through entities like The White Coat Investor, LLC and my physician partnership, will not have to pay taxes on business profits at 35% or 38.5%. That’ll be somewhere just under 30%.

              Two caveats, however.

              # 1 If you make over $500K ($250K single), and are in a service business (i.e. a high income professional,) you don’t get that break. You pay at 35-38.5%.

              # 2 If you make over $500K ($250K single) the deduction is limited to 1/2 of what you take as wages. So if you make $1M, and pay yourself $300K in wages, you don’t get that break on all $700K. You only get it on $150K. The rest is paid at 35%. You still would save the Medicare tax on that distribution.
              Click to expand…


              This is very confusing to me.  You, white coat investor, are a physician and I assume you make over 500k. You are in a service business. You own an S Corp with pass through income. How do you qualify for the lower pass through rate?

              I also own an S Corp, am a physician, and get paid pass through income (non-W2).  I am very confused as I have no idea how my pass through income will be taxed.
              Click to expand...


              Agree that it is confusing, especially with the different limits for married vs. single.

              Comment


              • #8
                Trying to find the details as I didn’t stay up till the vote   but I just noticed one important provision that will affect many young physician families - the use of 529 funds are extended to K-12. This is a biggie because we’ve been limited to the $2k/year Coverdell ESA (Education Savings Account) contribution to fund private schools. If you begin contributing when your children are young, this will have a tremendous impact on your school savings.
                Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

                Comment


                • #9
                  Bloomberg released the following:

                  https://assets.bwbx.io/documents/users/iqjWHBFdfxIU/rXqXuQfYbRas/v0

                  Comment


                  • #10
                    Will be interesting to see if married couples making less than 500k would benefit from forming a business and getting paid as a pass through entity.  I'm assuming the ability to deduct expenses would be better under the pass through option?  Someone will need to crunch those numbers and compare, but it's hard to do with the information we have so far.

                    With regards to deductions, I don't think I'll come anywhere close to beating the standard deduction of 24k even with the addition of property taxes.  I only pay 8 or 9k/ year in mortgage interest and only 3-4k/yr in property taxes.  Since I'm losing the personal exemptions and SALT, my taxes will be pretty quick and easy to do.  Even with our airbnb income, there will be no point in itemizing to deduct any of those expenses because they still won't get me over 24k.

                    Does anyone have a source on the tax brackets and percentages?

                    Does anyone know if the senate version axed the Electric Vehicle Credit?  I'm assuming it did, but haven't heard.

                    Comment


                    • #11
                      See the Bloomberg link above. Don't recall seeing the EV tax credit but I didn't look too closely for that. Brackets are listed fairly early on in the bill I think.

                      I think the more interesting opportunity is doing Roth conversions/contributions. I am MUCH more inclined to do Roth conversions now at a 22 or 24% rate and will likely change my 401k contributions to Roth. I'm trying to be realistic. I don't see how, with the debt and spending problems we have as well as the set expiration of the individual tax changes, that our rates don't go up by A LOT in the future. Regardless of one's political persuasion, this presents an opportunity for long term planning.

                      Comment


                      • #12




                        See the Bloomberg link above. Don’t recall seeing the EV tax credit but I didn’t look too closely for that. Brackets are listed fairly early on in the bill I think.

                        I think the more interesting opportunity is doing Roth conversions/contributions. I am MUCH more inclined to do Roth conversions now at a 22 or 24% rate and will likely change my 401k contributions to Roth. I’m trying to be realistic. I don’t see how, with the debt and spending problems we have as well as the set expiration of the individual tax changes, that our rates don’t go up by A LOT in the future. Regardless of one’s political persuasion, this presents an opportunity for long term planning.
                        Click to expand...


                        Interesting idea.  I hadn't thought of that, but yes you're right that future income will end up needing to be taxed higher to dig us out of the hole they are about to create.

                        What do others think of that idea? (more in Roth now in anticipation of higher rates later on?)

                        Also, for those interested, the proposed brackets are on pages 3 and 4.

                        As an example, for someone making 320k in taxable income and married, filing jointly, the tax bill for 2017 will be around 80k before deductions vs the new brackets it will be around 65k.  I suspect with the new standard deduction and lower tax bill my tax bill will end up being about the same as it is this year with the higher level of deductions.

                        Comment


                        • #13
                          I’ve been in my current home for 2.5 years and we are under contract to close on new home 3/2018. With the capital gains tax durations changed to 5/8 yrs, am I right in assuming I need to sell this current home before 12/31 to avoid the new change consequences?

                          Comment


                          • #14


                            Pass-Through Entities: Basically, pass-through entities like The White Coat Investor, LLC and my physician partnership, will not have to pay taxes on business profits at 35% or 38.5%. That’ll be somewhere just under 30%. Two caveats, however. # 1 If you make over $500K ($250K single), and are in a service business (i.e. a high income professional,) you don’t get that break. You pay at 35-38.5%. # 2 If you make over $500K ($250K single) the deduction is limited to 1/2 of what you take as wages. So if you make $1M, and pay yourself $300K in wages, you don’t get that break on all $700K. You only get it on $150K. The rest is paid at 35%. You still would save the Medicare tax on that distribution.
                            Click to expand...


                            Just to be clear, partnerships, LLCs and s-corps do not pay taxes, the owners do. In that light, I'm trying to understand how the partners in your physician partnership would not pay taxes at the top marginal tax bracket, as the practice of medicine is an excluded service business. How did you reach your conclusion? Or was your caveat #1 meant to apply to your physician partnership?

                            As for the deduction for wages from WCI, I concur that you would pay the lower rate on 1/2 of your wages. Looks like they finally figured out a way to encourage s-corp owners to increase their wages. Since SMLLCs and partnerships cannot pay wages to the owners, I do not know how this rule will apply to them. Any thoughts? Perhaps it will apply to Guaranteed Payments (GP's) for partners but that still doesn't solve the issue of SMLLCs.
                            Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

                            Comment


                            • #15
                              At one time there was a proposal to limit contributions to 403b and 457 plans to just 18k across both plans if you had access to both thru one employer. Is this still in the senate tax plan? I can't seem to find it in the linked bloomberg file.

                              Comment

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