2017 Tax Cuts and Jobs Act by Austin Duerfeldt

Jessica Groskopf Author

02/27/2018 Added

16 Plays

Description

The last tax reform bill was in 1986. This section will be a brief introduction to some of the changes from the recent tax bill. A foundation course as everyone waits for finalized guidelines from the IRS.

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[00:00:02.920]Thank you. So, today we're gonna talk
[00:00:05.410]about the 2017 Tax Cut and Jobs Acts,
[00:00:07.630]and the most stressful thing I can point out
[00:00:10.500]is they passed a bill, and there's changes on the way.
[00:00:13.650]I like the the bill the way it is, a little bit,
[00:00:15.600]but there's definitely some things that need fixed.
[00:00:18.160]A couple weeks ago, I met with (mumbles) and he mentioned
[00:00:20.810]some of the things that they were looking at.
[00:00:22.690]So, there are some things that gonna change,
[00:00:24.820]so don't get attached to anything
[00:00:26.380]if you see something you just direly love, because
[00:00:28.670]it might not be there this time tax season next year.
[00:00:33.320]So...
[00:00:36.560]Like I said, even though this bill's been passed,
[00:00:39.070]there's gonna be changes to it and the IRS
[00:00:42.500]is gonna have a long period of guidance that they're
[00:00:45.160]gonna have to issue on some of these bills,
[00:00:47.010]because they've kind of left 'em wide open.
[00:00:50.660]One of the big things that everybody probably noticed
[00:00:53.700]is a lot of these sections within the new tax bill
[00:00:56.670]have what's called a sunset clause.
[00:00:59.570]That means at some point in the future, it's gonna go away.
[00:01:04.520]Now, why would they have all these sunset clause?
[00:01:06.960]And just to make a point, any time there
[00:01:08.980]is a sunset clause, I try to include...
[00:01:12.470]This little image in the bottom right,
[00:01:14.800]and that'll kinda let you know that that's something
[00:01:16.780]that's not gonna be there permanently.
[00:01:18.420]It's gonna get changed.
[00:01:20.040]Now, why do we have all the sunset clauses?
[00:01:22.920]There's the Byrd Rule, and basically what this is,
[00:01:26.190]is United States cannot pass a legislation
[00:01:30.020]that significantly increases the deficit
[00:01:33.470]for a ten-year term.
[00:01:35.880]And so what they have done is they put this sunset clause
[00:01:38.530]on there, so that there's an end date,
[00:01:40.300]so they don't significantly increase the deficit per se.
[00:01:48.350]Another word, and this is a really dirty to be putting
[00:01:51.720]into the tax bill all the time,
[00:01:53.210]but they use the world qualified,
[00:01:55.470]and anytime they use that word, basically that means the IRS
[00:01:58.530]is gonna have to sit down
[00:01:59.540]and hash out what that actually means,
[00:02:01.330]because they didn't know when they passed it.
[00:02:03.930]They just kinda passed the buck onto somebody else,
[00:02:06.822]in trying to figure out what exactly that was gonna pertain
[00:02:09.084]to and how it was gonna work.
[00:02:11.450]So in the next few years, like I said, IRS guidelines,
[00:02:14.200]court rulings, appeals, new guidelines, these
[00:02:17.140]are all gonna be things that transpire.
[00:02:20.320]The last tax bill they did was before I was born, in 1986.
[00:02:24.920]So, it's gonna be a little bit of a rollercoaster ride
[00:02:28.230]as they try and hash this out
[00:02:29.500]and figure out what all's gonna take place.
[00:02:32.640]So what we've done is, I've got two sections goin' on here.
[00:02:36.190]I've got the personal side of things,
[00:02:38.410]and I've got the business side of things.
[00:02:40.590]We're gonna start out with the personal side of things.
[00:02:43.870]More than likely, everybody has
[00:02:45.290]probably seen the tax bracket charts,
[00:02:48.430]and they tout pretty heavy that everybody's seeing
[00:02:51.090]about a 2% decrease, maybe a little bit more,
[00:02:53.420]and as we run through 'em, it's pretty well showing that.
[00:02:58.810]We've got 10% pretty well stayed the same,
[00:03:02.050]with married filing jointly,
[00:03:03.130]but then when we get to the 15%, now it's 12%
[00:03:06.480]for that same bracket size.
[00:03:11.080]There is one little bit of a neat tidbit
[00:03:14.010]to this that they don't talk about a lot.
[00:03:18.520]There is actually a tax range
[00:03:21.890]for income where it actually increased.
[00:03:24.980]If you were married filing jointly and your income
[00:03:27.690]was $400,001 and $424,950, the old rate you used to pay
[00:03:33.010]was 33%.
[00:03:34.010]Now it's 35%.
[00:03:35.710]It's not a very large range
[00:03:37.090]of people that probably fall into that,
[00:03:38.640]but I just thought that was kinda odd when I came across it
[00:03:41.150]and saw that that's what actually transpired.
[00:03:45.740]Another big thing that they push is we're giving everybody
[00:03:48.960]more standard deduction.
[00:03:51.060]They're saying, we doubled your standard deduction,
[00:03:53.120]so that's gonna try and get away
[00:03:54.640]from using the Schedule A,
[00:03:56.380]and they pretty well gutted Schedule A,
[00:03:58.630]and we're gonna go through that quite a bit.
[00:04:01.250]But as you go through the standard deduction,
[00:04:03.330]understand that they also got rid
[00:04:05.010]of your personal exemption.
[00:04:07.610]So when you're looking at the two trying to decide,
[00:04:10.070]you know, if you're better off, what you're really looking
[00:04:13.580]at is your old standard deduction
[00:04:15.710]plus your personal exemption.
[00:04:16.970]You are looking at about $10,350.
[00:04:21.120]Under the new tax law, you get that standard deduction
[00:04:24.720]of 12, and this is for single filers.
[00:04:28.660]You won't have that personal exemption,
[00:04:30.890]so there's a little under about $2,000 differing increase,
[00:04:34.620]is what you're seeing.
[00:04:40.430]So, getting into the Schedule A things that probably a lot
[00:04:44.010]of people are kind of scratching their head.
[00:04:45.670]If you are home owner, a lot of people are saying that,
[00:04:48.840]you know, you were taking that mortgage interest
[00:04:51.240]on your Schedule A.
[00:04:54.410]They have put a maximum indebtedness recognization
[00:05:01.028]to $750,000, and that is after 12/31/17.
[00:05:06.350]Anything purchased before that date,
[00:05:08.040]you still have a limitation of $1,000,000,
[00:05:11.180]but in short, they have suspended,
[00:05:15.540]until the sunset comes off, they have suspended
[00:05:18.910]that interest deduction on Schedule A,
[00:05:21.600]and so the mortgage interest that you had been using,
[00:05:25.460]that won't be there.
[00:05:26.500]Now, this is another one of those instances
[00:05:28.610]that I probably need to stop and pause
[00:05:30.340]and make sure everybody understands that
[00:05:32.620]there's a difference between personal mortgage interest,
[00:05:36.790]and business mortgage interest.
[00:05:39.010]If you have a mortgage interest, say that you
[00:05:41.410]were paying interest, mortgage interest, on some sort
[00:05:44.220]of business property that you have purchased.
[00:05:47.470]That's gonna go on the, let's say it was a rental house,
[00:05:51.090]that's a Schedule E thing.
[00:05:53.120]That hasn't been limited.
[00:05:54.310]You get that, it won't be touched.
[00:05:57.060]This is just with personal.
[00:05:59.530]Same with state and local property taxes.
[00:06:02.250]This one raised a really large fuss,
[00:06:04.460]and was in the topic of the news for a while.
[00:06:07.820]They have put a maximum cap of $10,000.
[00:06:13.520]Now in Nebraska, let me see a show of hands.
[00:06:16.740]Who thinks that their real estate taxes are cheap?
[00:06:20.228](audience laughing)
[00:06:21.540]Nobody raises their hand.
[00:06:22.850]I used to be a county treasurer.
[00:06:24.150]That was probably the biggest thing that people came
[00:06:26.460]in to complain about.
[00:06:27.920]"My real estate taxes are high,"
[00:06:29.610]And I'm like, I made the bill.
[00:06:30.960]I know they're high.
[00:06:32.810]I don't know what to do for you.
[00:06:34.610]But, again, this is another one of those deals where there's
[00:06:38.960]a difference between your personal and business.
[00:06:42.370]The house that you're living in, yes,
[00:06:44.130]there is that $10,000 limit to it.
[00:06:47.280]If it's business, say you've got $12,000 worth
[00:06:50.440]of real estate taxes that's going on your farm ground,
[00:06:54.110]take that to the Schedule F.
[00:06:55.650]No limitations.
[00:06:57.680]Take it in full.
[00:06:59.540]And more than likely, your accountant
[00:07:01.300]is already doing this for you.
[00:07:02.610]If you went through your tax return,
[00:07:03.870]more than likely you're gonna come across
[00:07:06.320]on your Schedule E, your Schedule F, your 4835,
[00:07:10.120]they have put some sort of tax number
[00:07:12.270]in there that ties to your real estate taxes.
[00:07:17.570]Charitable contributions.
[00:07:19.900]A lot of charities about this and,
[00:07:22.620]in their defense, I probably kinda agree
[00:07:24.520]with them a little bit.
[00:07:26.950]They did increase the percent limit
[00:07:30.270]on income base so that you get more
[00:07:33.340]of your benefit by donating.
[00:07:35.460]So, they tried to help it out a little bit.
[00:07:37.600]Used to be 50%, now it's 60.
[00:07:42.590]They did take away, though, and if you watch the news
[00:07:45.410]for Nebraska Husker tickets you probably noticed this too,
[00:07:49.080]there is no charitable contribution
[00:07:51.070]for payments to institutions or higher education,
[00:07:54.070]where they were getting some sort
[00:07:55.610]of preferential treatment
[00:07:57.970]and getting tickets to sporting events.
[00:08:00.510]So, no longer were they able to donate money to UNL
[00:08:04.060]in order to be first in line to get football tickets,
[00:08:07.270]that sort of a thing.
[00:08:09.720]One thing I do wanna point out with this is,
[00:08:12.950]there was a code section in the old tax law
[00:08:15.900]where they were trying to make it easier
[00:08:17.620]for, say like, small organization churches, when they
[00:08:21.650]were getting donations, they tried to put something
[00:08:24.300]in there so they didn't have to worry about handing letters
[00:08:27.540]to each person that donated to 'em stating
[00:08:30.240]that they donated X amount of dollars for your taxes.
[00:08:33.400]They never got that part
[00:08:34.630]of the code section figured out right,
[00:08:37.110]and so it never took effect.
[00:08:38.720]When they came out with the new one,
[00:08:40.710]they just got rid of it.
[00:08:42.120]Rather than trying to fix it, they just got rid of it.
[00:08:45.430]So, if you're working with your local church
[00:08:48.860]or some other organization that gets donations,
[00:08:52.210]realize that there's a $250 plus,
[00:08:54.740]any time you get a donation, a $250 plus you
[00:08:58.020]need to be giving them a letter.
[00:08:59.580]And if you don't know what you need to put for wording
[00:09:02.500]on that letter, you can talk to your senator.
[00:09:05.130]Pull up on the Internet and they've got some example forms
[00:09:08.610]that you can use to get that across,
[00:09:10.120]but that's just something to keep in mind.
[00:09:14.920]The 2% AGI floor deduction.
[00:09:17.300]If everybody maybe has looked at a Schedule A before,
[00:09:21.060]at the very bottom of it there was a slew of deductions
[00:09:25.350]in where you could take 2% of your AGI floor, um.
[00:09:29.150]Those are all gone away.
[00:09:30.550]So, appraisal fees for casualty losses,
[00:09:33.930]you can't use that anymore on your Schedule A.
[00:09:36.340]Hobby expenses, safe deposit box,
[00:09:39.290]tax preparation expenses, union dues.
[00:09:43.230]Again, this is one of those things where I would stress that
[00:09:45.780]if it was a business expense, put it
[00:09:49.250]on your business return form.
[00:09:52.430]So, like, with your tax preparation,
[00:09:55.040]if you pay the accountant to prepare your Schedule F,
[00:09:57.760]that's gonna be something that goes on the Schedule F.
[00:09:59.900]It was an expense for the business,
[00:10:01.390]in order to get that put on there.
[00:10:05.500]Look at him go.
[00:10:07.434](audience laughing)
[00:10:09.430]Casualty losses and theft losses.
[00:10:12.630]Before, it always used to be that when the flood hit
[00:10:16.080]down south, they were able to take some
[00:10:19.870]of that cash while leaving personal casualty losses
[00:10:23.720]on their Schedule A.
[00:10:27.100]That is not gone completely,
[00:10:28.680]but there's a heavy stipulation
[00:10:30.350]on it now where the President actually has to put it
[00:10:33.220]under a declaration under code section 401.
[00:10:36.650]So, if the President said that this is bad,
[00:10:40.250]then it still wouldn't be something that can go
[00:10:41.980]on a Schedule A, but if it's just, I get home after this
[00:10:45.800]and the ice storm accidentally,
[00:10:47.550]you know, set the electricity
[00:10:48.750]on fire and burned down my house, that's not something
[00:10:51.050]that's gonna fall under Schedule A anymore.
[00:10:56.200]Medical expenses are...
[00:11:00.880]Tricky is probably the best word I can put towards it,
[00:11:03.890]because I think they have some underlying idea
[00:11:07.440]that they're wanting to push through,
[00:11:08.690]and they worded this bill this way in order to try
[00:11:11.650]and get it to happen.
[00:11:14.130]So, with most of these, there's a sunset rule that happens
[00:11:16.920]in the end of 2025.
[00:11:20.040]This one's actually got two separate dates tied to it.
[00:11:24.570]Starting in 2019, the penalty
[00:11:28.300]for not having health insurance is gonna be zero.
[00:11:31.190]So before, if you did not have health insurance,
[00:11:33.410]when you filed your tax return, you actually received
[00:11:36.190]a penalty if you did not have that for the full year.
[00:11:40.870]Now it's gonna be $0.
[00:11:42.930]There is no penalty for not having health insurance.
[00:11:46.930]Until 2019, what they've done is
[00:11:49.300]that they've made medical expense deduction easier to use.
[00:11:55.170]You get to use it a lot faster now you've taken it
[00:11:57.550]from a 10% threshold to a 7.5.
[00:12:01.160]And so it's like, for the first couple
[00:12:02.404]of years you've gotta keep your health insurance
[00:12:04.858]in order to avoid the penalty,
[00:12:06.607](mumbles) let you take more of the expenses.
[00:12:09.920]And then afterwards, we're gonna take it back
[00:12:12.420]so that you don't gotta use so much of the expenses,
[00:12:14.360]but we're not gonna give you the penalty.
[00:12:16.660]Personal thought here, I think they're trying to...
[00:12:20.970]Kinda ramrod the discussion
[00:12:22.660]on how they wanna handle healthcare.
[00:12:25.410]That's kinda the way I read this.
[00:12:27.920]They're just trying to make it to a point
[00:12:29.890]where everybody wants to have that discussion,
[00:12:32.790]because things have kind of turned to the worst
[00:12:34.870]in terms of tax preparation.
[00:12:41.370]The Kiddie Tax Change.
[00:12:42.820]Probably not a lot of people know that there
[00:12:44.950]is a Kiddie Tax.
[00:12:46.860]I didn't know there was a Kiddie Tax
[00:12:48.350]until I actually started doing taxes,
[00:12:50.340]I thought that was kind of weird.
[00:12:51.620]What are we taxing kiddies on?
[00:12:55.010]You're probably going to see this if you go
[00:12:56.540]into your tax preparer, they're gonna start asking you
[00:12:58.810]a lot more questions, and it's probably gonna
[00:13:01.360]become apparent that they're getting towards this.
[00:13:06.240]What the Kiddie Tax law was,
[00:13:08.030]was they were targeting instances where kids
[00:13:11.850]were having high investment income
[00:13:15.660]and it looked a lot like maybe the parents were just
[00:13:18.050]trying to shield some of their income
[00:13:20.330]from high tax brackets.
[00:13:22.830]So, I was taking my $100,000, giving some
[00:13:26.710]of it to my kid who, you know, has maybe a 15% tax bracket
[00:13:31.730]instead of my 30.
[00:13:33.290]It's something to that effect.
[00:13:36.320]Now what they did is, they didn't tie it
[00:13:39.340]to the parent's income.
[00:13:40.760]That's no longer a thing,
[00:13:42.460]but they decided that they were going
[00:13:44.090]to make the tax bracket relatively high,
[00:13:47.450]and what do I mean by relatively high?
[00:13:50.170]For income over $12,500, they are going
[00:13:53.530]to tax the kid at 37%.
[00:13:58.510]So, what do I do if I've been giving my kid
[00:14:00.780]some money over this $12,500?
[00:14:04.790]One recommendation might be to start paying them W2 wages
[00:14:09.120]instead of gifting them the grain.
[00:14:10.590]If you were gifting them a grain before,
[00:14:12.210]maybe you need to start paying them W2 wages.
[00:14:15.010]That would be a way to kind of get around this in a sense,
[00:14:19.440]just based on the tax bracket-wise.
[00:14:22.490]Now, they're gonna have some other things they'll
[00:14:24.070]have to pay into probably, but not nearly 37%.
[00:14:32.190]This one was something, I think it was Rubio, maybe,
[00:14:34.540]that was fighting for this pretty hard along with some
[00:14:37.150]of the other ones.
[00:14:38.230]They are going to see the child tax credit increased,
[00:14:41.870]and so it is now $2,000 refundable
[00:14:44.790]up to $1,400 with some phase-outs.
[00:14:47.700]It used to be $1,000.
[00:14:50.040]So now for every kid that you have,
[00:14:51.740]you're getting this $2,000 credit up to the age of 16.
[00:14:56.930]What happens after the age of 16, then you run
[00:15:01.030]into this new section where $500 nonrefundable credit
[00:15:05.150]for qualifying dependents other than qualifying children.
[00:15:10.040]Is there a limit to this?
[00:15:12.610]Not that I have seen so far.
[00:15:14.220]So, if you have your parents move in with you
[00:15:17.590]because they need care, they would be a qualifying dependent
[00:15:22.590]other than a qualifying child,
[00:15:24.450]and they would count for this $500.
[00:15:32.780]This is one that I think a lot of, I know down
[00:15:36.290]in my area it'll probably be a big thing, um, 529 plans
[00:15:42.170]and ABLE plans, and basically the only difference,
[00:15:44.870]one you're kinda looking at, ABLE's run by the states.
[00:15:47.590]Some states have qualified tuition programs that they run,
[00:15:52.430]and you don't have to necessarily invest
[00:15:54.610]in the state you live in.
[00:15:56.090]If I wanted to, I could invest in a different state.
[00:15:58.790]It all depends on what kind of rate
[00:16:00.120]of returns you're getting.
[00:16:02.050]But with these programs, what they've done
[00:16:03.815]is you can roll your 529 into an ABLE.
[00:16:06.250]So I can move it from the 529 and move it
[00:16:08.090]into the state-run program.
[00:16:10.270]I can also use this to help fund my private, public,
[00:16:14.130]religious, elementary or secondary school expenses.
[00:16:18.360]So down home, I've got Falls City Public,
[00:16:20.800]and we also have Falls City Sacred Heart.
[00:16:24.220]They're a religious elementary school, and K through 12.
[00:16:31.440]I can use those funds in my ABLE to fund my kid
[00:16:35.750]to go to that school now, and that'll be tax-free.
[00:16:40.050]So if you're sending your kid to a religious school
[00:16:43.240]or a private school, or even if you're just wanting to put
[00:16:46.590]some money away for 'em in college,
[00:16:49.070]this might be something to look into.
[00:16:50.610]Now, there's a maximum to it.
[00:16:52.640]As I put down in here, it's $10,000 annually
[00:16:55.050]that can be withdrawn.
[00:16:57.040]So if I'm funding my kid to go to Sacred Heart,
[00:16:59.640]for instance, then, I don't know what the rates are,
[00:17:02.280]but say it was $13,000.
[00:17:04.200]I could get $10,000 out of this account tax-free.
[00:17:06.680]I'm gonna have to come up with the other $13,000
[00:17:09.410]as I normally would before this.
[00:17:17.130]Alimony payments.
[00:17:18.730]This one was a, probably lesser-known discussion
[00:17:22.530]as they were going through it,
[00:17:23.710]and what they were trying to do is they were trying to get
[00:17:26.070]to the point where the tax code actually followed suit
[00:17:29.790]with this court case.
[00:17:32.710]Before, most of the alimonies were
[00:17:35.300]not following with the court case.
[00:17:36.660]It's specified they have changed it,
[00:17:38.800]and now it follows through.
[00:17:39.910]So let's say that I got married,
[00:17:43.110]she discovered my extensive kitchen collection from Amazon,
[00:17:46.440]that I have gone a little bit overboard, probably,
[00:17:50.890]and she just said this just isn't gonna work.
[00:17:53.950]Before, what would happen is if I was paying her alimony,
[00:17:57.740]I would have X amount of dollars that I would pay to her,
[00:18:02.530]I would get to deduct to that.
[00:18:05.040]Even though I earned the income, I got to deduct it,
[00:18:08.080]and she would have to claim it as income.
[00:18:11.660]This reverses that.
[00:18:13.870]I have to claim it as income, I earned it,
[00:18:16.690]and then when I make that alimony payment,
[00:18:18.520]that is not something you have to claim.
[00:18:20.620]Or she wouldn't.
[00:18:23.740]So it's just something that they tried to get to the point
[00:18:26.300]where they were actually following court cases
[00:18:29.420]from the past.
[00:18:30.520]That's what the main purpose of it was.
[00:18:34.960]Estate and gift taxes.
[00:18:37.830]You know, there's always two things that are definite
[00:18:39.860]in life, taxes and death.
[00:18:42.020]That's what they always tell me.
[00:18:43.900]This one probably hinges on both of 'em a little bit.
[00:18:47.430]For the next couple of years here,
[00:18:49.130]until we get to that sunset date again, we're gonna
[00:18:52.050]have a really large estate tax that we can deal with.
[00:18:58.960]It basically doubled, and so now we're looking
[00:19:02.020]at $11,000,000 per individual,
[00:19:05.290]and then we've also got that basic exclusion amount.
[00:19:09.972]It went from 5 to $10,000,000, and it is tied for inflation,
[00:19:14.190]which is always a good thing.
[00:19:15.190]If they index something to inflation,
[00:19:17.450]that way it doesn't necessarily become outdated
[00:19:19.680]within the next five or six years
[00:19:21.420]and it hopefully keeps up with the current market.
[00:19:24.930]Your gift tax stayed the same, though.
[00:19:26.980]So if I wanted to gift, er gift money to someone,
[00:19:30.120]I've got that $15,000 annually, and I can go ahead
[00:19:34.330]and do that.
[00:19:38.330]I've been doing taxes, like Jessica said, for quite a while.
[00:19:41.200]When I was going to some of the tax seminars,
[00:19:43.530]they brought this one up, and I thought,
[00:19:45.320]"What the heck? You've gotta be kidding me."
[00:19:48.330]I did not know, I knew the tax code was difficult,
[00:19:51.230]but I didn't know things like this were in there.
[00:19:54.100]Apparently they have gotten rid
[00:19:57.130]of the bicycle commuting reimbursement exclusion,
[00:20:01.280]where if I was riding my bike to work my employer
[00:20:07.130]could provide $20 a month for reasonable expenses.
[00:20:10.730]If I needed a new chain for my bike,
[00:20:13.680]or if I needed to get a new inner tube,
[00:20:16.480]I could turn those in.
[00:20:18.950]Kinda weird.
[00:20:20.010]And so then I'm like, so why did I never take advantage
[00:20:23.070]of this?
[00:20:23.903](audience laughing)
[00:20:25.140]So I pulled up on Google Maps,
[00:20:26.740]and if you don't know, you can ask them.
[00:20:28.350]They said, so, you know, how long does it take me
[00:20:30.480]to get to work on a bike?
[00:20:32.120]I'm not very fit, if you guys have not noticed.
[00:20:35.410]So I don't think I could quite make it there
[00:20:37.330]in the time that they're saying,
[00:20:38.490]but they're saying, you know,
[00:20:39.330]if I took the shortest route it'd only take me
[00:20:41.130]about four hours and 45 minutes.
[00:20:43.706](audience laughing)
[00:20:45.030]I'd be about ready to head home by the time I got there.
[00:20:48.360]So, no, that's you know, that's just something.
[00:20:50.630]Everybody talks about trying to simplify the tax code
[00:20:53.130]and I just kind of wanted to put this up there as a giggle,
[00:20:55.250]and just kind of show you that were some things
[00:20:57.380]out there that were kind of like, really, that's in there.
[00:21:01.720]But I'm sure it was, you know, in New York,
[00:21:03.940]where the streets are crowded and there's not a lot
[00:21:05.750]of parking, I'm sure this made a lot of sense.
[00:21:07.860]I'm sure if you get out to the coast, just got a lot
[00:21:09.900]of use out of it.
[00:21:14.250]So that takes care of the personal.
[00:21:16.930]Those are the ones that are a little bit easier,
[00:21:19.230]because I don't think those will necessarily have
[00:21:22.060]any legislation that tries to change them, per se.
[00:21:25.470]I think those are pretty well kinda set in stone.
[00:21:28.370]When we start talking about the business ones, that is
[00:21:31.380]where we all of a sudden run into this wild debate
[00:21:35.230]on whether or not things should be the way they are.
[00:21:39.220]I was a big fan of DPAD, which is 199.
[00:21:46.410]It was the only tax code that most any CPA
[00:21:50.890]could ever tell me, anyway, only one I could find
[00:21:52.990]where you could actually take an expense and deduct
[00:21:56.590]for it twice.
[00:21:57.960]You got the use out of it when it was a W2,
[00:21:59.940]and then you got use out of that same W2 as the DPAD.
[00:22:03.878]That was kinda nifty.
[00:22:05.850]They decided to get rid of it,
[00:22:08.520]and from the grave, what they have come up
[00:22:10.930]with is Section 199A.
[00:22:13.135](audience laughing)
[00:22:14.630]This has been a, I think there's good parts to it,
[00:22:19.900]but after talking with Thornton Berry
[00:22:21.740]and numerous other people, there's a lot
[00:22:24.360]of unhappy citizens, and they're trying to figure
[00:22:26.580]out how they wanna handle it.
[00:22:29.150]And so, Section 199A, it's a qualified
[00:22:32.087]business income deduction, QBI for short,
[00:22:37.820]and what it was meant to do was make sole proprietors,
[00:22:41.620]partnerships, LLCs, S-Corps, competitive
[00:22:45.360]with the new corporate tax rate that's flat at that 21%.
[00:22:51.550]Because all those other past year entities still
[00:22:53.710]have their bracket, they might see a, you know,
[00:22:56.580]upper 30's tax, but with this QBI, they might get
[00:23:02.610]an effective tax rate down to that 20, 21, 22%.
[00:23:06.350]So all of a sudden, now it's kind of a toss-up.
[00:23:09.530]You know, now it's back to the same where, you know,
[00:23:11.140]it doesn't benefit me to go to a C-Corp necessarily
[00:23:13.670]just based on taxes, because this is there to save me.
[00:23:17.720]Now we have section 199 holds.
[00:23:21.210]Understand that it's something for...
[00:23:26.240]Reducing your income, subject to federal income tax.
[00:23:30.630]It will not affect your AMT.
[00:23:34.370]It's not gonna affect your self-employment tax.
[00:23:36.040]Those things are gonna be on full amount
[00:23:38.320]without the deduction.
[00:23:45.180]So quick and dirty, what this is doing is it's giving
[00:23:48.260]us a 20% deduction on qualified business income,
[00:23:51.890]and like I mentioned before, we've got that dirty word,
[00:23:55.650]it's qualified.
[00:23:57.420]We're not quite sure what exactly it all means yet.
[00:24:00.990]IRS has to figure that out.
[00:24:02.630]So, we've got this 20% deduction.
[00:24:05.170]So if I had $100,000 of qualified business income,
[00:24:09.030]I take that times a 20%, so I get a $20,000 deduction.
[00:24:14.140]That's the quick and dirty of it.
[00:24:16.630]But they didn't make the tax code simple,
[00:24:19.090]they had to add some things to it.
[00:24:23.170]When you're calculating this, you're gonna look
[00:24:25.210]at qualified items such as your income, your gains,
[00:24:28.880]your deductions, and your losses.
[00:24:32.490]So you're depreciation is going to affect
[00:24:37.260]how much of the 20% deduction you're gonna get.
[00:24:41.400]It's going to either lessen it, or it'll increase it.
[00:24:44.560]So if I go out and I take a bunch of Section 179 to try
[00:24:48.960]and reduce my taxes, yes you've done it,
[00:24:52.890]but you're also limiting how much
[00:24:55.570]of this 20% you're gonna get.
[00:24:59.640]So, it's gonna be a little bit of a juggling act.
[00:25:01.970]You're gonna have to try
[00:25:03.060]and figure out what's the best balance
[00:25:04.940]in order to get where you're wanting to be.
[00:25:07.670]You know, it's gonna be a lot of games where you sit there
[00:25:10.362]and try and plug numbers through the formulas
[00:25:12.640]until you to where you want it to be at.
[00:25:20.120]Also understand that if you took a loss,
[00:25:24.200]that loss doesn't just stay with that year.
[00:25:26.530]It gets carried forward.
[00:25:29.064]Now, it doesn't get carried forward at the full amount.
[00:25:31.750]It actually comes down a little bit.
[00:25:34.620]So, looking at a quick example,
[00:25:36.360]and also I need to mention, I guess, it's,
[00:25:40.290]when you're reading through this, it's net.
[00:25:46.100]Don't forget the word net.
[00:25:49.490]So if I have $20,000 worth of business income like I do
[00:25:53.640]in this one, and a $50,000 loss
[00:25:56.714]in my other business, I don't get to take Section 199A
[00:26:02.930]on that $20,000.
[00:26:04.410]I have to net the two businesses together
[00:26:07.410]in order to figure out whether I get
[00:26:09.460]to take that deduction or not.
[00:26:11.460]So in this example we had $20,000 that would've qualified,
[00:26:16.360]but we had a $50,000 loss,
[00:26:19.650]so our net business qualified income was negative 30,000.
[00:26:23.810]We won't get a deduction this year, because it was zero.
[00:26:27.040]So, if I had income from, um,
[00:26:30.090]retirement accounts, that would have to be figured
[00:26:32.440]in with the farm income?
[00:26:34.140]I do not believe, I don't think so
[00:26:37.297]because I don't it's gonna, retirement's
[00:26:39.470]not gonna be qualified, I don't think.
[00:26:42.250]I don't think.
[00:26:44.330]Because that's more of an investment type income more
[00:26:46.490]than a business, but that would be something
[00:26:48.931]that I would probably watch.
[00:26:53.550]So what happens in year two?
[00:26:55.790]So, we didn't get a deduction this first year
[00:26:57.680]because we had a loss.
[00:27:00.060]Let's say that our dreams and prayers are answered
[00:27:02.510]about the commodity prices and grain actually gets
[00:27:04.900]up to $7 again for corn.
[00:27:08.110]Now all of a sudden business two made a $50,000 profit,
[00:27:11.560]thank you.
[00:27:13.620]So now all of a sudden we've got $70,000 worth
[00:27:16.420]of qualified business income,
[00:27:17.850]but we took a loss last year, right, our net was a loss.
[00:27:22.710]So we have to bring that forward,
[00:27:24.750]and we bring that forward, it's $30,000 less, 20% of it,
[00:27:31.870]and so basically we take 30,000 times 80, er, 80%,
[00:27:36.500]and we come up with that 24,000.
[00:27:39.160]So we have to take 24,000 out of the 70
[00:27:42.620]in order to figure out what number we take times the 20%
[00:27:47.350]for Section 199A.
[00:27:52.240]Simple enough?
[00:27:53.559](audience chatter)
[00:27:55.528]We're gonna get deeper here, it's not done yet.
[00:27:59.520]So, I used qualified twice in this one
[00:28:02.120]so you know it's extra special.
[00:28:05.602]When we're looking at this, this is
[00:28:08.740]for, like I said, past year entities, your partnerships,
[00:28:12.230]sole proprietors, S-Corps, LLCs.
[00:28:16.020]They threw out those specified service trader businesses
[00:28:21.800]unless they make less than this 315 married filing jointly.
[00:28:26.730]So if I'm an attorney and I make more than
[00:28:29.141]this 315 married filing jointly, I do not get Section 199A.
[00:28:36.920]If I'm an accountant, like accounts that are the ones that
[00:28:38.960]are doing the tax return, how do they end up
[00:28:41.060]in this situation?
[00:28:42.460]But they did.
[00:28:43.910]If they're making more than that 315,
[00:28:46.490]they don't get involved with Section 199A.
[00:28:52.578]Good lobbying effort, somehow engineers and architects got
[00:28:56.430]out of being specified service trade or business.
[00:28:59.800]Don't know how that happened,
[00:29:00.950]but apparently they decided that they were not specified.
[00:29:07.620]Kinda questionable, in my opinion.
[00:29:11.170]More limitations.
[00:29:13.150]They wouldn't make this calculation easy.
[00:29:14.910]They wanted to make sure that it was as hard
[00:29:16.530]as it can be so they can audit some books.
[00:29:19.680]When you're looking at this, you're gonna take...
[00:29:25.300]Taxable income before Section 199A has
[00:29:28.630]got some possible limitations to it.
[00:29:31.240]It's somewhere in the range of, if you're single,
[00:29:33.610]it's $157,500 to $207,500, and married
[00:29:38.280]is this $315,000 to $415,000.
[00:29:41.050]If you're greater than whatever number they end up throwing
[00:29:44.210]into that range, you're gonna run into having to be limited
[00:29:48.403]by the greater of either 50% of the W2 wages you paid,
[00:29:53.740]or it's gonna be 25% of the wages paid plus 2.5%
[00:29:57.890]of the qualified business property,
[00:30:00.290]and there we've got qualified again.
[00:30:02.580]What is qualified business property?
[00:30:05.570]Nobody's been able to tell me yet.
[00:30:07.690]We're still waiting on the IRS to tell us
[00:30:09.550]what qualified business property's gonna be.
[00:30:15.300]So this one, we will probably slow down a little bit
[00:30:18.510]and I'm gonna take a little bit of questions on it.
[00:30:20.350]Maybe I might pass the box,
[00:30:22.550]but has anybody seen the issue with Section 199A in co-ops?
[00:30:29.450]Kinda fishy.
[00:30:32.610]Basically when they wrote the bill
[00:30:34.770]and they were trying to figure out what
[00:30:36.380]was a co-op dividend, they made their definition for it,
[00:30:40.780]and now all of a sudden it got written in here where
[00:30:44.660]if I sell a grain to a co-op, I can take my 20%
[00:30:49.623]of QBI deduction on the full amount of the grain sale.
[00:30:53.840]So if I sold $100,000 worth of grain to a co-op,
[00:30:59.270]I take the 20% on the 100,000.
[00:31:02.930]If I sell it to anybody but a co-op, say I went to ADM
[00:31:06.990]or some other commercial elevator,
[00:31:08.580]or I went to an ethanol plant...
[00:31:12.810]You've got to take out your expenses first.
[00:31:16.150]So I have that same $100,000 worth of grain.
[00:31:19.420]Let's say that I had $70,000 worth
[00:31:21.840]of expenses tied to growing that grain, now all
[00:31:25.260]of a sudden I'm looking at $30,000
[00:31:27.680]that I can take that 20% on.
[00:31:30.360]That sound like it's kind of a little bit of a situation?
[00:31:35.540]This is one of the ones, I brought this
[00:31:37.080]up to Thornton Berry, because I thought this, you know,
[00:31:39.960]it's a question that I get asked no matter where I go,
[00:31:42.530]and he said there are bills out there to try
[00:31:45.350]and resolve the situation.
[00:31:47.920]We didn't get into discussion
[00:31:49.110]about what those actually said.
[00:31:51.430]I know I've heard some rumors
[00:31:52.790]where they're wanting to get rid
[00:31:53.870]of Section 199A completely and go back to DPAD,
[00:31:58.390]which I think may be, at this point
[00:32:00.530]in time with the corporate flat tax rate, I don't know
[00:32:03.000]if I'm necessarily for that.
[00:32:05.210]That's an opinion.
[00:32:06.230]That's not UNL, that's just me stating an opinion.
[00:32:12.530]But let's kinda look at what we're looking at here.
[00:32:16.270]So if I've got, and this is gonna be a stretch
[00:32:19.670]for the current marketplace unless you've got a lot
[00:32:21.640]of grain, but let's say that I had farm sales
[00:32:24.520]of $5,000,000, and I had $1,000,000
[00:32:29.240]of total taxable income.
[00:32:31.490]So I had $5,000,000 worth of sales.
[00:32:34.560]Once I took out the expenses, I had $1,000,000 that
[00:32:37.080]was gonna be taxable.
[00:32:41.290]Net farm income is $1,000,000, wages of $500,000.
[00:32:47.020]Two different avenues I could go.
[00:32:49.440]I could go and I could sell it to the non co-op,
[00:32:53.170]and that's gonna be 20% of the net farm income, 1,000,000.
[00:32:59.660]We're getting $200,000 for that 20% deduction.
[00:33:05.460]Now, I take that elevator, or I call the elevator
[00:33:08.351]and say give me the grain back,
[00:33:09.970]I'm gonna go sell it to the co-op.
[00:33:12.520]Now what you're looking at is, you're taking 20%
[00:33:17.204]of the whole farm sale.
[00:33:20.660]So we're getting that $5,000,000 times 20%.
[00:33:24.130]That's a $1,000,000 deduction.
[00:33:26.740]We have eliminated all of our tax.
[00:33:32.780]Right?
[00:33:34.610]We had taxable income of $1,000,000, $1,000,000 deduction.
[00:33:41.300]It wiped it clean.
[00:33:45.070]What's another way I can look at it?
[00:33:47.540]If you're interested in this sort
[00:33:48.685]of thing, I put a link down in there
[00:33:51.910]with a connection to their blog, CliftonLarsonAllen.
[00:33:56.320]I follow them.
[00:33:57.390]They do a pretty good job at keeping
[00:33:58.860]up with the farm tax issue, and what's going on.
[00:34:03.970]They came up with this chart to try and put it
[00:34:06.480]in perspective as to what's the cent-bushel difference.
[00:34:13.800]You know, what is the difference
[00:34:15.360]in price gonna have to be between a co-op
[00:34:17.770]and a commercial elevator to make this equal,
[00:34:21.940]and they're saying, and again it's based
[00:34:24.410]on your tax bracket, but if we're looking
[00:34:27.050]at the 22, 24%, they're saying it's probably gonna be
[00:34:30.940]about a 12 to 13 cent difference.
[00:34:33.710]So the co-op can have a price that's 12 cents lower
[00:34:38.286]than the commercial elevator down the road
[00:34:40.690]and technically still be competitive.
[00:34:45.090]Now, they might stay competitive
[00:34:47.050]and let the farmer take full use of it.
[00:34:49.720]That's for the co-op to decide how they wanna handle that,
[00:34:53.310]but that's the way it's written now.
[00:34:54.900]Now, going on the other foot, let's say that I've
[00:34:59.729]been selling to a commercial elevator for the past 50 years.
[00:35:04.510]Would I quit selling to that commercial elevator
[00:35:06.820]just based on this?
[00:35:09.530]Would I change my marketing plan?
[00:35:11.960]And my comment to you would probably be, I would not do it.
[00:35:16.240]I think that they will probably pass a bill because,
[00:35:18.800]when you look at ADM, Curgill, Bunge, there's a lot
[00:35:22.342]of money behind those companies.
[00:35:24.660]They're just gonna start lobbying and putting some money
[00:35:26.510]in some war chests, and they're gonna get a change.
[00:35:29.450]And whatever change is, it will probably
[00:35:31.220]be retroactive to the point where this issue never occurred.
[00:35:37.040]If you have been selling to a co-op, do not stop,
[00:35:41.130]because no matter what happens, either A, you continue
[00:35:43.940]with the marketing plan that you've had or B,
[00:35:47.200]if they don't get around to fixing this,
[00:35:49.110]you just got a really nice benefit out of it.
[00:35:52.820]So, don't change your marketing plan just based
[00:35:55.900]on a tax issue.
[00:36:05.130]As we go through this, yo, yep.
[00:36:08.210](audience member speaking off-mic)
[00:36:12.720]That would still not, individuals would not qualify
[00:36:16.900]as a co-op, so you'd be looking at the same--
[00:36:19.027](audience member speaking off-mic)
[00:36:20.370]Yeah, you'd be looking at the same situation as
[00:36:22.570]if you've sold to commercial.
[00:36:24.340]Yeah.
[00:36:27.230]Any other questions on the co-op versus Section 199A?
[00:36:31.870]Co-ops like the bill.
[00:36:33.260]I mean, I've heard.
[00:36:35.320]I can kinda see why, but I don't think they were, based
[00:36:39.920]on some conversations I've seen, I don't think they
[00:36:41.900]were quite prepared for what ended up happening.
[00:36:45.270]I think they just wanted to make sure
[00:36:46.620]that the qualified dividends got included,
[00:36:49.890]which qualified dividends in grain sales
[00:36:51.890]aren't necessarily the same,
[00:36:54.170]but this is what ended up happening to the bill
[00:36:56.850]and so now they're trying to sort
[00:36:58.030]out how they're gonna fix it.
[00:37:03.530]Your net operating losses.
[00:37:07.020]So if my farm takes a loss, which given the current prices,
[00:37:10.740]it wouldn't surprise me if some people run
[00:37:12.410]into this situation...
[00:37:16.590]Farmers can still carry back for the two years.
[00:37:21.570]They got rid of it for other business,
[00:37:23.560]but the farmers got to keep it.
[00:37:25.780]So if I had a loss for this year,
[00:37:28.629]say the 2017 tax return that I'm filing right now
[00:37:31.410]has a loss, I can take it back to '16
[00:37:34.370]and '15 if I needed to.
[00:37:36.980]I can always carry forward indefinitely.
[00:37:40.270]So if I take a loss and there's nothing to carry back to,
[00:37:44.430]I can just forward until I get future use out of it.
[00:37:48.440]Now with the big issue here, you might be limited to 80%
[00:37:54.370]of your pre-net operating loss taxable income.
[00:37:58.110]So, they might take some of it away.
[00:38:00.920]You won't get full use of the loss,
[00:38:02.740]but it is still gonna be there in shape or fashion.
[00:38:11.770]Section 179.
[00:38:13.250]This is probably, from doing taxes,
[00:38:15.620]if there was one section of the tax code
[00:38:18.040]that every farmer knows, it's this one.
[00:38:20.960]They just absolutely eat it up.
[00:38:24.200]It's...
[00:38:26.640]They upped it, so now it's been increased to $1,000,000
[00:38:29.740]with the phase-out threshold at 2.5.
[00:38:33.360]Something that I think is probably a little bit
[00:38:36.110]more interesting with Section 179
[00:38:39.180]is they changed the definition of it to include more.
[00:38:43.070]So now what you're looking at
[00:38:44.400]is we've got real property eligible expanded
[00:38:47.822]to include improvements to nonresidential real property.
[00:38:53.120]So now I can 179 a roof, I can do heating
[00:38:57.260]and ventilation, air conditioning.
[00:39:01.080]If commodity prices get better, it wouldn't surprise me
[00:39:03.708]if some of the farmers started saying, let's go out
[00:39:07.750]and insulate, and air condition, and heat that shop.
[00:39:13.050]Or maybe I need to put a new roof on the livestock barn.
[00:39:17.070]These are all things now that
[00:39:19.310]are gonna fall under that Section 179.
[00:39:23.490]So, that's a good thing.
[00:39:26.240]Another good thing is we are realm
[00:39:30.030]of unlimited depreciation.
[00:39:33.530]If you can afford to buy the asset,
[00:39:35.410]you can depreciate it in full.
[00:39:39.300]They have changed bonus depreciation,
[00:39:44.430]and they have increased it to the point now
[00:39:47.130]where bonus depreciation is 100% initially.
[00:39:51.200]So before, all the farmers used the 179
[00:39:53.844]in order to deduct something in full.
[00:39:56.500]Now they can use bonus and do the same thing.
[00:40:01.640]They also changed it a little bit,
[00:40:04.430]and it's allowed on depreciation for life of 20 years
[00:40:09.180]or shorter, and this might be one
[00:40:14.230]of those sections where I've been getting...
[00:40:17.560]I've read through it and I can't quite find
[00:40:19.380]where they're coming up with it.
[00:40:20.520]I've heard two different stories.
[00:40:22.560]Either, new and used farm equipment both count
[00:40:26.290]for bonus depreciation.
[00:40:27.152]Now, it doesn't used to be that way,
[00:40:28.810]but new and used count for it.
[00:40:31.620]What I don't know is whether
[00:40:33.080]or not they've changed new equipment
[00:40:35.240]to be five years instead of seven,
[00:40:38.670]and used is still seven years,
[00:40:41.810]but there's an issue there that I'm getting
[00:40:43.930]different stories, and I'm not quite sure.
[00:40:45.450]So either new and used are both five years,
[00:40:48.270]or new equipment is five years, used equipment is seven.
[00:40:51.630]That's something I'm still trying to sort out.
[00:40:53.700]I don't know why they would split 'em,
[00:40:55.010]but supposedly they did.
[00:40:59.610]With bonus depreciation it disappears, though.
[00:41:02.810]It's one of those things that they're
[00:41:03.890]not gonna give you forever.
[00:41:05.610]So for this first while, until 2023 we have this 100%
[00:41:11.150]of bonus depreciation.
[00:41:12.290]So if we could just get some really good commodity prices,
[00:41:15.370]I think there are gonna be a lot of people buying stuff.
[00:41:18.610]Starting in 2023, though,
[00:41:20.440]it's gonna start dropping 20% every year to the point
[00:41:23.940]where, in 2026, it's gonna be our last year.
[00:41:27.870]Anything after that, it's zero.
[00:41:30.480]Bonus depreciation goes away.
[00:41:32.860]The tax code will still be there, but it's gonna be 0%,
[00:41:36.525]and so there's nothing bonus about it.
[00:41:38.280]It's just...
[00:41:39.850]Regular tax rate.
[00:41:46.070]Like kind exchange.
[00:41:49.550]It has not changed from a real estate perspective.
[00:41:57.160]If I have farm ground in the southeast portion
[00:41:59.810]of the county and I would like farm ground
[00:42:02.600]in the northwest part of the county,
[00:42:05.510]I can still use like kind exchange and do that.
[00:42:10.370]It does not, however, work for breeding livestock
[00:42:14.140]and farm machinery anymore.
[00:42:18.000]And you might not necessarily have known that you
[00:42:21.180]were using like kind exchange when you were trading
[00:42:23.200]off equipment, but the dealer was handling it for you,
[00:42:27.830]and so more than likely you were taking advantage
[00:42:30.210]of a like kind exchange when you were trading off tractors.
[00:42:33.320]You just might not have recognized that was
[00:42:36.350]what was transpiring.
[00:42:38.950]So under the old law, the dealership
[00:42:42.030]was handling the 1031 like kind exchange for you.
[00:42:46.690]So if I had a $20,000 trade-in value tractor that I
[00:42:51.980]was going to give to the dealership, with $5,000 worth
[00:42:55.600]of basis left on the books, and buy a $120,000 new tractor,
[00:43:02.890]we've got two different things going on.
[00:43:05.260]Under the old law, we ignored the gain,
[00:43:08.730]because we were doing a like kind exchange.
[00:43:11.420]So that $20,000 worth of trade-in value minus the $5,000
[00:43:14.988]worth of basis technically was a $50,000 gain.
[00:43:20.510]We ignored that, because it was a like kind exchange.
[00:43:24.510]When we went to set up the new asset,
[00:43:27.780]the new asset was set up on the books
[00:43:29.640]for its cash value plus the old tractor's basis.
[00:43:33.470]So in this case, $120,000 minus the $20,000 trade-in value
[00:43:37.770]gave us cash price of $100,000, and then $5,000 worth
[00:43:42.900]of basis on the old piece of equipment.
[00:43:46.640]So on the books, it was $105,000 that we had
[00:43:52.510]that we could use for depreciation.
[00:43:55.330]Pretty simple.
[00:43:57.370]They have changed it.
[00:43:58.780]Here, I'll step out of the way so you can take a picture.
[00:44:02.080]And if some of this stuff isn't in the slides,
[00:44:04.300]just know that I have been updating things constantly.
[00:44:08.760]Some of the stuff (mumbles) about some
[00:44:10.710]of this stuff has been more, I've been learning things
[00:44:13.670]as I've been going, and some people have asked me questions,
[00:44:16.620]which is this slide coming up,
[00:44:17.970]that was kinda interesting they caught onto it.
[00:44:21.680]Under the new like kind exchange rule
[00:44:23.540]where like kind exchange is not available
[00:44:25.420]for equipment, same scenario.
[00:44:28.210]We've got that $20,000 trade-in value, $5,000 basis,
[00:44:32.480]$120,000 tractor we're wanting to buy.
[00:44:35.640]We have to recognize that $15,000 worth of gain as income.
[00:44:40.320]We traded in a tractor worth $20,000, we had $5,000
[00:44:44.380]of basis on that tractor.
[00:44:46.120]We had a $15,000 gain.
[00:44:49.960]We have to recognize that.
[00:44:53.080]But when we set up the new tractor...
[00:44:57.630]It's your cash plus your trade-in.
[00:45:01.640]We're setting the new tractor up with a basis of 120.
[00:45:06.580]So now we get to depreciate the 120 instead
[00:45:08.930]of the 105 under the old rule.
[00:45:11.200]So now we have more depreciation expense.
[00:45:15.590]Now, somebody caught me on the other one.
[00:45:17.530]I've been trying to keep this focused on federal,
[00:45:20.950]but somebody caught me on the other one,
[00:45:22.830]and it was somebody that absolutely loved
[00:45:25.300]and adored, you know, local and state taxes, the system.
[00:45:29.790]Does anybody see a problem with this?
[00:45:32.170]Property tax.
[00:45:36.130]Yes.
[00:45:36.963]They caught me on it.
[00:45:38.070]I was trying not to cover it.
[00:45:42.030]Wait a minute!
[00:45:44.740]Now all of a sudden, that property's worth more
[00:45:46.910]on my books when I turn it into the assessor.
[00:45:49.290]Aren't they gonna charge me more tax on that end?
[00:45:53.360]Yes, probably.
[00:45:56.170]I can't say for certain.
[00:45:58.660]If you've been watching the state legislature,
[00:46:00.840]there is a slew of bills trying to address the real estate
[00:46:03.880]and personal property taxes in Nebraska.
[00:46:06.200]In fact, there's one of them, I don't think it's gotten
[00:46:08.510]any traction, but there is one of them that would've
[00:46:11.260]gotten rid of personal property tax altogether.
[00:46:13.840]Just would've went away.
[00:46:15.400]Been like the good old days when that thing didn't exist.
[00:46:20.030]So, and these are all gonna be new slides,
[00:46:23.050]and this comes from my previous job.
[00:46:25.380]Before this one, I was a county treasurer.
[00:46:27.850]There are a couple of things,
[00:46:30.600]if the personal property tax bothers you,
[00:46:33.309]that some people aren't using, that you really could be,
[00:46:36.680]that might help with this.
[00:46:39.990]One of 'em, if you're a new beginning farmer...
[00:46:44.980]There's help for you on personal property tax.
[00:46:51.040]With beginning farmers and livestock producers,
[00:46:54.660]if you file a 2017, and I believe it's something that you
[00:46:58.270]turn in to your assessor, you get $100,000
[00:47:02.900]of taxable agricultural or horticultural machinery
[00:47:05.510]and equipment, that's a lot of words, value exempted
[00:47:08.870]for three years.
[00:47:09.870]Now, understand it's value.
[00:47:15.990]Also, I'm just gonna add to that,
[00:47:18.940]that's part of the beginning farmer tax credit act,
[00:47:22.110]and so you have to apply to the Department of Agriculture,
[00:47:26.820]who administers that in order to be, um--
[00:47:30.860]Recognized.
[00:47:31.887]Right, in order to be approved
[00:47:33.730]and get a certificate of eligibility,
[00:47:35.620]then you can file a 1027.
[00:47:37.870]You have to take--
[00:47:38.703]Yeah.
[00:47:40.790]Yup.
[00:47:41.657]So this is something that's out there.
[00:47:45.590]You've gotta apply for the whole kitten caboodle
[00:47:47.830]when you go around doing beginning farmer.
[00:47:51.090]Something that isn't necessarily tied to beginning farmer,
[00:47:54.560]though, that everybody can be using, which my county
[00:47:58.670]was horrible at utilizing...
[00:48:03.750]Well, we're looking at the Personal Property Tax Relief Act.
[00:48:06.750]This is something that come into place just a couple
[00:48:09.310]of years ago, where Ricketts came out
[00:48:12.380]and said everybody was gonna get $10,000 worth
[00:48:14.761]of value exempted form their personal property tax
[00:48:20.540]for each district, I need to stress the word each.
[00:48:26.640]What do most people do when they go and file
[00:48:29.020]with their county assessor with their depreciation schedule?
[00:48:34.060]And I can tell you what we did back home.
[00:48:38.860]Do you take that depreciation schedule that you used
[00:48:41.080]for your federal income tax, cart it over to the assessor
[00:48:44.530]and attach to the back of the paperwork and say,
[00:48:47.270]these are my assets?
[00:48:50.160]That's what a lot of people do.
[00:48:51.970]It's easy, it's simple,
[00:48:53.970]but you're leaving a little bit of money on the table.
[00:49:00.710]This is a picture from GIS Workshop.
[00:49:02.720]It's what the assessors use in some counties
[00:49:05.550]in order to keep track of who owns what parcels,
[00:49:08.210]what tax district they're in, what's the valuation.
[00:49:11.430]I just typed in Deerfield, my last name.
[00:49:14.290]No, we do not own all this ground.
[00:49:16.390]There is a lot of Deerfields in Richardson County.
[00:49:20.500]For the purpose of this, let's just say I own property
[00:49:25.920]in this circle, this one, and this one.
[00:49:29.220]I own those grounds,
[00:49:30.470]and let's say that I've got my home place and rings bins,
[00:49:33.900]and a shop, I've got a machine shed up here,
[00:49:38.150]and I've got another one down here,
[00:49:39.800]and this farm is pure pasture.
[00:49:42.190]It's just something that I hay.
[00:49:47.730]More than likely, what's been happening is people go
[00:49:50.710]and they turn in their that one
[00:49:51.840]personal property tax schedule,
[00:49:54.980]and they've got $55,000 worth of value.
[00:49:58.520]You get your $10,000 worth of exempted value.
[00:50:03.520]So we've got $45,000 taxable value times the tax rate
[00:50:07.240]for the district, and you came up with $699.62.
[00:50:14.250]But it specifically says each.
[00:50:16.100]Technically, you're supposed to be filing
[00:50:17.840]a personal property tax schedule for each taxing district
[00:50:22.340]in which you have equipment.
[00:50:24.130]That way that money is going to the fire departments,
[00:50:27.920]the schools, and stuff in where that equipment is sitting.
[00:50:32.220]So let's say I had $20,000 in district one, $30,000
[00:50:37.600]in district two, and $5,000 in district three.
[00:50:41.490]I get to take that $10,000 value exemption on each
[00:50:45.670]of the districts, and so what has happened
[00:50:49.010]is district one went from 10, er, from $20,000 to $10,000,
[00:50:53.920]district two went from 30 to 20,
[00:50:57.292]and district three is completely exempt.
[00:50:59.710]There is no value there, the $10,000 wiped it out.
[00:51:04.180]To keep it simple, I just said that each district
[00:51:06.650]had the same tax rate.
[00:51:07.880]Now we're looking at $466 instead of that $699.
[00:51:13.400]Not a lot of money there,
[00:51:15.166]but is it worth about, you know, 30 minutes worth of work?
[00:51:20.240]I think the value's there.
[00:51:22.750]It's just a matter of going through and setting it up.
[00:51:25.870]So, some things that you need to take
[00:51:27.540]into account when you're doing this.
[00:51:29.350]You need to figure out your tax districts,
[00:51:31.560]and it's not the same as your school districts.
[00:51:33.860]Your taxing district is not the same
[00:51:35.760]as your school district.
[00:51:38.090]If you're trying to figure out what your taxing district
[00:51:40.670]is, you can call your assessor or the county treasurer
[00:51:44.580]and they can tell you.
[00:51:45.500]It will also show up on that tax bill
[00:51:50.040]that we graciously send out in December for Christmas cards,
[00:51:53.870]it will be listed on there.
[00:51:58.480]You need to make a list
[00:51:59.710]of your depreciable tangible personal property
[00:52:02.500]and where it has situs.
[00:52:04.950]So in my example, when I was going here, I said this was
[00:52:08.460]all pasture that I cut for hay.
[00:52:10.560]If I leave my sickle mower, my rake,
[00:52:15.810]and my bailer down there full time,
[00:52:19.260]that's where it has situs.
[00:52:20.620]That's where it lives, and so that is property that needs to
[00:52:24.930]be filed in that district.
[00:52:30.457]And the last thing you need to do, each district, you need
[00:52:33.770]to file a Personal Property Schedule
[00:52:35.370]for each district, with the assessor.
[00:52:38.020]And so when it comes December
[00:52:39.360]and you get your Christmas card, there's gonna
[00:52:41.830]be however many districts you filed worth
[00:52:44.953]of returns that you get billed at.
[00:52:47.990]So you might end up having to deal with, you know, three
[00:52:51.300]or four more pieces of paper than what you're used to
[00:52:54.250]is what it would look like.
[00:52:57.300]So that's something I added because,
[00:52:59.080]it's just like we mentioned there, somebody caught me in it.
[00:53:03.150]It's not like I was trying to avoid it, necessarily,
[00:53:05.630]it's just something that I was trying
[00:53:06.920]to keep federal separate from state and local.
[00:53:10.460]And a lot of this, you have to understand,
[00:53:12.270]the feds pass something, there's gonna be questions
[00:53:15.340]on whether or not the state follows suit with some of it.
[00:53:18.860]Some states don't necessarily follow suit the same way
[00:53:22.800]with depreciation as the feds do, so there's a question
[00:53:25.940]as to whether or not some states will allow for,
[00:53:30.030]you know, Section 179 and bonus at 100% to be utilized.
[00:53:35.220]That's something that each state's gonna have to figure out.
[00:53:40.390]So, the big question.
[00:53:42.370]C-Corps are a flat 21%, everybody's excited
[00:53:45.301]about that, major businesses.
[00:53:49.420]Should I switch to the C-Corp?
[00:53:52.220]21% flat rate looks pretty decent.
[00:53:57.890]If you get to keep that Section 199A, my thoughts would be,
[00:54:04.230]it's definitely a conversation, but maybe not.
[00:54:07.950]I wanna how difficult it is, once you turn into a C-Corp,
[00:54:12.810]to get out of it.
[00:54:14.110]It's not something that you just call up
[00:54:15.930]and say, I've decided I no longer want to be a C-Corp,
[00:54:18.880]take me back to sole proprietor.
[00:54:21.420]That's not something that's eligible.
[00:54:23.330]It's gonna be a lot more intensive
[00:54:26.000]than just a simple phone call.
[00:54:28.550]There are a couple other things, accounting-wise,
[00:54:31.800]that you're gonna have to handle.
[00:54:33.010]C-Corps, you're gonna have a board
[00:54:34.540]of directors, you're gonna have meetings, you have to turn
[00:54:37.220]in the meeting notes, the minutes.
[00:54:40.140]Those are all things that have to be tracked
[00:54:42.400]and recorded with the state,
[00:54:46.320]but there are some benefits to it.
[00:54:48.460]C-Corps have fringe benefits.
[00:54:51.170]This corporation could buy the pickup that you drive
[00:54:53.570]around in.
[00:54:54.403]They could provide your housing.
[00:54:56.390]If the C-Corp owned your house, then that personal property,
[00:55:00.470]um, theft loss wouldn't be an issue anymore,
[00:55:03.850]because a C-Corp owned it.
[00:55:05.150]It wasn't personal, it was a C-Corp's.
[00:55:08.080]But if the C-Corp goes under, where's your house going?
[00:55:12.500]So it's something that you definitely have to keep in mind,
[00:55:14.680]and it's something that you gotta think about.
[00:55:18.230]One tidbit, though, the C-Corps used to
[00:55:20.490]be a tax bracket just like everybody else.
[00:55:23.310]It was a bracketed thing.
[00:55:24.570]If you make X amount of dollars, you owe this percent.
[00:55:29.470]If you are making under $50,000 as a C-Corp,
[00:55:33.810]this new flat tax rate actually hurts you.
[00:55:37.570]It is not a good thing.
[00:55:40.060]In fact, it's increasing your taxes about 40%
[00:55:43.420]of what they used to be.
[00:55:46.010]If we're looking at a farm partnership
[00:55:49.430]with four equal C-Corporations as the owners,
[00:55:54.000]and there is income of $200,000, that would mean
[00:55:57.260]each partner, each C-Corp partner, made $50,000.
[00:56:03.800]Under the old law, each one paid $7,500
[00:56:06.802]or $30,000 altogether.
[00:56:09.890]Under the new law with the flat tax bracket, 21%,
[00:56:13.970]they're each actually paying $10,500 or $42,000.
[00:56:19.090]So if you're a C-Corp that wasn't making a lot
[00:56:21.440]of money, this bill actually hurt a bit.
[00:56:29.290]This one might be a little bit fuzzy to read.
[00:56:33.600]Somebody asked for some rough estimates.
[00:56:36.310]The IRS hasn't come out with any forms or anything yet,
[00:56:38.900]so it's kind of hard to give a detailed estimate
[00:56:41.070]about how much tax am I gonna owe come next year.
[00:56:45.800]This website just a pretty good job
[00:56:47.800]of walking you through the basics
[00:56:49.320]and you giving you some number to kinda look at,
[00:56:52.040]and so what I did is, I said we made a gross income
[00:56:54.740]of $80,000, we took the standard deduction,
[00:56:57.930]married filing jointly with two kids.
[00:57:01.160]Sounds kinda typical.
[00:57:02.530]It's something that you might see around.
[00:57:05.570]When we run through total income,
[00:57:08.330]run it through the tax brackets, we're looking
[00:57:10.770]at this $2,339 worth of tax under the new law.
[00:57:17.300]How does that stack up to the old one?
[00:57:20.300]Same information, ran it through the system,
[00:57:24.120]they were guessing we were gonna end up with about $4,700.
[00:57:28.530]So is there some benefit,
[00:57:30.620]is there some bright side to the new tax bill?
[00:57:33.380]Yes, it looks like there's gonna be some cut.
[00:57:36.110]What happens when people don't owe as much in taxes?
[00:57:40.350]The deficit goes up.
[00:57:43.870]Did I get rid of that one?
[00:57:45.560]Oh, I bet it's probably further down.
[00:57:47.930]Let's run through a couple of these right quick.
[00:57:51.940]With your like kind exchange, does it mean that you're gonna
[00:57:55.840]have to gain realize, er, realize the gain on trade
[00:57:59.390]from a business car?
[00:58:01.400]Yes.
[00:58:02.233]Again, like kind exchange for equipment's gone.
[00:58:05.230]Any gains that you're looking at, you're gonna have to take.
[00:58:09.150]Again, if your child is over 17, do they qualify
[00:58:12.920]for the $500 credit?
[00:58:14.570]Yes, they're another dependent other than a child.
[00:58:18.400]They're gonna qualify for the $500.
[00:58:23.380]This goes back to the question
[00:58:24.790]of that $10,00 limit with your real estate taxes.
[00:58:30.400]Again, the $10,000 is on personal.
[00:58:34.000]If it's for farm ground, we're gonna take it
[00:58:36.010]to the Schedule F or the 4835.
[00:58:41.280]Is there any limitation on depreciation
[00:58:43.360]for SUVs rated over 6,000 pounds?
[00:58:47.240]When vehicles start to weigh a little bit more,
[00:58:50.640]they're a little bit more heavy duty, they fall
[00:58:52.940]under different tax applications,
[00:58:56.750]and basically there is no limitation is the key to that.
[00:59:00.960]They didn't change anything about that.
[00:59:02.660]You'll be able to use it just like you always have.
[00:59:06.934]There we go.
[00:59:08.040]So, when we cut taxes and we don't necessarily have anything
[00:59:12.210]to back up the situation or make things better,
[00:59:15.210]what happens?
[00:59:17.360]They're assuming that is is gonna add
[00:59:19.010]about $1,500,000,000,000 to the deficit.
[00:59:22.120]So, why did we have to have the Byrd Rule
[00:59:24.330]where everything was unsetted?
[00:59:26.600]We had to have it because of that.
[00:59:29.720]And so now, they kinda get around that issue,
[00:59:31.870]but that's what we're looking at.
[00:59:34.800]Another thing that some people might run into,
[00:59:37.010]this is something probably more run into by, um...
[00:59:41.910]You know, marketing people, salespeople, people that drive
[00:59:44.710]around and wine and dine you
[00:59:46.130]in order to get you to buy their product.
[00:59:48.900]They used to make meals and entertainment expense that they
[00:59:52.440]could deduct on their taxes.
[00:59:54.730]Y'know, I took you guys out to try
[00:59:56.520]and get you to buy my product,
[00:59:58.720]and that wasn't just a cost out of my pocket,
[01:00:01.310]I got to use some of that expense when I was filing my taxes
[01:00:05.370]to reduce my income.
[01:00:09.870]Scratch the word entertainment.
[01:00:12.310]We can't use that section of it anymore.
[01:00:14.490]I can still take you guys out to a nice steak dinner,
[01:00:17.570]if you wanna buy my product.
[01:00:19.900]I can't take you golfing.
[01:00:23.640]So, that's just something to kinda be aware of.
[01:00:26.480]Like I said, if you're in marketing or sales,
[01:00:28.510]this is something that's gonna affect you.
[01:00:30.470]Most farmers, I think, don't necessarily take
[01:00:32.430]their customers out, for custom bailing hay,
[01:00:35.460]for a nice outing.
[01:00:38.030]If they do, it's probably more fun than it is for business.
[01:00:42.730]So, take aways.
[01:00:43.790]If I could press anything to you, I'm hoping what this does
[01:00:46.675]is it gives you an idea of what you need to ask your CPA
[01:00:51.050]or tax accountant.
[01:00:52.920]This is supposed to get you to a point
[01:00:55.010]where when you walk in, they don't have to build you
[01:00:57.500]from the ground up understanding what's going on.
[01:01:00.880]When you walk in, you know kinda what's going on,
[01:01:03.490]and you can move into the next step as to what I need to do
[01:01:06.410]in order to handle this.
[01:01:10.430]Give your CPAs and your tax accountants,
[01:01:13.020]your lawyers a little bit of time.
[01:01:15.400]Right now they're trying to just remember
[01:01:17.630]what the old tax law was as you're filing taxes right now.
[01:01:21.180]If I walked in and said I wanted to have a meeting
[01:01:23.120]about my 2018 taxes, I think they
[01:01:25.350]would probably shoo me out the door.
[01:01:26.970](audience laughing)
[01:01:27.803]So wait 'til Summer, let 'em go to some seminars
[01:01:30.290]and some meetings, and learn about this stuff.
[01:01:32.030]By then, IRS will have some guidelines out that they'll
[01:01:34.990]be able to look at and refer to.
[01:01:37.540]But this is not a year where I would say you wanna
[01:01:40.050]have a December meeting on December 30th with
[01:01:43.370]your tax accountant, trying to figure out what you wanna do.
[01:01:46.060]Schedule something a little bit sooner.
[01:01:47.550]Maybe have two meetings this year, so you can kind
[01:01:50.350]of get an idea of where you stand.
[01:01:52.850]So, does anybody have questions?
[01:01:55.350]And I will answer them to the best of my ability,
[01:01:58.600]but like other accountants, I've been trying
[01:02:01.060]to just keep the old tax code and the new code separate.
[01:02:05.600]I've been told I can throw this,
[01:02:07.760]which kinda sounds a little bit sketchy to me,
[01:02:11.060]but, questions?
[01:02:21.970]Nobody has a single question about tax?
[01:02:25.610]We're overwhelmed.
[01:02:26.443]We're overwhelmed, it's the afternoon and we're o--
[01:02:30.561](speaker laughing)
[01:02:33.110]Is there an age limit
[01:02:34.570]for non-qualifying children for like after they're 17
[01:02:38.338]and in college?
[01:02:39.720]Does that $500 keep counting as long as they
[01:02:42.530]are living with you, or you're paying
[01:02:43.840]for school, or do you know?
[01:02:45.810]My understanding is if you have a child that
[01:02:48.490]won't leave the nest, and they wanna live with you
[01:02:50.672]'til you're 40, as long as they're a dependent
[01:02:54.030]of yours, my understanding is this still counts.
[01:02:57.100]So they'll still get the $500.
[01:03:01.830]I would say we have some other issues, but.
[01:03:03.940](audience laughing)
[01:03:14.160]Anybody else?
[01:03:17.760]So, I had heard on the radio or TV,
[01:03:20.450]they were advising people to wait to file their,
[01:03:24.960]and like extend them.
[01:03:26.180]Are you advising people next year to extend their taxes
[01:03:28.930]because of changes?
[01:03:32.150]You can always amend your tax return.
[01:03:35.290]So would I hold off on filing my taxes, just waiting
[01:03:38.630]on some bill that they may or may not pass in Washington?
[01:03:42.460]I would probably recommend not.
[01:03:45.050]If something changes and we need to go back to amend it,
[01:03:48.120]yes, it's gonna cost a little bit of money
[01:03:49.700]for this tax accountant to re-open it and redo it,
[01:03:53.500]but I wouldn't hold off
[01:03:54.810]on filing something just based on that.
[01:04:02.490]As a lender that looks at tax trends,
[01:04:04.610]how is this new tax bill going to affect our looking back
[01:04:09.950]on historical taxes?
[01:04:18.600]Say that one again?
[01:04:19.879](audience laughing)
[01:04:24.340]So, as a lender, we analyze taxes
[01:04:26.140]on five year trends.
[01:04:27.590]Yup.
[01:04:28.423]Is this new tax bill going
[01:04:29.830]to skew the numbers when we through 2018
[01:04:35.308]with the new tax bill?
[01:04:41.340]If I had to guess, would I say that people
[01:04:44.460]are going to be looking to get more loans?
[01:04:51.020]I would say there's probably a little bit of room
[01:04:53.670]in there with the new depreciation bonus in Section 179,
[01:04:58.540]that people are probably gonna be taking out some loans
[01:05:01.100]in order to go out and buy new equipment
[01:05:03.110]where they can write it off, I think.
[01:05:05.050]The bill is meant to try and spur new businesses to
[01:05:08.010]start up, and one of the biggest issues
[01:05:10.350]with startup businesses is that initial capital outlay,
[01:05:14.860]and that most of the stuff they buy ends
[01:05:17.550]up being something that they can't Section 179 or bonus on.
[01:05:20.950]They had to just pay it off over 15, 20, 25 years,
[01:05:25.760]which kinda hurts for somebody that's
[01:05:28.320]just trying to start out.
[01:05:30.530]This bill's supposed to try and rectify that,
[01:05:33.470]and make it simpler to where it's easier to start up.
[01:05:36.860]I don't know if that answered your question.
[01:05:39.340]If you come up later, we can try
[01:05:41.010]and sort it out a little bit more.
[01:05:45.710]What concern I have is the implications
[01:05:48.794]to the state taxes,
[01:05:50.510]and (mumbles) have such high property taxes,
[01:05:54.280]and then it's iffy of how much money's
[01:05:57.280]going to be coming in.
[01:05:59.020]I think we got some state issues coming in.
[01:06:02.933]The state is definitely walking on a thin line.
[01:06:08.270]Everybody needs real estate
[01:06:09.780]and personal property taxes to come down.
[01:06:12.480]As Ricketts always sits there and says,
[01:06:14.090]it's a three-legged milking stool.
[01:06:16.410]That's the way the tax system's set up,
[01:06:18.400]and right now, two legs are about an inch long
[01:06:21.700]and the other one's about 12 foot,
[01:06:23.990]and so it doesn't sit very flat,
[01:06:25.930]and so they're trying to sort it out.
[01:06:27.510]Now, they're hoping that with the new
[01:06:30.440]sales tax income numbers from getting,
[01:06:33.430]I know they got a boost when Amazon voluntarily said
[01:06:35.830]that they were going to start collecting sales tax
[01:06:38.040]for Nebraska.
[01:06:39.360]That didn't mean every vendor that sold
[01:06:41.060]under Amazon was collecting the sales tax,
[01:06:43.950]just items that Amazon was collecting on their own.
[01:06:47.800]So, will sales tax bump up and fix it?
[01:06:51.030]I don't know.
[01:06:51.863]I know I've heard some people throwing
[01:06:53.520]around the idea that maybe they just need to bump sales tax
[01:06:56.200]up another percent in order to get real estate to come down.
[01:07:00.220]I don't know what the answer's gonna be.
[01:07:12.100]Any other questions?
[01:07:14.380]Let's give Austin a round of applause.
[01:07:16.029](audience applause)

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2017 Tax Cuts and Jobs Act by Austin Duerfeldt

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