Former tax attorney Andy Friedman of The Washington Update has been busy fielding questions from advisors about the impending tax cut package — everything from how the House and Senate versions treat alimony payments to the future of the individual mandate.
Friedman released a tax cut “winners and losers” analysis on Nov. 26, and plans to release an updated analysis of the Tax Cuts and Jobs Act once the House and Senate versions are distilled into a single bill. He sees the final legislation’s effective date likely being Jan. 1, 2018.
Read on to see the top seven questions advisors have posed to Friedman regarding the House and Senate tax cuts bills, along with his answers:
Q: Do the bills in their current forms have any negative impact on deferred compensation? Is any negative impact expected?
A: The initial drafts of the bills would have taxed deferred compensation at such earlier time as the compensation payment was no longer contingent on future services to be provided by the recipient, even if actual payment is deferred beyond that date. Further, the bills would have applied these deferred compensation rules to grants of stock options. However, these changes were dropped from both bills during committee review. The changes could be added back during the process of distilling the House and Senate versions into as single bill, but given the prior rejection of the changes, that addition back seems unlikely.
Q: Many businesses continue to claim deductions for items such as meals with clients, business travel, advertising, and marketing materials?
A: Both bills eliminate the deduction for business entertainment expenses. (Current law permits a business to deduct 50% of such expenses.) The bills do not change the deduction of the other business expenses noted.
Q: Do the bills change the deduction for alimony payments?
A: The House bill (but not the Senate bill) eliminates the deduction for alimony payments. The House bill makes clear that alimony payments also are no longer includable in the recipient’s taxable income.