Sometimes When You Lose, You Really Win

November 15, 2018

when-you-lose-you-win-bbot

As the calendar turns to November, it’s important to take a look at what you’re winning and losing with the 2018 tax law changes. You may want to know what your situation will look like compared to 2017 using the 2018 tax changes. Some business owners feel like they are losing a lot, because that’s what they hear— from the news, media, their friends, and maybe even their family. However, they may not lose at all. In fact, by losing deductions, business owners may win.  

Let’s look at a comparison. Our comparison is designed to determine what’s lost with the new tax law changes, using the same financial information for each year.

The facts:

  • Names: Billy Hoyle and Gloria Clemente
  • Status: Married, filed as Married Filing Jointly (MFJ)
  • Children: One (Sidney Deane)
  • OccupationsBilly is a small business owner, and Gloria spends her time making sure Sidney is staying in line.
  • IncomeBilly nets $200,000 a year after expenses. Gloria has no additional income.
  • House: Homeowners in Austin, TX
    • Property taxes: $18,000
    • Sales Tax deduction: $1,282
    • Mortgage interest: $14,000

Tax year

2017

2018

Taxpayer information

MFJ, 3 Exemptions

MFJ, 3 Exemptions

Wages

0

0

Schedule C income

0

0

Pass-through income

200,000

200,000

Total income

200,000

200,000

Adjustments to income

(10,565)

(10,658)

Adjusted Gross Income

189,435

189,342

Itemized deductions

(33,282)

 

Standard deduction

0

(24,000)

Exemptions

(12,150)

Not Available

Qualified Business Income deduction

Not Available

(33,068)

Taxable income

144,003

132,274

Regular tax

27,478

20,979

Nonrefundable credits

Phased out

(2,000)

Self-employment tax

21,129

21,315

Total tax liability

48,607

40,294

Withholding/ES payments

0

0

Total tax due

48,607

40,294

Tax savings

 

8,313


What was lost in 2018?

  • The ability to itemize deductions. The Standard Deduction was increased to $24,000 for MFJ taxpayers.
  • Exemptions. In 2018, the deduction for exemptions was eliminated in favor of increasing the standard deduction.

What was won in 2018?

This is just one example that before you succumb to the doom and gloom that you hear, you should take a moment to check your situation with your trusted advisor. Run the numbers to see where you compare to last year, and see if there’s anything that you can still change before the end of the year. Even though Billy and Gloria lost the ability to itemize deductions and the exemption deduction, they gained the QBID and the Refundable Child Credit. Had their 2017 income been used to calculate their 2018 income tax, these taxpayers would have seen an overall tax reduction of $8,313. Had this couple made estimated tax payments based on 2017, which many people have done, they would have lost the ability to use that money or, stated another way, they would have given the government an interest-free loan.  

Topics: Taxes

Mark Puzdrak

CPA

Mark Puzdrak is a Certified Public Accountant (CPA) with more than 13 years of professional experience helping small to medium-sized businesses with their tax and accounting needs including individual, corporate, and partnership income tax returns along with business and individual tax planning. Mark is a member of the American Institute of Certified Public Accountants and the Texas Society of Certified Public Accountants. He is licensed as a Certified Public Accountant in Texas and Pennsylvania. He earned both of his bachelor of arts degrees in accounting and finance from Lycoming College in Williamsport, PA. Mark is committed to delivering tax and planning services that meet each client's unique objectives with a focus on services for small to medium-sized businesses as well as clients in the Real Estate, Manufacturing, Entertainment, and Professional Services industries. Mark lives in Austin, Texas with his wife, Kelly. He enjoys reading biographies, visiting small Texas towns, and the occasional scotch and cigar.
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