TAX TIPS (and other stuff)

By Kelly J. Bullis, CPA

 

Well President Trump has passed the first 100 days mark.  The dizzying speed of his reforms and changes includes working with Congress to have a new tax law and budget reconciliation bill on his desk to sign on July 4th.

The President had made several promises during his campaign.  It is refreshing that this President pushes himself and his team hard to keep his promises.  And in his negotiations with Congress over the new imminent tax law, he is on target to keep his promises.

 He came out early against taxing Social Security.  Something that got my attention since I have been beating the drum to stop taxing Social Security for years and years.

Social Security is EXACTLY a ROTH IRA.  Why can you make after tax contributions to a ROTH IRA and years later, take out distributions and pay ZERO tax, but pay after tax contributions to Social Security and years later, take out distributions and pay as high as 37% on up to 85% of those distributions?  In this new tax law, it will make Social Security benefits, at least for most folks, non-taxable.

 Another popular idea promoted by the President, was not taxing tip income.  The IRS, over the years, has imposed tremendous record-keeping and reporting burdens on businesses to report tip income.  Most restaurants are family owned and are overwhelmed with all the record-keeping requirements.  Removing the ones related to tip earnings would not only save the tip earners from paying tax on them, but it would free up small family-owned businesses from the tip earning record-keeping requirements.  This also is in this new tax law.

Making the Tax Cuts and Jobs Act of 2017 permanent was also another promise by the President.  With some minor tweaks, it looks like that will happen with this new tax law as well.  For small businesses who depend on the Qualified Business Income Deduction, this is HUGE!

There is a surprise in this new bill.  I personally am not holding my breath to see this make the final version, but it would be interesting if it does.  No tax on overtime earnings.  Wow!  That would be a huge and unexpected bonus to many of the same workers who receive tips.  There are various proposals to determine which overtime is not taxed.  It might come down to a simple hourly rate, adjusted for inflation.  We shall see.

 There is also a $4 trillion increase in the U.S. debt limit in this bill.  That is giving a lot of conservative Republicans some heartburn.  The President is being adamant about this provision being in the bill.  Once again, we shall see.

 The final question is whether this bill will be retroactive to Jan 1, 2025, or starting on Jan 1, 2026.  The President wants it retroactive for 2025.

 Have you heard?  Psalm 119:103 says, “How sweet are your promises to my taste, more than honey to my mouth!”

 Kelly Bullis is a Certified Public Accountant in Carson City.  Contact him at 775-882-4459.  On the web at BullisAndCo.com  Also on Facebook.