Realtors: How the 20% Business Income Deduction Applies to You

Posted by danetteoneal1 on October 11, 2018
Posted in: Finance, tax policy, Uncategorized. Leave a comment

How the 20% Business Income Deduction Applies to You

Changes stemming from the Tax Cuts and Jobs Act of 2017 allow agents and brokers who earn income as independent contractors or from pass-through businesses to take a significant deduction on that income.

September 24, 2018
by Robert Freedman

One of the biggest wins for REALTORS® in last year’s tax reform bill is the new 20 percent business income deduction, also known as Section 199A. Almost any self-employed person or owner of a pass-through business (such as an S corporation, limited liability company, or partnership) with eligible income, which the National Association of REALTORS® made sure includes commissions from real estate sales, can take 20 percent off the top after business expenses are taken out.
Of course, there are limits. If you file as an individual, you’re eligible up until your taxable income reaches $157,500. After that, your deduction phases out over the next $50,000, until you reach $207,000.  For couples filing jointly, the taxable income limit is $315,000, with a $100,000 phase-out until you reach $415,000. That applies to your combined income. So, your spouse’s income can impact your eligibility.

Real estate professionals with incomes above those amounts also may be eligible for the deduction but, in this case, it’s based on a formula that looks at wages paid and depreciable business property.

Tax Changes

Learn more about what the Tax Cuts and Jobs Act of 2017 means for homeowners and real estate professionals.

What should you be doing to ensure you’re positioned to get the most out of the deduction in your 2018 taxes, due next year in April? To find out, REALTOR® Magazine talked to Peter Baker, a certified public accountant and principal of Business Planning Group in Washington, D.C. Baker’s practice specializes in real estate agents and brokers and he’s already begun having conversations with his clients about what to do.

Most real estate professionals are sales associates and are sole proprietors. Is there any tactical reason for them to restructure themselves into an LLC or S corporation to get a better deal under the deduction?

No. From the standpoint of 199A, a change in entity type is not necessary because sole proprietorship income qualifies for the deduction. Absent other reasons to change, they should keep filing as a sole proprietorship.

What if you’re a broker or otherwise have pass-through income in addition to commissions earned?

The deduction is taken on an aggregate basis, so if you have pass-through income from other sources in addition to commissions, then you combine your qualified business income with any qualified business losses before you calculate your deduction. So, if you have $100,000 in net commission income and $50,000 in qualified losses from other sources, the 20 percent would come off the aggregate amount, or $50,000. That means your potential deduction would be $10,000.

What pass-through activities would generate losses?

Many things do. It’s not uncommon for brokerages to throw off losses today because of generous splits with sales associates. So, if you’re a broker-owner who still sells, you might have losses from your brokerage operation while generating commissions earned from your own sales.

What if you have investment rental property or you’re involved in land or property development? Those can throw off losses, right?

These are most often operated in pass-throughs, but we’re still waiting on final IRS rules. So, we don’t know yet about how net rental income and losses will be treated. [Editor’s note: NAR is working with the IRS to get clarification on that question.]

The deduction is taken on your net qualified business income. There’s no change to what counts as deductible business expenses, right?

With the exception of some new rules for depreciation and changes in deductibility for meals and entertainment, that is correct. You take out your expenses in much the same way. Did you travel to conventions? Did you buy a new car? Did you buy a computer? Did you buy office supplies?

Sales associates and brokers typically aren’t wage or salary earners, so they don’t get W-2 income and are required to pay estimated taxes quarterly. That means they’ve already paid three quarterly estimates for the 2018 tax year even though rules aren’t out on the new deduction, or on other changes in the tax law, for that matter. What’s going to happen come April if their estimated payments are off?

Hopefully they’ve been talking to their professional tax adviser or accountant for the previous quarters. There are two ways to approach estimated tax payments given the new environment. The taxpayer can apply what’s known as the safe harbor approach. That’s where they pay estimated taxes based on their prior year’s tax liability. As long as they do that, even if they end up owing more tax come April 2019, they won’t be penalized or face interest charges for underpayments. They’ll just have to settle up the amount they owe. Of course, if their current sales volume is down from the previous year, that could be a painful way to do it, because they’ll be basing their payments on higher income than they actually earn. So, the alternative is to forecast taxable income based on what they’ve earned year-to-date, subtract business expenses, and look at their pipeline of likely sales to forecast their anticipated earnings for the remainder of the year. Then, they factor in the 20 percent deduction.

If they don’t take the safe harbor approach, are they liable for penalties and interest payments if they underpay their taxes?

Potentially, they would be. However, the IRS has a first-time penalty abatement process for taxpayers who, for the past three years, have paid and filed their taxes on time and haven’t incurred any penalties. So, if they have a good three-year history, they would be eligible for a one-time waiver of penalties and interest payments if they underpay their taxes.

You mentioned final rules aren’t out yet. When can we expect them?

Hopefully, before the end of the year. The IRS will also be revising forms to reflect the new qualified business income deduction. That should also be coming out before the end of the year.

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The House passed a bill to make permanent the Trump tax cuts for the rich, and it passed mostly along party lines:

Posted by danetteoneal1 on October 9, 2018
Posted in: Finance, Public Policy, tax policy, Uncategorized. Leave a comment

As the nation watched the Senate Judiciary Committee meet to consider whether to rush through the nomination of Brett Kavanaugh, the House Republican majority was quietly passing the Protecting Family and Small Business Tax Cuts Act of 2018 — a bill to make the Trump tax cuts for the rich permanent. According to the GOP-controlled Joint Committee on Taxation and the Congressional Budget Office, the bill would add another $545 billion to the federal budget deficit over the next decade. This would be on top of the trillionsalready added to the debt by the original tax bill and the omnibus budget signed by Trump earlier this year.

The so-called “Tax Cuts 2.0” legislation was backed by 217 House Republicans and 3 Democrats. Just 10 Republicans — all from California, New Jersey, and New York, states hit hard by a provision reducing state and local tax deductions — joined 181 Democrats in opposing the measure.

A ThinkProgress review found that many of the vulnerable Republicans who voted for this latest unfunded legislation are also among those campaigning on their commitment to a balanced budget and/or a constitutional amendment to require one.

Indeed, the bill’s sponsor, Republican Rep. Rodney Davis (IL-13) has a whole section on his campaign website about the national debt. “Our national debt has surpassed $17 trillion, nearly $53,000 for every man, woman, and child in America. In fact recently, the CBO released a report stating without major reforms, federal debt held by the public would reach 100 percent of GDP in 2038,” he argues. “This is wrong and immoral. It undermines the dollar and our place in the global market, resulting is more economic uncertainty that the nation cannot afford. Washington should live by the same rules as every American family and that means balancing our budget and only spending what we take in.” Regardless of the merits of this anti-debt fervor, Davis has not backed it up with his own votes: he supported both the first round of tax cuts and the spending bill.

Read more at: https://thinkprogress.org/these-balanced-budget-republicans-just-voted-to-add-another-half-trillion-to-the-deficit-899c1f36cce3/?utm_source=newsletter&utm_medium=email&utm_campaign=tp-letters

I am almost convinced that this is not 1918 but 2018. The political implications will likely be found at the polls in the upcoming midterm elections on Nov. 6. PLEASE VOTE!!! The country will soon learn whether the controversy will rally #’s conservative base or women and sexual assault survivors who felt they were ignored through the confirmation process. The rest of us… well… will continue to be ignored.

Posted by danetteoneal1 on October 7, 2018
Posted in: Uncategorized. Leave a comment

Race Has Always Mattered!

Posted by danetteoneal1 on September 11, 2018
Posted in: Uncategorized. Leave a comment

Race Has Always MatteredSociologist Howard Wi­nant’s essay, “Racial Du­alism at Century’s End,” offers a cogent analysis of the issue of race which has special significance for Blacks in the U.S. Race is a perpetually timely issue, despite the fact that many people continue to mini­mize its importance. This helps to perpetuate the sta­tus quo that clearly is not in Black people’s best inter­ests.

Race matters in the United States, and virtu­ally throughout the world. Throughout U.S. history, race and racial conflict shaped and reshaped the categories into which all identities were classified. Since its beginning, the ra­cial struggles at the heart of U.S. society created the nation’s politics and cul­ture. Winnant argues that although race matters, it is as problematic a concept today as ever. He calls the current period one of “uni­versal racial dualism.”

Blacks and other racially defined minorities are no longer subject to legal seg­regation, but they have not been relieved of the burdens of discrimination, even by laws supposedly intended to do so.

Once, U.S. society was nearly a monolithic racial hierarchy in which every­one knew “his place”; under racial dualism, everyone’s racial identity is problem­atic. Monolithic White su­premacy is over, yet in a more concealed way, White power and privilege live on. The overt politics of racial subordination has been de­stroyed, yet it is still very possible to “play the racial card” in the political arena (and throughout society). Blacks and other racially defined minorities are no longer subject to legal seg­regation, but they have not been relieved of the burdens of discrimination, even by laws supposedly intended to do so.

The old recipes for racial equality which in­volved creation of a “color-blind” society have been transformed into formulas for the maintenance of ra­cial inequality. The old programs for eliminating White privilege (e.g., affir­mative action, etc.) are now accused of creating non-White racial privilege. The welfare state, once seen as the instrument for overcom­ing poverty and injustice, is now accused of causing these same ills.

Racial dualism means today that there are two ways of looking at race, where previously there was just one. In the past, everyone agreed that racial subordination existed, the debate was whether it was justified. However, agree­ment about the continuing existence of racial subor­dination has vanished. The very idea that “race mat­ters” is something which today must be argued, something which is not self-evident. This, in itself, attests to the transformation which racial dualism has undergone from the time of W.E.B. DuBois’, “The Souls of Black Folk” to our time.

On the one hand, the world DuBois analyzed is still very much with us. We live in a racialized so­ciety, a society in which racial meaning is engraved on all experiences. Racial identity shapes not only life-chances, but social life, taste and place of residence. The meaning of race, the racial interpretation of ev­eryday life and the larger culture, polity and econ­omy, have been so finely tuned for so long, and have become so ingrained, that it is now second nature, common sense, that rarely requires acknowledgement.

On the other hand, race, as a “reality,” is an illusion. It is patently inadequate, if not wholly false to under­stand human experience, individual or collective, in racial terms. Indeed, it is difficult even to specify the meaning of race beyond the most superficial no­tions. Not only ordinary individuals, but even an­thropologists, sociologists and geneticists cannot pres­ent a convincing rationale for distinguishing among human groups by physical characteristics.

In the United States, for example, hybridity is uni­versal; most Blacks have “White blood” and tens of millions of Whites have “Black blood.” Latinos, Native Americans, Asian Americans and Blacks, as well as Whites, have centuries-long histories of contact with one another; colonial rule, enslavement and migration have dubi­ous merits, obviously, but they are all effective “race mixers.”

Race matters then in a second sense: It mat­ters not only as a means of rendering the social world intelligible, but simultane­ously has a way of making it mysterious. Race is not only real, but also illusory. Not only is it common sense, it is also common nonsense. Not only does it establish our identity, it also denies our identi­ty. Not only does it allo­cate resources, power and privilege, it also provides means for challenging that allocation. Race not only naturalizes, but socializes. The built-in contradictory character of race provided the context in which racial dualism, or the “color line” as DuBois designated it, developed as the problem of the 20th, and now the 21st century.

For centuries, white su­premacy went almost en­tirely unquestioned in the political mainstream, which established the overall con­tours, as well as the par­ticular political and cultural legacies of racial insubor­dination and resistance. It eliminated, or at best, se­verely limited the political terrain upon which racially-defined groups could mobi­lize within “civil” society, thus defining these groups as “outsiders.” It denied the existence of commonali­ties among Whites and non-Whites—such as shared economic activities, shared rights as citizens and, most often, shared humanity— thus constructing race, at least in principle, in terms of all-embracing social dif­ferences.

Devin BrownNot only did racializa­tion tend to minimize dif­ferences among people considered White, but it also blurred distinctions among those whose physi­cal difference with whites was considered the only crucial component of their identities. Over time then, this “White versus other” concept of difference cre­ated not fixed and unchang­ing racial identities—these were always in flux—but the potential, the social structure, indeed the neces­sity of universally racial­ized identities in the United States. (To be continued.)

https://www.laprogressive.com/race-has-always-mattered/?utm_source=LA+Progressive+NEW&utm_campaign=266947dd05-LAP_News_4_15_April_17_PC4_15_2017_COPY_01&utm_medium=email&utm_term=0_61288e16ef-266947dd05-286925037&mc_cid=266947dd05&mc_eid=6c35aac96c

#NAR SUSTAINABILITY SUMMIT- 40 of us from around the country gathering g to identify and discuss sustainability-as it relates to real estate- the transportation cost of housing, use of #solarenergy, #autonomousvehicles, #smartcities, #3-Dprintedhomes, #5G, #duckcurbs, #powerwalls, #smartmeters, #cashlessWorld, #hersratings, #greencities, #energyaudits, #newurbanism

Posted by danetteoneal1 on August 21, 2018
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