For anyone living in the United States, this year has come with its fair share of policy changes. Depending on which side of the aisle you’re on, these changes will likely be interpreted differently. However, the newest threat on the policy horizon is a new tax bill that’s got everyone talking (look for hashtags #TaxScamBill and #taxreform).
On December 2, the Senate passed a secretive and sweeping bill — officially called the “Tax Cuts and Jobs Act.” The controversial bill has since generated widespread confusion, and though the House bill still needs to be reconciled with the recently-passed Senate bill before it can actually become law, much of this country now hangs in the balance.
If this bill is passed it could mean a number of tax-related changes that could severely impact the way we do business and live our lives. Among other things, the Tax Cuts and Jobs Act calls to increase the maximum child tax credit from $1,000 to $1,600 and, while this may sound like a good thing, it likely will disproportionately benefit high-income families and could negatively affect poor and lower-income folks.
Further, a provision in the bill aims to establish "a competitive oil and gas program for the leasing, development, production, and transportation of oil and gas in and from the Coastal Plain" — in other words, it would pave the way for oil drilling in Alaska's wildlife preserves. The tax plan also has the potential to affect patients’ access to healthcare by doing away with medical deduction allowances that would normally allow medical patients to make deduct expenses during and for treatment. And these are only a couple of the many grim possibilities.
Like many of you, I, too, have felt uneasy about the looming threat of this bill, especially since taxes can be difficult to demystify. For this reason, I spoke with Rus Garofalo, tax expert and founder of Brass Taxes, a tax help company that specializes in working with artists and freelancers.
Garofalo has been closely watching developments to prepare changes that could affect Brass Tax clients and himself. And, though the situation remains uncertain, he outlined several things that can be done now.
“People should be calling their elected officials, mainly House of Representatives, and voicing concerns,” Garofalo said, referencing to the fact that the House version of the Tax Cuts and Jobs Act has still not been passed.
“This isn't a done deal and I'm telling clients to do the same and not freak out but focus on having their voice heard or speak up about a lack of time to have their voice heard,” he added, noting that last time there were large-scale tax changes like this it took months and took place during a bipartisan Congress. This time, Garofalo cautions, changes are happening in days and weeks.
Based on the information available, Garofalo believes that most of the changes related to 'pass-through entities' taxes will most likely affect high-income earners, so it’s likely that others won’t see too many changes in that realm.
However, Garofalo did have some apprehensions when it came to other earners. “My main concerns right now are not for sole proprietors, [or] people making 1099-misc income but for people who are technically employees who don't have traditional employee lives; actors and writers, for example, [who work in] union jobs,” Garofalo said. “I think little will change for freelancers [and] contractors currently.”
These concerns are likely related to the fact that the current version of the bill would eliminate itemized deductions of work-related expenses by employees. “The current Senate plan doesn't let [workers] take a deduction for 'unreimbursed employee expenses' such as paying [a] manager and agent, who usually get 10% each of your total pay for a job,” Garofalo explained. “If you can't take that deduction, the actor [or] writer would have to pay them AND pay tax on that money.”
But this bill has the power to affect more than just actors and writers with agents. The bill is convoluted, to be sure, and is still developing, so much is still unclear about how it will actually work.
“I'm holding off on giving too much advice or scaring people until the Senate and House agree on a plan,” Garofalo said. “After that, it'll be a mess of figuring out what they've actually done. Most of these changes and rules are just a collage of random changes to lower long-term corporate tax rates.”
Garofalo likens many of these tax changes to Bush-era tax cuts: “It's being sold as a tax cut for the middle class and [though] people may get a few hundred or even few thousand dollars for a couple years, those will expire and perhaps even get higher than they started, [but] the corporate tax rates will stay lower forever,” Garofalo said. “It's a ploy for those who already have money to pay less in taxes, all the other changes are the shrapnel.”
Bottom line: there is a lot at stake here, and much of what this bill may mean remains to be seen. For this reason, it is of utmost importance that everyone — especially creatives, freelancers, contractors, and other ‘non-traditional’ employees — do whatever possible to prevent this bill from becoming law.
“Call your elected representatives and tell them what you care about or that you don't think this is how the government should be run,” Garofalo said, noting that action should be taken now instead of complaining later when it’s too late.
“This is all happening in days and weeks and will cause a much larger mess than anyone knows yet, but one thing is going to be certain: wealthy people will pay less taxes,” Garofalo said. “Everything else is up in the air.’”
What you can do if you're worried:
Call your representatives, especially if you live in a state where you're represented by both Democrats and Republicans in the Senate.
If you have only Democrat senators, consider calling friends, family, and relatives who live in states with Republican senators. Encourage them to call and express their concerns about the Tax Cuts and Jobs Act.
Click here to learn more about contacting your representatives.
Click here for a list of representatives by state.
(Image via Pexels)