@sylvan8798 considering that I’m a high risk pregnancy, yes, I am well aware of the fact that we are going to “try.” My obgyn has already made that quite clear 
There is a school of thought, and there is actually some support for it in a Supreme Court case (I think I posted about the case before but I don’t feel like looking it up again), that everyone who works is self-employed, being in the business of being an employee for another company.
Now that self-employed people (subject to some limitations which I can’t puzzle out from the text of the bill) get a 20% deduction from their income, in order to prevent millions of employees from suddenly deciding to say they are self-employed and leaving a huge mess for the IRS and the courts to deal with, the bill preemptively denies the 20% deduction for people who are employees, even if they claim they are actually self-employed at being an employee.
For the vast majority of people it won’t be worth the effort, because they will also have to pay both sides of FICA.
For example, if you make $150K, the 20% deduction saves you 150K0.20.22 = $6,600 in taxes.
But you’ll pay (15,773 + ((150000-127200).9235).029) / 2 *0.78 = $6489 more in FICA (technically, SECA) tax. Hardly worth switching.
I’m sure people will try, and the IRS will have a great deal of work disallowing it.
We pay quarterly estimate installments - both fed and state. The final installment for 2017 is not actually due until mid January 2018. Can you still pay the state installment before the end of 2017 and utilized the deduction?
Don’t be silly-- when the Google employee negotiates with Google to become a pass-through, the Google employee also naturally asks for the $15K Google is paying for her benefits, and the Google side of FICA. Google has no reason to deny her this money, since they will no longer have to pay it.
deleted
I haven’t seen any changes in the deductions that self-employed people or small businesses can take, unless he is paying a lot of interest on instruments or equipment, or maybe if he has a lot of entertainment expenses.
And if he’s eligible for the 20% deduction, he may pay a fair amount less.
I still can’t figure out if DW, who is self-employed as a real estate agent, will be eligible for the 20% deduction. Or if our rentals will be eligible.
I am still a bit lost here, but as far as the legislation is concerned, who gets to decide who is self-employed and who is not?
Or is that ambiguous until the first prosecution?
In my experience, which is 30+ years in high tech, companies generally prefer their employees to actually be employees, except in isolated cases, for several reasons, not least of which is that the company opens themselves up for a lot of legal trouble with the IRS for mis-classifying employees as contractors, or if the contractor sues the company claiming they are an employee and the employer has to pay the FICA.
And realistically, what leverage does the average employee have?
Google: “We’d like to offer you a job.”
Prospective employee: “Great! And I’d like to set it up so I’m a contractor.”
Google: “No. Employee or no job offer. Take it or leave it, we don’t care.”
Prospective employee: “Uhh…”
Google hires thousands of engineers every year. Everyone wants to work for them. There are maybe a handful of employees in very specialized areas that would have the leverage to make Google do this.
ETA: And I’ve worked for more than a few companies that had a pay scale for contractors that was actually less per hour than the employees received, and it didn’t include benefits or FICA. The rate was the rate, take it or leave it, because these were not considered core employees.
Lawmakers slipped a little Christmas present into the conference bill, that gives an extra tax cut to owners of large real estate holdings through LLCs. The President who will sign this bill and the lawmakers who wrote it happen to own large real estate holdings through LLCs. What an amazing coincidence.
@“Cardinal Fang”, yes and if D’s got the triple sweep in 2020, I would expect a targeted rollback of this provision. I think it is getting so bad that it might be punitive as well. If they don’t maybe it stays.
Did the special provision for oil and gas MLPs make it into the final bill? This was another carve out that helps several R Senators (and a few D Senators as well).
I interpreted it as a restriction on paying 2018 taxes, not 2017 taxes. We’re still going to try to pay whatever we think we might owe for 2017 before the end of the month.
This is actually a fairly well established area of the law, and the IRS has a whole set of rules that determine if you are an employee, regardless of what you or your employer are calling you.
Things like: does your employer control your schedule, does your employer tell you what to do and how to do the job, do you use the employer’s equipment and facilities, do you get paid a salary, is it a long-term relationship.
If you are an employee now, it is extremely unlikely IMO (and IANAL or tax expert) that you would be able to convert that same relationship into a self-employment situation.
More info:
Last year the employer of one of my children (consulting field) encouraged all of their associates to convert to contractor status, and offered compensation packages with a net cost to the firm unchanged from the employee regime.
@sherpa - How big is this company? Were they forced to change? Or are there now employees and contractors working side by side with the contractors doing exactly the same as they were doing before?
Consulting is kind of a weird industry because they are basically hiring out their employees to other companies.
Law partners are already not employees. A number of tax professionals have written that they expect big law firms to split off another firm for associates, so they too can take advantage of the favorable tax treatment for passthrough income.
I’m a long term consultant (almost 20 years) with an S-corp pass through. So this is of special interest to me.
I am enraged at the last minute real estate LLC change – this is just blatant robbery. That and a report in the Dallas news today that many Republican lawmakers got large donations from Russian sources in recent years (I know this is the tax thread, so we can’t go down that rabbit hole) – I am about to blow a gasket.
@“Cardinal Fang”
What is ‘large’? From the article
My parents have held some small properties in LLC for decades (now just mom, since dad has passed). Three of my neighbors have small income producing real estate investments - also held in LLC’s. We all use the depreciation ‘loophole’.
The LLC is an asset protection mechanism. We hold properties in the same manner. No one has employees because we can’t afford them! It’s a plan to supplement our retirement income since we don’t work for a governmental entitle and thus won’t be getting a (highly unfunded) pension. We would be dependent upon social security.
News flash…not one of the above mentioned individual are Trump level big. Never will be Trump level big. So while the class warfare approach is very popular among the like minded, it’s a distortion. Many a small business person, who has spent years and years managing their income property investments; dealing with tenants; risking their nest egg in a sometimes volatile market will benefit from this loophole.
We live in a high tax state. We lose with this plan. We are a small family business - we lost under the ACA.
I know in many a mind we are just evil ‘rich’ that should be made to pay more of ‘their fair share’?
Frankly, I’ve had enough.
@notrichenough - This company is a bit of an anomaly in the consulting world: small boutique firm where the associates don’t travel for the typical extended gig, but rather work almost exclusively in house. I believe that all the employees accepted the offer, with all of them setting up S Corps.
Yes, let’s not be silly on illegal hypotheticals. Googe or Apple employees just can’t negotiate their employee status away. Just ain’t happening, particularly in California.
No, landlords are not as sympathetic as grad students. Moreover, this tax bill gave nothing to grad students, but gave people who own buildings a big tax cut. If grad students are at least as sympathetic as landlords, then why don’t grad students get a tax cut?