One of my best friends is a tax attorney, and he loves to talk. He will use any method at his disposal even if it is making smoke signals. We usually talk three of four times a week.
I haven’t heard a word from him since last November.
In the first week of January, I called his office to see how he was doing, but he was unavailable. His secretary informed me that my friend was away at a tax planning conference.
I called him again last week, but his secretary said the same thing that she had said the last time. He was meeting with tax lawyers.
Since I wasn’t getting anywhere with phone calls, I decided to send him a text message. I needed his advice on an urgent tax question. This got him to call me back because I am the person who needed the advice, so he eagerly agreed to help me.
At the first of the year, I started to study the Tax Cuts and Jobs Act that was passed to govern our tax code. The reason that this is an urgent matter is very clear. Each day that you are not learning about the perils and the favorable circumstances of this law, you are losing money. If you start looking into this issue right now, you have a chance to save thousands of dollars on federal income taxes.
There are several things that need your attention, and I will inform you of four of those things now. First, who is this Ted Bauman who is giving you advice on your taxes?
Who Is Ted Bauman?
Ted Bauman graduated from the State University of New York with a Bachelor of Science in Business Administration. He graduated from Georgia State University with a Master of Business Administration in Finance. He has been working as an executive in the non-profit sector for the past 25 years as a fund manager for low-cost housing projects in South Africa. As editor of The Bauman Letter, Ted Bauman’s specialties are low-risk investment strategies, international immigration issues, privacy and asset protection.
The Top Issues for the Year
Pass-through entities will save on their taxes.
Business entities that do not pay any taxes are known as “pass-throughs.” The profits or the losses that these companies earn or lose are “passed through” the owners. Examples of traditional pass-through entities are limited liability corporations, S corporations and partnerships.
Beginning on January 1, pass-through owners will not be required to pay federal income taxes on 20 percent of their profits. This will mean that a lot of people are going to see a huge reduction in their income tax rates.
If your profits equal $100,000 or $200,000, the new rules will be easy enough for you to understand. If you are making more than that, the guidelines will be a little bit more complicated.
Whatever your situation is, the tax law is going to make it possible for you to save a lot of money on taxes.
If you are in private practice as a lawyer, doctor or other professional, it may be possible to break your business up into parts so that you can save thousands of dollars in taxes. Consult a tax expert immediately if this applies to you.
It will benefit you to take as little out of your profits for your personal salary as possible if you run an LLC, a small partnership or are self-employed. By doing so, you will increase your company’s profits and increase the amount of money that can be deducted as tax-free.
If you are an employee, you might be able to become a consultant. Ask a tax attorney if becoming a consultant will benefit you. A lot of people have discovered that it does.
Eliminating key deductions.
The point of passing a new tax bill last year was to make the tax code easier and lower tax rates. It does reduce tax rates until 2025, but it doesn’t appear to make the tax code easier. The legislators tried to simplify the code, but what they have done could actually cost you if you aren’t aware of the regulations.
I believed that the phrase “elimination of SALT” referred to the abandonment of the nuclear arms treaties that the U.S. and Russia signed. That’s not exactly right, and the truth of the matter is only a little bit better for us.
This year, state and local income and property taxes known as “SALT” may only be deducted from your federal income taxes in the amount of $10,000. Joint filers have a standard deduction of $24,000, so it is twice the rate that it was in previous years. Because of this, a lot of people are going to see an increase in their taxes, and they will not be limited to New York and California.
State legislators are looking for ways that they can ease the blow that this portion of the law delivers to taxpayers. You will learn more about these issues by reading the section of your newspaper that covers state legislative issues.
In addition, miscellaneous deductions will be eliminated by the new law, and home office expenses are on that list. If you run a home-based business or you work from home for an employer, you will have to say farewell to these deductions.
Reducing taxes on retirement income.
You may not be ready to retire yet, but you are earning the right amount of money every year. If this describes you, you need to be doing the following three things:
- Open a Roth IRA if you haven’t done so already.
- Your Roth IRA will be the sole shareholder in the C Corporation that I am suggesting that you start.
- Make sure that you read The Bauman Letter for suggestions on how to reduce the taxes on your retirement earnings by up to 50 percent.