Talking Tax Reform - Part V

One of the changes to the tax laws under the Trump Tax Plan for people in certain industries is the elimination of the itemized deduction for unreimbursed employment expenses.  This means that the 2017 version of the form illustrated below will be the last (unless there is another major change to the tax laws).

For people who work in the entertainment industry as employees, there are a lot of expenses they are able to write off.  Two of the largest ones are commissions paid to agents and managers.  As of January 1, 2018, those expenses are not deductible for those people who are paid as employees on Form W-2.  One of the interesting things in doing tax returns for actors who are...shall we say struggling is that they will bring in lots and lots of W-2 forms when they come in to do their tax returns.  I once had a client who had over 30 of those forms.  There is an entire industry within the entertainment industry of payroll companies.  The reason these actors get so many W-2 forms is that each production they work on is a separate business entity with its own unique Employer Identification Number.

Another group of people who are going to be harmed by this change in the tax laws are those who are required by their employers to maintain an office in their home for the convenience of that employer.  My mother's second husband is an excellent example to illustrate how this works.

That is a pair of shoe trees.  Rochester cedar wood shoe trees.  Mom's second husband was a salesman selling these all over the western half of the United States.  As such, he had to maintain his office in their home and used part of the garage for storing samples.  Back then and until 2017, expenses for an office in the home that is for the convenience of the employer were deductible.  There are requirements including that the space be used exclusively for business purposes.  I have a client who rents an apartment that is roughly 1,200 square feet but the space used as a home office for convenience of the employer is only 120 square feet.  So that client gets to deduct only 10% of the rent.

Now all of those people will be unable to claim those deductions.  The fact that the standard deduction is doubled will come nowhere near offsetting the lost deductions.  This is going to result in a huge tax increase for these people.

There is a strategy for those in the entertainment industry whose income is above a certain level to deal with this.  It is called a loan-out corporation and we will explore it in another blog.

If you have questions about this or any of the other issues being explored in this series of blogs, please feel free to ask.

And here is that reminder that the Trump Tax Plan is simply a massive giveaway to the wealthy being paid for by the addition of $1.5 trillion to the national debt over the next decade.