DARRIN T. MISH: Good morning, and welcome to the IRS Solution Attorney show. I am the IRS Solution attorney. Sorry for the background noise there, I didn’t know my mic was live, and I had to move a piece of furniture.
KATRINA MADEWELL: Don’t worry. Nobody noticed. I’m your cohost, Katrina Madewell. Welcome to the show. I can hardly wait for today’s show.
DARRIN T. MISH: Today we’re going to do something that we don’t do a lot. We’re going to be talking about a current event. As you may know, Donald J. Trump, the president of the United States unveiled his new tax plan. I thought we would spend the better part of the hour talking about that because it’s fascinating. It’s sure to be controversial.
KATRINA MADEWELL: We’re here so feel free to chime in. We’re at 888-404-1010. We are live in the studio this morning, and we would love to talk to you. Regardless of what your political party is, we do welcome the discussion. We will let you share what you think. 888-404-1010.
DARRIN T. MISH: Absolutely. I try to keep my personal politics off the show. It’s not that hard to tell where I stand on the political spectrum if you listen carefully. I want to say something before we dive-in. I have never seen a tax cut that I didn’t want.
KATRINA MADEWELL: I think everybody would agree with that.
DARRIN T. MISH: You’d be surprised.
KATRINA MADEWELL: Really? I guess if it directly impacts you or your business, I could understand that. But, who doesn’t like a tax cut?
DARRIN T. MISH: I’m going to go farther. I have never seen a tax cut at any income level for anyone, even if it doesn’t affect me, that I don’t love. I believe the government is too big and is not a good steward of our money. When you think of the federal government, do you think they take care of our money, that they spend it wisely?
KATRINA MADEWELL: The bigger issue for me is the imbalance. So, the same rules do not apply to the people that get paid by those tax dollars that would apply to me, you, or the person listening. That’s what I have the bigger issue with.
DARRIN T. MISH: You just made that comment as if you were a seasoned veteran working with the federal government day in and day out for 20 years like I have been as a tax attorney. You’re right; there are no rules as far as it concerns them.
Just last week we did the show on the taxpayer bill of rights. As we’re going through the taxpayer bill of rights, you were wondering how that works in real life. And it doesn’t. They pretty much ignore that routinely because they’re federal civil service employees.
Let’s talk about Donald Trump’s tax plan. It’s fascinating.
KATRINA MADEWELL: I’ve been waiting for this. Regardless of who you vote for, I’ve been fascinated by the whole thing, and I’ve been waiting to see what he’s going to do.
DARRIN T. MISH: The first proposal is that they’re going to reduce the number of individual tax brackets down to 10%, 25%, and 35%. There are no details on where the income lines are going to be for those three brackets. That’s amazing.
KATRINA MADEWELL: That makes sense. There was a lot of talk about the standard deduction. Like if this is what you make, this is the percentage of tax you have.
DARRIN T. MISH: There’s that in the plan as well. Right now, just to give you an idea, there are seven different tax brackets. There’s 10%, 15%, 25%, 28%, 33%, 35%, and 39.6% is where it tops out. What Trump is saying is….
KATRINA MADEWELL: Think about what you just said. 39%? I don’t care how much you make, it’s ridiculous.
DARRIN T. MISH: I think right before Ronald Regan took office, the highest marginal tax rate was 79% or 80%. Does that even make any sense?
KATRINA MADEWELL: No, it doesn’t.
DARRIN T. MISH: People watching on Facebook that I know for sure are holding their fist up to the screen, and there are probably people listening that are saying the rich don’t pay their fair share.
KATRINA MADEWELL: If it’s 40%, you’re going to pay most of the tax.
DARRIN T. MISH: I have a news flash for people. The rich pay all the taxes in this country.
KATRINA MADEWELL: Don’t say all, that’s not fair. They pay most.
DARRIN T. MISH: Ok, when I said all, I meant the majority. After the break, we can go ahead, and I can get you those numbers. They’re astounding. The other thing we have to try and do here is defining what the word “rich” even means. I’ll tell you what rich means. Rich means the guy who’s making a little bit more than you. That’s pretty much how the normal member of society defines rich.
KATRINA MADEWELL: It’s interesting that you say this because you know me, you’ve known me for a long time. You guys know me as a person. One of my daughter’s ex-friends sent a text yesterday that said we’re basically rich snobs. And I’m like, really? I’m like one of the most frugal people you’d ever meet.
DARRIN T. MISH: I think there’s a difference between being rich and being frugal. Everybody says that Warren Buffet…he’s a frugal guy. He lives in the same house he bought in around 1960. He’s probably the richest person in the world. He’s extremely frugal. I think to Warren Buffet; wealth is just a game. He’s just racking up the points. He has way more money than he needs. But who am I to decide how much money he needs?
KATRINA MADEWELL: Exactly. It’s just irritating. The whole long story behind it is one of our daughter’s friends wrecked one of our vehicles, and we said you could pay us back. Our mistake. That’s what happened. It’s just interesting people’s different perspectives.
DARRIN T. MISH: I want to engage in some speculation, it has no bearing on any fact. People are asking where those three tax brackets that are being proposed, where are those lines going to be? I listened to a couple of hours today of people talking about it, and nobody would even speculate on where those lines are going to be. So, I’m going to go ahead and speculate.
Right now, the upper part of the 25% tax rate is about $92,000. As I’m looking at the current tax rates and looking at this plan, I think that’s right about where the 10% is going to stop right around 92 grand. In most of the country, 92 grand…That’s 92 grand for a single person. It’s 150 grand for married filing jointly. I think in lots of parts of this country, that’s still middle class. It’s still middle class in Tampa Bay.
KATRINA MADEWELL: I think it is.
DARRIN T. MISH: In New York City, San Francisco, Chicago, it’s not necessarily poverty, but you’re struggling. I would suggest that’s probably where they’re going to put the line. The next bottom line would be about $76,000 for a married couple.
KATRINA MADEWELL: What you’re saying is they’re proposing the bottom four tax brackets, and they take those bottom four brackets, and they put those together, it’s interesting what that might do.
DARRIN T. MISH: It’s going to be a huge tax cut for your average person.
KATRINA MADEWELL: It’s not for me to speculate which tax bracket voted for Trump, but think about it. I think this would impact a lot of people that maybe didn’t.
DARRIN T. MISH: I think you’re right.
KATRINA MADEWELL: It would be interesting to see what their thought is. It was a very interesting election. There were a lot of Trump haters.
DARRIN T. MISH: There are still a lot of Trump haters. He doesn’t make it easy to love him. He’s not a real likable guy. He says things off the cuff. He says things that are sort of annoying, and you might even say offensive. He doesn’t make it easy to love him. I’m not a Trump lover regarding the man.
KATRINA MADEWELL: I’m curious if it changes people bottom line and if their opinion of him will be any different.
DARRIN T. MISH: It may. I think the next tax bracket, the 25%, I think that’s going to go up pretty high. I think it will be around $416,000 for a married couple. That’s huge.
KATRINA MADEWELL: That’s significant. That’s all the middle class and then some.
DARRIN T. MISH: I would say $400,000 of income, at least in most of the country, you’re at the upper-middle-class level. If you’re in Manhattan or San Francisco, you’re still middle class at 400 grand. I think he’s going to reserve the 35% tax bracket and stay pretty much where it is right now. Start at the $416,000 or so mark.
KATRINA MADEWELL: You’re talking about a 5% tax break. That’s a big number from a big number.
DARRIN T. MISH: Yeah, for sure. It could be huge. There are people who are worried, especially Democrats, that this is going to increase the deficit and the national debt. However, it may not. Don’t you think that’s odd?
KATRINA MADEWELL: What happens is when you put more money back into people’s pockets, they spend more.
DARRIN T. MISH: Not only that, you’re right, but not only that but when businesses have more money, what do they do? They have to reinvest, and they hire, and they grow, and that will stimulate the economy. That’s the theory. It worked under Ronald Reagan, and I think it would work again.
KATRINA MADEWELL: It’s been a long time. Reagan was in the office in the 1980’s.
DARRIN T. MISH: I’m old enough that I can think of Ronald Reagan, I can remember specific things that happened during his administration, but I was a kid.
KATRINA MADEWELL: He’s the first president I can remember.
DARRIN T. MISH: I was in high school. The economy was booming. There were good times. It started out rough because there was a recession post-Jimmy Carter. Within a couple of years, he had us pulled out. This new tax proposal is basically the blueprint.
KATRINA MADEWELL: We owe a ridiculous amount of money, so it’s going to be interesting to see how this plan unfolds. It’s going to affect a lot of people. Not just self-employed, but it will affect people that take just the standard deduction. We’ll talk about them after the break. You’re listening to the IRS Solution Attorney show. We’ll be back in a minute.
DARRIN T. MISH: Welcome back to the IRS Solution Attorney show. I am the IRS Solution Attorney, Darrin T. Mish.
KATRINA MADEWELL: I’m your cohost, Katrina Madewell. Just wondering how long Darrin was going to let the music play.
DARRIN T. MISH: Today, we’re talking about Trump’s new tax plan that was just revealed yesterday. We don’t usually talk about current events on this show. But today, it was just too good of an opportunity to let go.
KATRINA MADEWELL: It’s hard to let that one pass without saying anything.
DARRIN T. MISH: In the first segment, we talked about that he wants to reduce the number of tax brackets from seven to three. This is proposals; it’s not in stone yet. The three tax brackets would be 10%, 25%, and 35%, which would be a pretty massive tax cut for most Americans, I think.
KATRINA MADEWELL: It’s simplistic. The simpler, the better.
DARRIN T. MISH: The tax code is so voluminous that if you read it five days a week, eight hours a day it would take you 80 years to read the tax code. So, there’s nobody alive who’s read the tax code in its entirety. I’ve read the part that applies to my clientele and the type of work that I do. But you can’t read the whole tax code.
KATRINA MADEWELL: And that took his whole career.
DARRIN T. MISH: What kind of modern nation, let alone the world’s lone super power, has a tax system that takes 80 years to read the code?
PAT GEORGE: What are the taxes around the world? Are they complicated in any form or fashion?
DARRIN T. MISH: I think most countries have some value added tax situation. Like in Canada, the sales tax is around 15%.
KATRINA MADEWELL: Canada’s not doing so well.
DARRIN T. MISH: I think they have a pretty high-income tax too. But I think in most countries, you can do your tax return at the end of the year on the back of a napkin. It’s not that big of a deal. People in other countries say they can do their returns in three minutes.
KATRINA MADEWELL: Here’s something. Many Canadians are moving out of Canada and a lot of other countries moving in.
DARRIN T. MISH: Yeah, I’ve noticed. If you drive anywhere on the roads in the wintertime, all you see is Ontario and Quebec. We love our northern visitors because they come and pay a lot of taxes for us that we don’t have to pay. Mostly in the form of sales tax.
The second part of this proposal is that they want to double the standard deduction.
KATRINA MADEWELL: That would help most people.
DARRIN T. MISH: Let’s talk about what the standard deduction means.
KATRINA MADEWELL: Which doesn’t apply to me or you but I think it would help everybody.
DARRIN T. MISH: Right now, individuals can deduct $6,350, and married couples can do $12,700 from their taxable income. That’s the amount of money right off the top that you don’t have to pay any taxes.
KATRINA MADEWELL: If you’re not self-employed and you don’t deduct miles, and you don’t itemize.
DARRIN T. MISH: So now, if you’re a married couple, $12,700 times two is something like $25,000 and change. That would be an amount of money that you wouldn’t pay any taxes on. Even if you were in the 10% bracket, 25% bracket, or 35% bracket, you don’t pay tax on that at all.
The reason you said, Katrina, that it doesn’t apply to us is right now; there’s mortgage interest deduction. If your mortgage interest deduction exceeds the standard deduction, then most people would do what’s called itemize their deductions. Itemizing means you’re going to fill out a schedule A.
KATRINA MADEWELL: It’s interesting you say this because the rates have been so low that sometimes it’s better for people to take the standard deduction.
DARRIN T. MISH: Absolutely. Let’s think about this. You’re on a 15-year mortgage, and you have a low rate. Say 4%-6% rate.
KATRINA MADEWELL: Lower than that. Some of them.
DARRIN T. MISH: Let’s say you have five years left on that 15-year note. You’re paying no interest. That was one of the reasons we ended up buying a larger house recently. I was inching back to the situation where I wasn’t going to be able to itemize my deductions. The point of paying the mortgage interest, there was no benefit.
KATRINA MADEWELL: You didn’t want to pay it off and have none or take a bigger one.
DARRIN T. MISH: Exactly. Being the tax guy, I decided to take the bigger one. There are lots of benefits to a bigger house as well. That’s what we did. I think doubling the standard deduction may have the practical effect in lower cost housing areas of eliminating the mortgage interest deduction. Which is interesting.
KATRINA MADEWELL: You know who’s going to fight that?
DARRIN T. MISH: Hold on, later on, we’re going to talk about Trump wanting to eliminate most deductions, but the mortgage interest deduction is a deduction he wants to keep. The charitable donation is the other deduction he’s proposing to keep. The elimination of all other deductions. Which is fascinating.
KATRINA MADEWELL: So, somebody like me, my mileage and everything is gone?
DARRIN T. MISH: No, because that’s going to be a business expense. It’s not a deduction, that’s a business expense. The one that caught my attention as I was thinking about this today was what about the Health Savings account deduction? Or the self-employed health insurance deduction? Aren’t we supposed to be fixing health care?
KATRINA MADEWELL: Aren’t they repealing all of Obamacare?
DARRIN T. MISH: I still would think that these massive changes would be better than keeping those deductions in there. Of course, I’m going to be a hog; I want to get fat. I want the cuts, and I want my deductions.
PAT GEORGE: I’m getting ready to redo my health insurance. On my health savings account, I should take out as much as I can? I know it’s pre-tax, isn’t it?
DARRIN T. MISH: Well, when you say take out, do you mean spend it on….
PAT GEORGE: It’s savings. I just take it out and… that’s all pre-tax, correct?
DARRIN T. MISH: It’s all pre-taxed, but are you going to take it out to spend on non-deductible items?
PAT GEORGE: No.
DARRIN T. MISH: Oh, like on health items. Sure, absolutely. You’re a little bit different because you’re a little bit older and you’re getting a little closer to retirement than I am. One of the cool things about health savings accounts is that whatever money is in there at age 65 rolls over into an IRA.
PAT GEORGE: That is if you don’t use it.
DARRIN T. MISH: If you don’t use it for your health care expenses…
KATRINA MADEWELL: Or if you’ve got three kids you’ve already used it by April.
DARRIN T. MISH: We don’t have health savings account presently. We did for years. There was never a dollar left in that thing at the end of the year. You can contribute about…
KATRINA MADEWELL: Actually, flexible spending.
DARRIN T. MISH: Same idea. You can contribute something like $6,000 or $10,000.
KATRINA MADEWELL: I want to say it’s $5,000.
DARRIN T. MISH: I think it’s $6250.
KATRINA MADEWELL: One surgery, it’s all gone.
PAT GEORGE: How much should you put in there?
DARRIN T. MISH: You should put the maximum amount. That’s what I would suggest.
PAT GEORGE: I’m getting ready to do that today.
KATRINA MADEWELL: If it were only Chris or me, I don’t think we’d use that much. But with the kids, it seems like there’s always someone in the hospital at least once a year.
PAT GEORGE: The only one it’s going to be for is me, but I am a little older.
DARRIN T. MISH: Yeah, but it’s tax advantage.
KATRINA MADEWELL: If you don’t use it, you lose it.
DARRIN T. MISH: No, not on an HSA. On a Flexible savings account, you do. For a health savings account, he gets to keep it. He’s only a few years from retirement age, so it would make sense to max out your regular IRA too and whatever other retirement options you have. Use that HSA as just another retirement savings account.
KATRINA MADEWELL: We have the flexible spending, if you don’t use it, you lose it.
DARRIN T. MISH: That’s a little bit different. The health savings account is for people don’t have FSA. I think the HSA, nobody asked, but I think the HSA is the solution to our healthcare crisis if you want to call it that. The reason I think that is because it makes us as consumers of healthcare, conscious about what things cost.
For generations, we’ve had this system where we don’t care what it costs because it’s “free” because insurance is going to cover all or most of it. When you have a health savings account, you care what stuff costs because you only have so much money in there.
People don’t know this, but you can talk to the doctor ahead of time, and ask what the cash discount is. You’re not going to have to chase my insurance company for a year. Most doctors will cut that bill by at least 60% right off the bat.
KATRINA MADEWELL: A very large percentage.
DARRIN T. MISH: The other thing, I suggest is you should shop your prescription medication. I found an app where you put in the name of the prescription, and it will shop hundreds of different places, and it will show you the lowest price. There are huge variations.
PAT GEORGE: Before you meet your deductible, is that a good time to start asking, what’s the cash value on this? Not knowing you haven’t met your deductible?
DARRIN T. MISH: It doesn’t matter to the doctor because you’re going to swipe your debit card from your HSA that day anyway.
PAT GEORGE: Not if you don’t have anything in your HSA. I’m starting from scratch now. I’m going to the doctor soon, and I should just ask him, what’s the cash discount on this.
DARRIN T. MISH: Put some money into HSA.
KATRINA MADEWELL: You can say you’re paying cash for this, how much is it going to cost?
DARRIN T. MISH: I think most physicians would rather have a system where more consumers cared what services cost and paid at the time services are delivered. Right now, what they have is a situation where they have to bill and bill and rebill, and it takes them a year to get paid. Then the insurance company…news flash…cuts the bill anyway.
KATRINA MADEWELL: Is the app called Good RX?
DARRIN T. MISH: Yes, it is. It’s Good RX.
KATRINA MADEWELL: You’re listening to the IRS Solution Attorney show. If you’re just tuning in, we’re talking about Trump’s tax plan. It just came out yesterday.
DARRIN T. MISH: When we come back, we’re going to talk about the fact that he wants to cut corporate tax rates. Kind of controversial.
KATRINA MADEWELL: I think it’s going to be good.
DARRIN T. MISH: I do too.
KATRINA MADEWELL: Of course, because we own our own business, but if you have a say in this and you have something you want to chime in on, we’ll listen and would love to have your input. The number is 888-404=1010. Pat George will grab your call. 888-404-1010. We’ll be back in a minute.
DARRIN T. MISH: Welcome back to the IRS Solution Attorney show. I am the IRS Solution Attorney, Darrin T. Mish.
KATRINA MADEWELL: I’m your cohost, Katrina Madewell. Thanks for sticking with us. Today’s show is a little bit different, but we’re talking all about Trump’s to cut the taxes. He’s been talking about this since before the election.
DARRIN T. MISH: In the first couple segments, we were talking about that he wants to cut the number of tax rates down to three. 10%, 25%, and 35%. He also wants to double the standard deduction for most people. Those would equal huge tax cuts for your average person.
Right before the break, I teased that he also wants to cut the corporate tax rate. He wants to cut it from 35% to 15%. That upsets some people. When people think corporations, what they’re thinking about is General Motors, Ford, the big companies in the United States. Wal-Mart. This proposal is a little bit interesting.
When I first heard that he wants to cut the corporate tax rate, I thought it could be good or could be not so good. It is good because he’s proposing that this will apply to flow-through entities. Flow-through entities would be partnerships, S-corporations, your mom and pop businesses that you frequent every day. If you go to an independent coffee shop, that’s an s-corporation most likely. If you’re going to a gas station, that’s most likely an s-corporation.
KATRINA MADEWELL: We talked about this over the break, most businesses, if you free up cash, they’re going to put it back into the business.
DARRIN T. MISH: Absolutely. The way that business owners are wired is the status quo is never good enough. You’re always trying to grow; you’re always trying to do better. You’re always trying to leverage what you have a parlay it into something more. If you cut the marginal tax rate, then what’s going to happen is they’re going to reinvest that money. Let’s say they don’t reinvest the money and they just spend it.
PAT GEORGE: Go on a vacation.
DARRIN T. MISH: Yeah, is that a bad thing?
PAT GEORGE: No.
DARRIN T. MISH: Remember, during the George W. Bush administration, there was a couple of times where they gave us some token, stupid amount of money, like $500?
KATRINA MADEWELL: Yes, I do.
DARRIN T. MISH: They said to spend it. And what do we do? We went and spent it, of course. It wasn’t even a blip; it didn’t make any difference at all to give every adult $500. It’s not that big of a deal. This is a big deal. This will kick start the economy for sure.
PAT GEORGE: Is this going to make the IRS hungrier? Because they’re cutting these taxes so not as much money will be out there? I hear these national companies all over television, radio, where they have put the fear shock value that the IRS will get their money. They will get every penny. It’s scary to hear some of these national spots.
KATRINA MADEWELL: They can, but it’s a scare tactic.
DARRIN T. MISH: I don’t believe in advertising or marketing that way. When people call me, I don’t scare them any more than they need to be scared. In other words, by the time you’ve decided to call me to get some help with your tax problem, you are already full of anxiety and fear. There are people who call and think it’s not a big deal.
KATRINA MADEWELL: You can get Darrin at 888-GET-MISH.
DARRIN T. MISH: Yeah, that’s 888-438-6474. I don’t believe in that fear mongering stuff.
PAT GEORGE: Is there something to fear?
DARRIN T. MISH: There certainly is. At least for right now there is. Even when this tax plan goes into effect, let’s just assume it does, there will still be things to fear. This happens cyclically. I’ve been in this business long enough, I’ve seen this cycle.
Democrats raise taxes and do less to collect them. Republicans lower taxes and do more to collect them. This is a gross stereotype. But as a generalization, that’s true. That’s what will happen. The tax rates will go down, but they’re going to be nastier about getting their money. What’s likely to happen, according to my economic view of the universe, when you lower the tax rates, it will stimulate the economy, and more commerce will happen, and eventually, within a year or two, I believe tax collections will go up.
But, the side effect will be more people will be back in the workforce. We have a huge number of people in our society. I want to say the number is between 50-75 million people who are out of the workforce for good. They’re just gone. They can’t find a job. Maybe they lost their job in 2008 or somewhere along the way.
They were on unemployment for a couple of years, and they’re just out of the workforce. And that’s not right. It’s not right to them; it’s not fair to them.
KATRINA MADEWELL: Let’s not forget, some of your customers might be people that were in that position, and then they started a business to try and gain employment, and they got in an issue. Let’s face it; it’s a special type of person to be self-employed. You have to pay attention to a lot more details that you don’t have to pay attention to when you’re employed.
DARRIN T. MISH: The plumber goes out on his own and starts a plumbing business because he’s good at plumbing. He wants to be his boss. What you don’t realize is, when you are your boss, you spend about 20% of your time doing the service and about 80% of the time doing administrative tasks.
KATRINA MADEWELL: Building the business too.
DARRIN T. MISH: Yeah, building the business, doing marketing, paying the bills. I wish I got paid for paying the bills. As long as it takes. As many bills as there are.
KATRINA MADEWELL: There are a couple in here that I don’t want to skip over.
DARRIN T. MISH: Ok, sure.
KATRINA MADEWELL: I have a question, I’m just curious if you’ve thought about this or read about it. They’re talking about making these grand tax cuts, which is great, but there’s already a deficit, so where do you think the cuts are going to go?
DARRIN T. MISH: That’s already happening. The Trump administration is cutting federal agencies across the board. He’s gutted the EPA and things like that. I don’t know that your promises are accurate. I don’t know that a tax cut ultimately is going to cut the revenue to the federal government. This past year, the tax collections were the highest in the history of the United States.
KATRINA MADEWELL: Yeah, but that money is going somewhere now.
DARRIN T. MISH: That money is all going down the drain. It’s a lot of it. I want to say the majority is going to entitlements, which is a different conversation. When I say entitlements, I mean social security, Medicaid, Medicare. I’m not making a judgment of that.
KATRINA MADEWELL: They’re trimming the fat, they have to.
DARRIN T. MISH: I’m all for a government that limits waste, fraud, and abuse. That’s a never-ending battle. You will never get to the bottom of that.
KATRINA MADEWELL: I think they should start there, and the accountability factor before they even talk about tax cuts. I think if they started there, that would solve many of the problems.
DARRIN T. MISH: I believe the deficit would only go up for a year or two before the absolute boom in the economy would catch up. Then the new people back into the workforce and the additional economic activity would produce enhanced tax revenue.
I’m not an economist, and I can’t say for sure that’s what would happen. But that’s what happened during Ronald Reagan, and I think that’s what would happen in this case. I think America, without a doubt, would become the destination in the world for money.
KATRINA MADEWELL: Yeah, we pretty much been that place for many years.
DARRIN T. MISH: We have, but in the last 8, 10, 12 years, we’ve inched up corporate tax rates. That’s why companies like Apple park billions of dollars offshore. That money’s not in our economy. It’s in Ireland. It’s in other countries where it’s a tax advantage to be there. Before we run out of time, I want to talk about some of the other things in the tax plan.
KATRINA MADEWELL: We have to talk about the capital gains rate. You know that’s right up my alley.
DARRIN T. MISH: They’re talking about reducing the…
KATRINA MADEWELL: Lowering the capital gains tax.
DARRIN T. MISH: Yeah, just from 23.8% to 20%, which would be great. I would like to see…of course; I don’t like taxes…I would like to see a complete elimination of the capital gains rate. Imagine what that would do for real estate investment.
KATRINA MADEWELL: Oh, yeah.
DARRIN T. MISH: There’s a bad side to that too.
KATRINA MADEWELL: Trust me, you could sign me up. I would love that.
DARRIN T. MISH: There’d be a bad side to that. The bad side would be the cost of real estate would go through the roof because everybody would be a real estate speculator. I can remember back in 2006, 2007, right as things were cresting…
KATRINA MADEWELL: That was December of 2006.
DARRIN T. MISH: When cab drivers are telling you they’re buying houses and they’re telling you to do it, you’re thinking there’s a bubble coming. I’m not saying anything bad about cab drivers.
KATRINA MADEWELL: No, there were people “investing” in real estate that didn’t even know what they were doing. If you asked them if they’re planning for capital gains taxes, they didn’t know what I was talking about.
DARRIN T. MISH: They’re proposing lowering the capital gains taxes as well. This one I think is a little bit more interesting for most folks. That is the repeal of the alternative minimum tax. The AMT. The AMT was put in place years ago, back in the 70’s because it was a situation where people were, at that time, rich people, were using deductions to get out of paying any tax at all.
The biggest problem with the AMT was it wasn’t pegged to inflation. Which means, at the time, I think it kicks in right around $200,000 of combined income for a married couple. In the 70’s, 200 grand was a lot of money. 200 grand now is middle class. You’re doing well, but if you’re in New York City, you’re broke. That’s one of the reasons when you live in some of these high expense areas; it’s not fair to them.
Let’s say your apartment is $5,000 a month. You have to earn a certain amount of money just to cover that. They’re talking about repealing the AMT, which would be nice. It is a trap that more and more people are falling into every year and it’s not a fair situation.
KATRINA MADEWELL: I would agree. There’s also going to a repeal of the inheritance tax. That’s what they’re proposing.
DARRIN T. MISH: For the most part, the inheritance tax doesn’t apply to most of us. I forget what the exemption for the size of the estate is, but it’s pretty good sized now. What this would do is it would be a boon to small business owners and family farmers. If you think about a family farm, not so much in Florida, but if you’re thinking about a family farm in the mid-west, a family farm could be a thousand acres. What’s that thousand acres worth? It’s sure worth more than a million dollars.
Small family farms are having to be broken up and sold off just to keep some of it because of the inheritance tax. I don’t think that’s fair, and I don’t think most Americans would think that would be fair. If Grandpa owned the farm, it should pass down to the family. The government shouldn’t take their bite.
KATRINA MADEWELL: Grandpa was probably a slave to even get to that. He probably did without a lot of stuff just to get that.
DARRIN T. MISH: I have a terribly tiny farm. We’re not even really raising anything or growing anything and it’s still like a full-time job just to keep it from turning back into a jungle. I can only imagine how hard farming is.
KATRINA MADEWELL: There was a stat back in 2014 that America’s inheritance tax is the fourth largest in the world. That’s pretty nuts.
DARRIN T. MISH: We have a huge government we have to feed.
KATRINA MADEWELL: I agree with them preserving the deductions for mortgage interest and charity. I think it’s crazy to eliminate those. I’m glad they’re keeping that on the preservation list.
DARRIN T. MISH: If they eliminated the charitable donation…
KATRINA MADEWELL: There would be churches in an uproar.
DARRIN T. MISH: Well, non-profits around the country.
KATRINA MADEWELL: They’re there to serve a purpose. Rightfully so, those deductions should be allowed.
DARRIN T. MISH: Absolutely. If we want to encourage something, we should allow a deduction for it. That’s why I think the HSA deduction should stay.
KATRINA MADEWELL: You guys have been so quiet today, so if you’re listening, call in.
DARRIN T. MISH: If we’ve made you mad, call. 888-404-1010. I love haters.
KATRINA MADEWELL: I want the lovers.
DARRIN T. MISH: Haters are way more fun than people….
KATRINA MADEWELL: 888-404-1010. We’ll be right back.
DARRIN T. MISH: Welcome back to the IRS Solution Attorney show. I am the IRS Solution Attorney, Darrin T. Mish.
KATRINA MADEWELL: I’m your cohost, Katrina Madewell. Since we didn’t talk a whole lot about IRS stuff today, if you want to reach Darrin, you can get him at his off-air number, which is 888-GET-MISH.
DARRIN T. MISH: That’s 888-438-6474. You can also visit the website at getirshelp.com. You can download the podcast at iTunes or our app at the Google store.
KATRINA MADEWELL: Today’s show we talked about the seven critical components of the new Trump White House tax plan. This has been on the agenda for a while. If you missed it, you can catch the show in its entirety; I’m sure it will be blasted all over the news for a while. Want to run through those?
DARRIN T. MISH: In the last segment of the show, I wanted to point this out about the repeal of the death tax. I was able to look up some stats at the break. Right now, the death tax applies at the rate of 40% at 5.5 million dollars’ inheritance for a single person. Or 11 million dollars for married couples.
A lot of people listening might be thinking, come on, those rich people should have to pay some tax on that inheritance. By the way, I totally disagree with the inheritance tax, at all. All the wealth that was used to create the estate was taxed once already. So, it was blood, sweat, and tears that created that wealth.
Also, when we’re talking about inheriting small businesses like a farm, or small dental practice, and you want to pass that down to your son or daughter, should the government take a bite out of that and possibly ruin the business? That doesn’t make a lot of sense to me.
KATRINA MADEWELL: Talk about single versus married couples. What happens if one of them dies?
DARRIN T. MISH: As long as they’re alive at the time of the inheritance, that’s what matters. It’s like a war on generational wealth. It’s all part of this fuzzy talk about how we’re going to create more economic equality or something like that.
I did not have a family, despite the fact the family’s been in the United States since Pilgrim times on one side. There is no generational wealth in my family, so that’s not where I’m coming from. But if you were the son or daughter about to inherit the family farm because dad lived to be 92 and finally passed away and you have to split up the thousand acres. That’s just not right.
KATRINA MADEWELL: You touched on something which I do not agree on, so I have to comment on this. I’m usually the less controversial one. You talk about economic equality; I don’t think that’s right. At all.
DARRIN T. MISH: No. Our country was not founded on the premise that everybody would be equally wealth.
KATRINA MADEWELL: Equal rights, sure, but not equal wealth. There are some people that work a lot harder to gain that.
DARRIN T. MISH: I think the average person confuses the term economic equality with equal economic opportunity. I think we all should equal opportunities.
KATRINA MADEWELL: Everyone does.
DARRIN T. MISH: I think we do. By and large, we do have equal opportunities. Do we have equal education and equal opportunities in all facets of our lives? No, because that’s not how life works.
It’s about that time; it’s the time for the IRS Train Wreck of the Week. I asked for a little bit more time today because it’s a cool story. I’ve represented this gentleman; I think he’s 70, for about ten years. That’s not a good thing. I love the guy to death. Over ten years, you grow attached to people. Even if they don’t always follow your advice.
KATRINA MADEWELL: Is he one of the people who did not cooperate in the beginning and supply all the stuff?
DARRIN T. MISH: He’s been horrible at cooperation all the way along the lines.
KATRINA MADEWELL: Which is why it took ten years.
DARRIN T. MISH: He’s a real personable guy. In most of those ten years, he didn’t pay his taxes. He came into the office with a small tax problem; he thought he owed about 50 grand. It ended up being $242,123. He owed about 50 grand when he came in, ten years later, it’s about $242 grand because he wasn’t paying his taxes. He wasn’t taking advice. He was like, “Hey, Darrin, poor me.” And I told him he just needs to get current.
KATRINA MADEWELL: If you’re listening to the show, what happened?
DARRIN T. MISH: I finally got him into compliance. It took the better part of eight or nine years. We got him to make estimated tax payments. Countless meetings with this gentleman.
KATRINA MADEWELL: It might be easier to hire a bookkeeper for him, Darrin.
DARRIN T. MISH: I never gave up on him. We got him current and then we filed an offer in compromise. Remember, an offer in compromise is calculated by taking your monthly disposable income, multiply that by twelve, add in the value of your assets, and that equals the amount of your offer. So, I’ll give you an example. If your monthly disposable income was $100, $100 times 12 is $1200. Let’s assume, no assets, you could settle the case for $1200. In this guy’s case, when we did the calculation, it came out to about $35,000. So $35,000 on $242,000 is a pretty good deal.
There’s an exception to that rule that I explained to you. The exception is, if there’s enough time left on the statute of limitations and your monthly disposable income is sufficient to full pay within the life of that statute, then the IRS doesn’t give you a deal, they just want their money.
This has been happening a lot lately. When the offer specialist wrote back to me after she started working on it, she said nope; this is a full pay because of the exception. It’s sufficient to full pay within the life of the statute.
KATRINA MADEWELL: He had assets?
DARRIN T. MISH: He arguably had enough disposable monthly income. I’m looking at her tables, I’m looking at her work, and I did something I don’t do a lot. I appealed to her. I told her this has taken me eight or nine years to get this guy current; he’s 70 years old, I finally got him on the right track. I said, I’m not taking this lying down, we have to work on this and make it better.
I found some problems on the expense side of her equations, and I was able to convince her to make some changes. Long story short, we had to increase the offer, but not by a lot. It ended up being recommended for acceptance at $36,921. So, we’ll call it $37 grand on $242 grand. It’s not one of those home run, slam dunks. It’s not like a penny on the dollar, but it’s still about 15 cents on the dollar.
KATRINA MADEWELL: In the grand scheme of things…
DARRIN T. MISH: Here’s what I’m most excited about. He’s not going to lose his house because he gave them 50% of the value of the house, because his wife owned the other 50%. Very wisely we had her file separate from him, going back ten years. When I first came in, I told her she’s not filing with him because it would make the problem worse. He ended up being able to keep his house. This is not going to be easy for him to do.
KATRINA MADEWELL: He paid, according to my calculations, he’s under 15% of what his tax burden was.
DARRIN T. MISH: It’s a great deal for him, he’s 70 years old, he can put the problem behind him. He can live out the rest of his life without worrying about the IRS.
KATRINA MADEWELL: Is he still working?
DARRIN T. MISH: He is working in construction at 70 years old. He’s a hard-working guy; it just took a while to get the message.
KATRINA MADEWELL: Self-employed?
DARRIN T. MISH: Yeah. I love this story because we didn’t give up. He didn’t give up. Through that entire decade, he hung in there. He didn’t always follow advice, but in the end, he did.
KATRINA MADEWELL: After eight years, how did you finally get him over the fence? Was there a tipping point in this story?
DARRIN T. MISH: I brought a frying pan to work, and when he showed up for a meeting, I just hit him over the head with it.
KATRINA MADEWELL: You beat him into submission. I love it! Well, if you want some of that, you can get Darrin. Just call him! 888-GET-MISH. He’d be happy to beat you with a frying pan.
DARRIN T. MISH: 888-438-6474. 888-438-6474.
KATRINA MADEWELL: He’ll get you where you want to go. Thanks for joining us this week, we’re so happy you’re here. For this week…
DARRIN T. MISH: We are out.