2018 Tax Bill & Pass-Through Entities

[Jim Frame]

I realize that it's a bit early to be concerned about 2018 taxes, but I'm curious to learn whether or not my understanding of the pass-through provision of the federal tax bill jives with that of others. From what I've read, it sounds like a sole proprietor land surveyor will be eligible to take the 20% business income deduction -- in addition to the standard deduction -- if his/her business income is less than $157,500 (filing single) or $315,000 (married filing jointly). It seems to me that these phase-out limits will cover most sole proprietors.

Concurrence? Disagreement?

Thanks!

[squid]

I'm curious too. This information is from Intuit:

https://turbotax.intuit.com/tax-reform?cid=em_39665_3301_002_2017

https://turbotax.intuit.com/tax-tips/irs-tax-return/2017-tax-reform-legislation-what-you-should-know/L96aFuPhc#businesses

"The bill has a myriad of changes for business. The biggest includes a reduction in the top corporate rate to 21%, a new 20% deduction for incomes from certain type of “pass-through” entities (partnerships, S Corps, sole proprietorships), limits on expensing of interest from borrowing, almost doubling of the amount small businesses can expense from the 2017 Section 179 amount of $510,000 to $1,000,000, and eliminates the corporate alternative minimum tax (AMT)"

[Mr. Smith]

I will believe it when I see it Carol, in my experience tax cuts seem to cost me more $.
We can only hope we get a break on pass-through. I asked my accountant and he does not know yet.
Appears to be some confusion on S Corps, Partnerships, Sole Proprietorship's but is clear on type C corps,
they (Type C) get the reduction, so, the big company competition gets well right away but us smaller businesses will wait.

Brian

[Anthony Maffia]

Update, but the CNN article doesn't mention engineering/surveying

https://www.cnn.com/2018/08/08/politics ... index.html

[Mr. Smith]

The last sentence makes it look like we are screwed out of the deduction.

[Jim Frame]

The last sentence makes it look like we are screwed out of the deduction.

This sentence?:

The law also prohibits service businesses in certain industries from taking the deduction, including health, law, accounting, actuarial sciences, athletics, consulting, financial and brokerage services and the performing arts.

I don't consider my business to come under any of those titles. I'm a professional land surveyor, not a consultant.

One of the key definitions of ineligible businesses is "any trade or business where the principal asset of such trade or business is the reputation or skill of one or more of its employees or owners." I don't consider my principal asset to be my reputation (though it's certainly a subsidiary asset), nor my ability to competently swing a sledgehammer. Rather, it's my knowledge of certain laws and practices and their application to land surveying matters that holds the value.

It'll be interesting to see if the IRS challenges my 2018 return, but I'm certainly going to claim the deduction unless future rulings more specifically exclude me.

[Mr. Smith]

Agree, but kind of vague.

Can we prove we do not consult?

[Jim Frame]

A consultant is a professional who provides expert advice

While I do sometimes provide advice, it's not my principal deliverable. Rather, I provide facts, as I find or interpret them, in the form of boundary locations. I don't say to my client, "I suggest that you locate your boundary here," instead I say, "Your boundary is here."

[Mr. Smith]

Agree, but I am not the one to convince. IRS can play hard ball I have heard.
In our small town the IRS shut down (chained the doors) our only ambulance service for some kind of tax snafu.

[Jim Frame]

The regulation is sufficiently vague that I doubt the IRS is going to go further than disallowing the deduction and requiring reimbursement (with interest, of course!). I figure I have very little to lose by claiming the deduction, and a lot to gain. Things might change by year's end, though, if the agency produces more fine-grained interpretations.

[Mr. Smith]

Lets hope we can use the deduction and reward those who work hard.

[Jim Frame]

Near as I can tell it wasn't designed to reward those who work hard, but if I can make it do so anyway I will.

[Jim Frame]

In the CLSA webinar on the tax act that just concluded, the accountant presenting stated without qualification that the passthrough deduction is available to surveyors.

[Mr. Smith]

YES good news

[LA Stevens]

Also important for surveyors is the deduction for "Domestic production activities deduction. Attach Form 8903". I believe he said, surveyors could amend our tax returns back to 2015 to take advantage of the deduction. He stated it was the first thing that they look at for a surveyors prior return, when they have a new surveyor client. He said it was commonly missed by other CPAs.

It appears my accountant has not applied the deductions to my past returns. I would check your individual returns.

[Jim Frame]

He said it was commonly missed by other CPAs.

Heck, even TurboTax has snagged that deduction for me for some years now.

[PLS7393]

Yesterdays webinar was helpful. It clarified a couple items for me, including meal deductions and the "Domestic production activities deduction" which my tax guy missed, so I will be amending my past three years tax returns.

UPDATE: My tax guy reviewed and said that the "Domestic production activities deduction" is relative to the W-2 wages spent on employees, so being that I am a sole proprietorship business, . . . I get nothing, just like playing the darn Lotto!!!

[Jim Frame]

The IRS released rules today that strengthen the interpretation that surveyors will be allowed to take the deduction. There are two key points:

1. The legislation specifically disallows the deduction for "any trade or business where the principal asset of such trade or business is the reputation or skill of one or more of its employees or owners." It's conceivable that a land surveyor could be categorized as such.

2. The legislation specifically names engineers and architects as allowed, but surveyors aren't mentioned, which meant that surveyors might be lumped into the category of consulting, which is specifically disallowed.

However, today's 247-page ruling notice includes the following that addresses item 1:

If Congressional intent was to exclude all service businesses, Congress clearly could have drafted such a rule. Accordingly, the final regulations retain the proposed rule limiting the meaning of the reputation or skill clause to fact patterns in which an individual or RPE is engaged in the trade or business of receiving income from endorsements, the licensing of an individual’s likeness or features, and appearance fees.

It also addresses item 2:

The performance of services in the field of consulting does not include the performance of services other than advice and counsel