Attention Independent Contractors & Real Estate Owners
Attention Independent Contractors &
Real Estate Owners!
PCC Training Series: Tax Cuts, Jobs Act & The Dynamex Decision
Are You Familiar with the California Supreme Court’s decisions to restrict the ability to designate workers as Independent Contractors? Have you dug deep into understanding the fine lines within the new Tax Cuts and Jobs Act?
At Pacific Coast Commercial
it is our goal to ensure our team members are provided with the right resources
and information to create greater opportunities within the commercial real
estate industry.In our recent training
series, Aldrich
Advisors, an accounting, wealth and consulting firm, educated our
team members on how the tax cuts and jobs act, paired with the Dynamex vs.
Supreme Court ruling will impact their clients, individual taxes, and the real
estate business as a whole.
Photo: Andrew
Davidson, CPA (Left), Hannah Mane, CPA, CVA, Brendan Hollis, CPA, Vince
Provenzano (Right)
Understanding the new laws
and Dynamex decision in its entirety is not easily relayed, however, we would
like to provide our readers with some of the most important aspects in a
nutshell…
- Under the law, there
are numerous changes to the individual income tax, including the income level
of individual tax brackets,
lowering tax rates,
and increasing the standard deductions, and
family tax credits while the personal exemption and itemized deductions are
reduced or eliminated.
Real estate entities in particular will witness one of the more significant changes, which is why it's critical that you prepare now for the affect this historical bill will have on real estate property owners.
- The mortgage
deduction has been reduced to $750,000 dollars for new homeowners, but the
deductibility of current mortgage debt up to $1 million is still protected.
- Under the new law, the standard deduction nearly doubles to $12,000 for individuals and $24,000 for married couples filing jointly. This means that far fewer people will save money by itemizing deductions – including the mortgage deduction. Translation: one of the major incentives for buying a home is now gone.
- LLC and independent contractors can now deduct 20 percent of qualified business income. In other words, if you operate as an LLC, you may be eligible to pay taxes on just 80 percent of the total amount you earn.
Although the new tax cuts and jobs acts would most likely incentivize workers to take up jobs as independent contractors because of the new 20 percent deduction, the California Supreme Court has now rewritten the standard for determining whether someone is deemed an employee or independent contractor through the Dynamex decision.
California’s Dynamex Decision:
- Could potentially jeopardize businesses that utilize independent contractors, such as Real Estate Professionals.
- The test for establishing whether someone is categorized as an employee of a company or independent contractor is now far more rigid.
- The Borello test is
replaced with the ABC test that an employer must satisfy to prove the
individual is NOT an employee. The test states:
(A) that the worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact;
(B) that the worker performs work that is outside the usual course of the hiring entity’s business; and
(C) that the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.
What This Means for California Business/Real Estate Professionals
- If a person was previously designated as an Independent Contractor but no longer fits into the ABC test, they will not reap the benefits of the 20 percent deduction from business income or the lower income tax rate on a sole proprietor’s income.
- Employer will now bear the responsibility of paying Social Security, payroll taxes, unemployment insurance taxes, and state employment taxes, provide workers compensation insurance, comply with the endless labyrinth of sate and federal statures governing the wages, hours, and working conditions of employees.
- The National Association of REALTORS worked throughout the tax reform process to ensure as many real estate professionals as possible would benefit from the tax cuts, however, California brokers may no longer apply.
With the passage of the Tax Cuts and Jobs Act (“Act”), there is much concern, as well as confusion, as to the impact the new legislation has on both businesses and individuals alike. At Pacific Coast Commercial our mission is to deliver specialized commercial real estate services, and we believe the only way to achieve this goal is to ensure our team is trained and knowledgeable on every forefront that could benefit or hinder our clients’ business goals.
- Those who itemize will have fewer expenses to
deduct and a higher standard to cross.
- Before the tax
reform bill took effect, about 30% of taxpayers itemized deductions on Schedule
A, instead of taking the standard deduction associated with their filing
status. However, the TCJA has a large impact on itemized deductions, as several
itemized deductions have been eliminated or modified.
Real estate entities in particular will witness one of the more significant changes, which is why it's critical that you prepare now for the affect this historical bill will have on real estate property owners.
- Land and property depreciation has been retained and the alternative depreciation system period for residential property has been shortened. Although homeowners will no longer carry a lot of the financial advantages through the new tax laws, this is a huge win for the commercial real estate industry. One of the key features to investing in real estate is depreciation. This is because under U.S. accounting rules real estate loses value, even though it tends to rise in market value.
- For qualified property placed in service between September 28, 2017, and December 31, 2022, the TCJA increased the first-year bonus depreciation percentage to 100% (up from 50%). The 100% deduction is allowed for both new and used qualified property. These include, qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement property.
- These types of properties are eligible for 15-year straight-line depreciation and are, therefore, also eligible for the alternative of 100% first-year bonus depreciation. Contact Pacific Coast Commercial Agents to learn how you can take advantage of this property depreciation tax deduction.
- Under the new law, the standard deduction nearly doubles to $12,000 for individuals and $24,000 for married couples filing jointly. This means that far fewer people will save money by itemizing deductions – including the mortgage deduction. Translation: one of the major incentives for buying a home is now gone.
- LLC and independent contractors can now deduct 20 percent of qualified business income. In other words, if you operate as an LLC, you may be eligible to pay taxes on just 80 percent of the total amount you earn.
Although the new tax cuts and jobs acts would most likely incentivize workers to take up jobs as independent contractors because of the new 20 percent deduction, the California Supreme Court has now rewritten the standard for determining whether someone is deemed an employee or independent contractor through the Dynamex decision.
California’s Dynamex Decision:
- Could potentially jeopardize businesses that utilize independent contractors, such as Real Estate Professionals.
- The test for establishing whether someone is categorized as an employee of a company or independent contractor is now far more rigid.
(A) that the worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact;
(B) that the worker performs work that is outside the usual course of the hiring entity’s business; and
(C) that the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.
What This Means for California Business/Real Estate Professionals
- If a person was previously designated as an Independent Contractor but no longer fits into the ABC test, they will not reap the benefits of the 20 percent deduction from business income or the lower income tax rate on a sole proprietor’s income.
- Employer will now bear the responsibility of paying Social Security, payroll taxes, unemployment insurance taxes, and state employment taxes, provide workers compensation insurance, comply with the endless labyrinth of sate and federal statures governing the wages, hours, and working conditions of employees.
- The National Association of REALTORS worked throughout the tax reform process to ensure as many real estate professionals as possible would benefit from the tax cuts, however, California brokers may no longer apply.
With the passage of the Tax Cuts and Jobs Act (“Act”), there is much concern, as well as confusion, as to the impact the new legislation has on both businesses and individuals alike. At Pacific Coast Commercial our mission is to deliver specialized commercial real estate services, and we believe the only way to achieve this goal is to ensure our team is trained and knowledgeable on every forefront that could benefit or hinder our clients’ business goals.
Pacific Coast Commercial Website
DISCLAIMER: This blog/article has been curated from an alternate source and is designed for informational purposes to highlight the commercial real estate market. It solely represents the opinion of the specific blogger/author and does not necessarily represent the opinion of Pacific Coast Commercial.
All content provided on this blog is for informational purposes only. The owner of this blog makes no representations as to the accuracy or completeness of any information on this site or found by following any link on this site. The owner of will not be liable for any errors or omissions in this information nor for the availability of this information. The owner will not be liable for any losses, injuries, or damages from the display or use of this information.
Keywords: San Diego Commercial Real Estate For Sale, Commercial Property In San Diego, Commercial Real Estate In San Diego, San Diego Investment Real Estate, Commercial Property Management In San Diego, San Diego Commercial Property Management, Commercial Property Management San Diego, Managed Commercial Property San Diego, Commercial Property For Sale San Diego, San Diego Commercial Real Estate Leasing, Top Real Estate Agents in San Diego, Commercial Property in San Diego, Property Management Company San Diego, Real Estate Agent in San Diego,
|
Comments
Post a Comment