Invest: Miami partners up with local experts to make sense of the new tax legislation
“The hardest thing in the world to understand is the income tax.”–Albert Einstein
March 2018 — In December 2017, Congress passed the biggest tax reform legislation in more than three decades. The bill will affect most taxpayers, but the biggest question for many is: How? The Tax Cut and Jobs Act represents one of the largest reductions in corporate tax rates in U.S. history, dropping from 35 percent down to 21 percent. The bill also lowers individual tax rates for most Americans, as well as small business owners, but there’s a lot more than that going on in this major tax overhaul.
For that reason, Invest: Miami 2018 is dedicating an entire chapter to tax reform. With the help of our expert partners, we are deciphering the legislation and laying out for our readers what it means for South Florida residents, business owners and investors. Until the book is released, here is a bit of what you can expect from this year’s newest edition.
We recently spoke with J. Michael Custer, who leads the tax practice at CPA and advisory firm Kaufman Rossin. The firm just published a series of blog posts on how the Tax Cuts and Jobs Act will affect the specific industries most active in South Florida.
Here’s a sneak peek at what Mike had to say about the tax bill:
Mike Custer of Kaufman Rossin.
How have your clients reacted so far to the new tax legislation?
There was a certain amount of anxiety about the unknown after the new legislation was passed. Whenever the rules change, it takes time for people to figure out what’s going to happen moving forward. There are certain parts of the legislation where we know specifically how they’re going to change our clients’ behavior. On the other hand, there are a whole host of items presented in the bill that have no direction yet. Tax law is never black and white; it is still evolving. That’s why we’re here. We understand the policy and the policy issues, but we make a living by reading the rules, the guidance and even the lack of guidance. That’s where paid professionals really earn their value – interpreting these policies for particular industries and specific clients.
Will this legislation affect population growth in Miami and Florida in general?
Tax policy is a funny thing: it is designed to change human behavior. The fact that there is no individual income tax here in the state of Florida has always been a big draw. Is someone who was going to come into Florida before this tax change going to change her mind? I don’t think so. Are individuals going pick up the pace of moving into Florida? It’s a possibility. It comes back to travel times, housing supply and good schools.
Are businesses seeing the tax decreases they were expecting from the legislation?
Pass-through entities (like S corps and LLCs) got a 20 percent deduction. Many were thinking that since they paid 40 percent already, their rate would drop to 20 percent. That’s not the case. It’s a 20 percent deduction. So if you make $1 million, you get a 20 percent deduction, bringing your taxable income down to $800,000, and then that’s subject to your top rate of 37 percent. So the effective rate went from 37 percent to around 30 percent, not from 40 percent down to 20 percent. A lot of people were not interpreting it that way initially.
For more from Mike Custer and other experts on how the tax legislation will affect you and your business, look for the tax chapter in this year’s edition of Invest: Miami.