New Tax Code: Legal Fees Can't Be Deducted On Lawsuit Settlements


Many plaintiffs will face higher taxes on lawsuit settlements under the recently passed tax reform law. Some will be taxed on their gross recoveries, with no deduction for attorney fees even if their lawyer takes 40% off the top. In a $100,000 case, that means paying tax on $100,000, even if $40,000 goes to the lawyer. The new law should generally not impact qualified personal physical injury cases, where the entire recovery is tax free. It also should generally not impact plaintiffs who bring claims against their employers. They are still allowed an above the line deduction for legal fees (although there are new wrinkles in sexual harassment cases).

For most other types of claims, if the suit is not related to the plaintiff's trade or business, there may be no write-off for legal fees or costs. That means you are taxed on 100% of your recovery.

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Unclear Definitions to Qualify for Business Tax Break Under New Code



Tax professionals are pleading with the IRS for details as soon as possible. The American Institute of CPAs asked for “immediate guidance” on the pass-through provision in a Feb. 21 letter to the IRS. “Taxpayers and practitioners need clarity” to comply with their tax obligations and “make informed decisions regarding cash-flow, entity structure, and other tax planning issues,” the AICPA said.

This much is clear: If you’re a pass-through business owner who earns less than $157,500, or $315,000 for a married couple, you get full access to the deduction no matter what you do.

Above those thresholds, the deduction fades for certain “service” industries specified in the law including health, law, consulting, athletics, financial and brokerage services. (The break is completely eliminated for service business owners earning more than $207,500 if they’re single, or $415,000 if they’re married.)

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For Those Who Work from Home: Home Office Deduction?


Are you self-employed or a small business owner?  If you work from home you may be able to take the home office deduction.  Here is what you need to know to figure out if you qualify and get a better understanding of how this often-scary deduction works.

The home office deduction has a reputation for being an audit red flag.  While this may be true in some cases, you have nothing to worry about if you have good records and actually qualify for the deduction.

Working from home sure has its benefits.  You can’t beat the commute and you might have more time to spend with your family.  The cherry on top may be some extra money in your pocket from not having to pay for an office and from a potential tax deduction.


Growing numbers of solo-preneurs and small business owners working from home have made the home office deduction an even more important topic for you to understand.   I’ve spoken with many business owners over the years who are likely eligible for this tax break but don’t take it.  Why?  Because they are just afraid of any undue scrutiny of their tax returns.

Tax law is complex and, with the new GOP tax plan, things are not going to get any easier for the self-employed.  The record-keeping hassles of the home office deduction have scared many away over the years.  Also, there is a depreciation recapture provision that could mean higher taxes if you sold your home after taking the home office deduction.

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What is better for Employees? TC&JA Benefits


If you were choosing from a menu, which would you pick: a $1,000 bonus, an extra percentage point match on your 401(k) or higher pay?

Hundreds of American companies are handing out goods like these in the wake of the new tax bill. But, so far, workers cannot choose what perk they get.


Companies seems to understand that happier and healthier employees are more productive, and improving their benefits helps retain a stable workforce, said Lloyd. But still, “raising wages will be a much slower affair,” he added.

If your company announces an extra benefit, or gives you an option of what benefit to take, here is how to evaluate what it means to your bottom line:

*Cash bonus

Bonuses are easy to process once a company has cash on hand.

For employees, however, the perk ends up to be slightly less, because of taxes. For somebody in the new 12 percent tax bracket, that $1,000 is $880. For individuals in the new 22 percent bracket, it is $780.

A short-term infusion of cash could have a long-term impact on workers concerned about debt if they use it to pay down credit card balances. Chris Whitlow, CEO of Edukate, an online financial wellness platform, said when he surveys workers, their biggest concern by far is debt. Even a few hundred dollars could take a bite out of debt, when you factor in compounded interest.

* Bigger 401(k) matches

Take that same $1,000 and make it part of an increased 401(k) match, and you could double it in less than ten years. But that is only if you are an employee who is participating in the company’s retirement plan up to the match level.

“Longer term, the 401(k) match has a bigger impact,” said Lloyd, adding the caveat that this only applies to the people who are investing already.

* Pay increases

On the hierarchy of benefits, perhaps nothing is better for workers than a real raise in annual salary.

While some companies have announced increases, expect raises to come slowly.

Some companies have increased their hourly minimum wage, mostly to $15, including banks like Capital One and SunTrust Banks. Other companies added money to their salary increase pools, but may not have announced raises yet because it is harder to explain in a press release, Bremen notes.

“If the salary increase pool was 2.8 percent and now it’s 3 percent, that’s huge dollars for a company with 20,000 employees,” Bremen said, noting that the charge for one company he knows is $5 million.

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Seven Smart Investment Vehicles To Add To Your Holdings


Most investors know that a diversified portfolio spreads out your risk and keeps your returns afloat if one of your investments takes a nosedive. The question then becomes: Where are the best places to invest your money?

While the stock market offers plenty of options for diversification, it's wise to look beyond Wall Street and find other investment vehicles with solid yield potential. We asked members of Forbes Finance Council to share their thoughts on the best holdings to add to your portfolio. From cryptocurrency to health savings accounts, here's what they had to say.

1. Life Insurance
2. Self-Directed IRAs
3. Online Businesses
4. Cryptocurrency

5. Real Estate Investment Trusts
6. 401(k) Account
7. Health Savings Account

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Using Cryptocurrency to Pay Taxes Leads to More Taxes!

From Forbes

First, it was Arizona, and now Georgia is moving to accept payments in Bitcoin and other cryptocurrencies. Both proposed laws are not yet final, but Arizona’s Senate Bill 1091 has passed the State Senate. It seems likely that some other states will follow, and perhaps the IRS eventually will too. In Arizona, the tax man would convert it to dollars at the prevailing rate. You would get credited with the converted dollar amount, so timing could be important. IRS position said cryptocurrency is property in Notice 2014-21. That classification as property has some big tax consequences, accentuated by wild price swings.

f you owe $5,000 in taxes, you could pay the $5,000 in dollars. Or soon, you could pay with $5,000 worth of say Bitcoin, Ripple, or Ethereum. As long as the crypto is worth $5,000 when you pay, you’re home free, right? Not really. After all, you need to consider the sale you just made. The transfer of the crypto to the tax man is a sale, and that could mean more taxes for the year of the payment. If you bought the crypto for $5,000 the day you pay your taxes, there’s no gain.

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Internal or External Management in Real Estate Investement Trusts (REITS)


REITs are either internally managed, with management as employees, or "externally managed", pursuant to a management contract, with no direct employees.

Usually, private REITs (or non-traded REITs) are externally managed for a fee by a related-party manager. The related party fees for these types of vehicles can be significant, and will vary based on the underlying investment premise and management services rendered.

In a REIT with an internal management structure, its own officers and employees manage the portfolio of assets. Conversely, a REIT with an external management structure usually resembles a private equity arrangement, in which the external manager receives a flat fee and an incentive fee for managing the REIT's portfolio of assets.

There has always been a debate over which management structure is most favorable, and the controversy seems to always center on conflicts of interest. Let me explain.

When you buy shares in a publicly traded REIT that is internally managed, you are providing capital (or equity) to the company to invest in buildings and pay the overhead (including salaries) for the business. So, theoretically, as an investor I am paying for the salaries of the management team.

However, when you buy shares in an externally managed REIT, you are not actually hiring the management team. The Board has negotiated a contract with an outside management team to run the business, and typically, their compensation is tied directly to growing assets under management, much like the private equity model.


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Tax Reform Sparks Interest In Life Insurance and Secondary Markets


With many Americans reviewing their financial situation after the passage of the Tax Cuts and Jobs Act, it is important that any life insurance needs are also reviewed at this time. The reality is that many people do not think about life insurance as a financial asset and don’t review their life insurance needs frequently enough. Individual life insurance policies consist of over $12 trillion in the United States. But many Americans are not well informed about their life insurance needs, policy specifics, or planning options. As your finances change, as your family grows, or when laws change, it is important to review your existing life insurance and to see if you have a heightened need for any more insurance.

The Tax Cuts and Jobs Act made significant changes that impact the use of life insurance as an estate protection vehicle and modified the tax ramifications of selling a life insurance policy on the secondary market as part of a life settlement. From a fundamental life insurance planning standpoint, these changes reduced the need for some individuals to have life insurance to protect an estate from federal estate taxes and improved the tax situation surrounding the sale of a life insurance policy.

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75 Items You May Be Able to Deduct from Your Taxes


One way to save money each year is to find legitimate tax write-offs that intersect both personal and business expenses. [...] Surprisingly, there isn't some master list included in the Internal Revenue Code or provided by the Internal Revenue Service. There is simply the tax principle set forth in Code Section 62 that states a valid write-off is any expense incurred in the production of income. Each deduction then has its own rules.

[...] With a small-business venture in your life and on your tax return, you may be able to convert some personal expenses to business expenses, as long as you have the proper business purpose for that expense.

[...] Consult this list of 75 possible tax deductions for business owners. It's just a start and not every one of these items is always a legitimate deduction. For example, you may be able to deduct entertainment expenses, but only when entertaining a client, customer or employee, while also meeting particular IRS rules.



New Tax Law Could Make Divorces More Difficult

From Bloomberg

  • New tax law prohibits deduction of alimony, starting in 2019

  • More cases may wind up in court as an incentive is eliminated

President Donald Trump’s tax law could make divorce an even more miserable experience, according to a new survey of the nation’s top matrimonial attorneys.

Almost two thirds of respondents said they expect divorce negotiations to become more acrimonious following a change to the tax treatment of alimony, a poll by the American Academy of Matrimonial Lawyers showed. The new law includes a controversial provision that scraps the tax break divorcees get for paying alimony -- starting for divorces finalized next year.

Battles will ensue since alimony payers will have less of a tax incentive to be generous to their former spouses. The provision allows recipients to omit the alimony they receive from their taxable income, but divorce lawyers don’t expect that to offset the loss from a lower payout. The change could also have lasting consequences for child support, which is often calculated in tandem with alimony.

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