The Modern Tax Plagues Congress Brought on U.S. Citizens

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I have been thinking a lot about survival lately, ever since I attended the conclusion of my youngest daughter’s “Survival Week” in the Ramon Crater as part of her pre-army training program. We were told that she subsisted for 5 days on a handful of dates, almonds, and some rice and water that they carried with them. While driving her home for a much-needed shower and clean sheets, she revealed that she and her comrades went to great lengths to supplement their “survival” diet.  It turns out they hid food in their underwear, picked up raw potatoes from a kibbutz field as they were about to board the bus and the best of all, convinced hikers in the area to part with some of their food supplies. According to Webster’s Dictionary, Survival means, the act or fact of surviving, especially under adverse or unusual circumstances. In other words, sometimes a person has to do whatever needs to be done in order to survive a situation that feels threatening. My daughter and her friends survived their week, and I started to think about other times that people feel they are in  survival mode.

I realized recently that this time of the year is sandwiched between two holidays about survival! Purim is a holiday where we eat, drink and celebrate that we survived a decree that would have wiped the Jewish people out. Then on Pesach we also, eat, drink (at least 4 cups of wine) and celebrate that we became free and survived the Egyptian enslavement. We all know that later in our history there were many, many times that our survival was tested. I think that although the Genome Project was completed more that a decade ago, that someday scientists will discover a “survival” gene in members of the Jewish nation.

The Trump Tax Reform or the Tax Cuts and Jobs Act, as it is called, has put a lot of people in the survival frame of mind lately. I have personally seen people go through Elisabeth Kubler-Ross’s five stages of grief over this law, which includes experiencing denial, anger, bargaining, depression and finally acceptance when confronted with changes that will affect their bank account balances.

I think the sooner one gets to the acceptance stage when dealing with this major tax reform, the sooner one can activate the survival mode of thinking. In my opinion, this means to educate yourself and then explore creative solutions to solve the problem. We all have these capabilities, but when it comes to taxes, my team and I have invested a great deal of our time to offer creative legal solutions once our clients reach the acceptance stage.

While the ancient Egyptians did not fare too well when dealing with the 10 plagues, I would like to offer a new list of “10 plagues” that Congress has brought to U.S. citizens in general and those living outside of the United States in particular. Here they are:

  1. Where did my exemptions go? A large family used to save a lot of taxes because they received a deduction of around $4,000 for every member of the family. Those exemptions have been cancelled.
  2. Why can’t I itemize my broker, accounting and bank fees anymore? In fact, the category of miscellaneous itemized deductions has been cancelled, which also includes those continuing education courses you planned to take.
  3. My employer relocated me and now I have to pay tax on the money paid for my plane tickets and lift? Yes, Congress no longer allows people to deduct moving expenses.
  4. I own a company in Israel and understand there is one-time tax on all of the company’s retained earnings. Yes, Congress created a one-time tax of between 15.5% and 8% to be paid with your tax return.
  5. I pay a lot of personal real estate taxes and state income taxes, I understand those deductions are now limited. Yes, you can only deduct $10,000 of these deductions per year.
  6. For 2018 and onward I understand that my company will not be able to defer U.S. tax on any income I retain in the company. True, Congress created a new category of income called G.I.L.T.I. that requires U.S. shareholders to declare income that is retained by companies they control.
  7. If I buy a home in 2018 will my interest deduction be limited? Yes, Congress won’t limit how much you can borrow, but you will only be able to deduct interest on $750,000 of debt.
  8. Did they get rid of the Alternative Minimum Tax? Unfortunately, no, but they did raise the exemption amounts.
  9. If I have a Net Operating Loss this year, can I carry the loss back to years when I had a profit? Sorry, those days are over.
  10. Are these tax cuts permanent? Not really, after 2025 they all expire.

Frogs in your bed would certainly be less expensive! Fortunately Philip Stein & Associates can help you financially survive these new realities.

Chag Sameach,

Philip

For more information, contact us.

The writer is the CEO and President of Philip Stein and Associates.

About the Author
Philip is president and founder of Philip Stein & Associates, the largest US accounting firm in Israel, specializing in US taxation of US tax residents living in Israel, and of Israeli individuals and companies doing business in the United States. Offices are in Jerusalem, Ramat Gan and Beit Shemesh. Philip grew up on the South Side of Chicago, and graduated from the University of Illinois, followed by an MBA from the University of Michigan. Philip started his career in the tax department of what today is Ernst & Young. He has lectured at Roosevelt University, Loyal University and Northeastern University, and continued to lecture on international tax issues in Asia, Africa, Europe and North American. He is also a frequent speaker for Nefesh B’Nefesh and has advised the Israeli Treasury, Bituach Leumi and the Knesset on various tax issues affecting US citizens living in Israel. Philip’s love of radio led him to start his podcasts which have attracted tens of thousands of listeners. He continues to be an avid Chicago sports fan as well as a lover of mountain hiking, TRX, and snowshoeing (he likes to keep his feet on the ground!).
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