# Pass-throughs



## ginseng41 (Nov 30, 2014)

I'm an accountant by trade but drive Uber now (I graduated the same month as the economy crashed and laid off tens of thousands. During this time I realized that I hated all non-tax related accounting work so I never perused finding a job once the financial sector improved). This new 20% tax deduction could benefit us in a huge way, assuming we have positive income. See the part on pass-throughs in the link below. I've got a pretty good grasp on many of the new tax bill provisions, but this one is still a bit confusing to me. I do continue to work doing private bookkeeping and tax work so I'll be happy to answer questions if I can.

https://www.nytimes.com/interactive/2017/12/20/us/politics/small-business-tax-cut-pass-throughs.html

And another one with a specific Uber mention

&#8230; and that could be a big deal for the gig economy. The provision will also allow independent contractors, like Uber drivers, to use the same deduction. Many people worry that this could accelerate the trend toward contract positions at the expense of full-time employment.

https://www.nytimes.com/interactive/2017/12/22/business/taxbillroundup.html


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## Mars Troll Number 4 (Oct 30, 2015)

ginseng41 said:


> I'm an accountant by trade but drive Uber now (I graduated the same month as the economy crashed and laid off tens of thousands. During this time I realized that I hated all non-tax related accounting work so I never perused finding a job once the financial sector improved). This new 20% tax deduction could benefit us in a huge way, assuming we have positive income. See the part on pass-throughs in the link below. I've got a pretty good grasp on many of the new tax bill provisions, but this one is still a bit confusing to me. I do continue to work doing private bookkeeping and tax work so I'll be happy to answer questions if I can.
> 
> https://www.nytimes.com/interactive/2017/12/20/us/politics/small-business-tax-cut-pass-throughs.html
> 
> ...


That's great, except a lot of uber drivers get ALL their income deducted off the standard mileage rate and won't owe any taxes at all..


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## ginseng41 (Nov 30, 2014)

I use the standard rate and still paid taxes on $12k last year after a 25% SEP IRA contribution too so there are some who will benefit from this change


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## TBone (Jan 19, 2015)

I already have an S-Corp and was thinking of re-registering but only if I can maintain the 20% Uber fee. Not sure if Uber will do it though and I’m not paying them 25%


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## ginseng41 (Nov 30, 2014)

That is beyond my knowledge skill. You'd have to ask them. Try the math with the 20% tax deduction and it might be worth it


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## UberTaxPro (Oct 3, 2014)

ginseng41 said:


> That is beyond my knowledge skill. You'd have to ask them. Try the math with the 20% tax deduction and it might be worth
> it


He would already be eligible for the 20% deduction your talking about as a sub-s Corp. He wouldn't be gaining anything thing by re-registering.



ginseng41 said:


> I'm an accountant by trade but drive Uber now (I graduated the same month as the economy crashed and laid off tens of thousands. During this time I realized that I hated all non-tax related accounting work so I never perused finding a job once the financial sector improved). This new 20% tax deduction could benefit us in a huge way, assuming we have positive income. See the part on pass-throughs in the link below. I've got a pretty good grasp on many of the new tax bill provisions, but this one is still a bit confusing to me. I do continue to work doing private bookkeeping and tax work so I'll be happy to answer questions if I can.
> 
> https://www.nytimes.com/interactive/2017/12/20/us/politics/small-business-tax-cut-pass-throughs.html
> 
> ...


Thanks for those articles! I think the switch to contract positions has already accelerated beyond the point of return. Maybe employers will have to increase wages to to retain employees with this?


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## ginseng41 (Nov 30, 2014)

There seem to be some other changes that may affect corporations differently in what I'm reading. It's a real mess to have to figure out everything in a few weeks


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## UberTaxPro (Oct 3, 2014)

ginseng41 said:


> There seem to be some other changes that may affect corporations differently in what I'm reading. It's a real mess to have to figure out everything in a few weeks


Corporations yes, but a sub-s corp is a pass thru entity


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## ginseng41 (Nov 30, 2014)

Correct but there are about a million changes depending on which classification a pass through is, as well and certain deductions are treated differently. And certain benefits for corporations vs partnerships vs sole proprietorships. It's a mess


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## UberTaxPro (Oct 3, 2014)

ginseng41 said:


> &#8230; and that could be a big deal for the gig economy. The provision will also allow independent contractors, like Uber drivers, to use the same deduction. Many people worry that this could accelerate the trend toward contract positions at the expense of full-time employment.


As I see it most Uber drivers will not be able to benefit from the the 20% deduction for Qualified Business Income in 2018. The lawmakers included provisions in the law to prevent employees from switching to contractor status for a tax advantage. This provision:* "The deduction is limited to the greater of (i) 50% of the W-2 wages paid with respect to the trade or business or (ii) the sum of 25% of the W-2 wages paid with respect to the trade or business and 2.5% of the unadjusted basis, immediately after acquisition, of all depreciable property used in the qualified trade or business."* will prevent what the lawmakers determined would be abuse of the deduction. I'm sure there are some, but I don't know of any Uber driver that has a W-2 payroll or that has a large amount of depreciable property in their business.

This law is all about the QBI (Qualified Business Income), what is it and who gets to use it. If your in the accounting/tax field like me you're not eligible at all, but it will help keep Enrolled Agents and CPA's in business figuring out how to apply it however! It definitely won't make the tax code any simpler or easier to understand! The following is a good summary of the new deduction (sole proprietors are affected the same way even though they're not mentioned below):

*Up to 20% Deduction for Qualified Business Income of Pass-Through Entities*
Beginning in 2018, the Act provides for up to a 20% deduction for individuals for qualified business income earned through pass-through entities, such as partnerships and limited liability companies taxed as partnerships, S corporations, disregarded entities and trusts. This deduction (when combined with the reduction in individual income tax rates) theoretically would result in an effective maximum marginal tax rate of 29.6% (plus unearned income Medicare tax, where applicable), for taxpayers entitled to the full 20% deduction. *However, the deduction is subject to several limitations that are likely to materially limit the deduction for many taxpayers. These limitations include the following:*

Qualified business income does not include IRC Section 707(c) guaranteed payments for services, amounts paid by S corporations that are treated as reasonable compensation of the taxpayer, or, to the extent provided in regulations, amounts paid or incurred for services by a partnership to a partner who is acting other than in his or her capacity as a partner.
Qualified business income does not include income involving the performance of services (i) in the fields of, among others, health, law, accounting consulting, financial services, brokerage services, or any trade or business where the principal asset of such trade or business is the reputation or skill of one or more of its employees or owners, or (ii) consisting of investing or investment management, trading, or dealing in securities, partnership interests or commodities.
Qualified business income includes (and, thus, the deduction is applicable to) only income that is effectively connected with the conduct of a trade or business within the United States.
The deduction is limited to 100% of the taxpayer's combined qualified business income (e.g., if the taxpayer has losses from certain qualified businesses that, in the aggregate, exceed the income generated from other qualified businesses, the taxpayer's deduction would be $0).
The deduction is limited to the greater of (i) 50% of the W-2 wages paid with respect to the trade or business or (ii) the sum of 25% of the W-2 wages paid with respect to the trade or business and 2.5% of the unadjusted basis, immediately after acquisition, of all depreciable property used in the qualified trade or business.


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## UberTaxPro (Oct 3, 2014)

ginseng41 said:


> Correct but there are about a million changes depending on which classification a pass through is, as well and certain deductions are treated differently. And certain benefits for corporations vs partnerships vs sole proprietorships. It's a mess


It was mess before, it's a different mess now, it will always be a mess! Other than certain pass thrus not being included like accounting, law and health care in the new 20% deduction and the 20% deduction itself, I'm not seeing the million changes that your talking about for pass thru entities in the new law. Maybe you could be more specific. 
Here's a good comparison of all the changes for you...
https://www.taxbuzz.com/blog/tax-reform-side-by-side-comparison-current-law-to-new-tax-law


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## SteveNBham (Dec 30, 2015)

Ubertaxpro,

If I cashed out via express pay right before midnight and stopped driving, then would all that money count in 2017 along with mileage deductions. The money would go on 2017 1099 right? Or would I still show the income of one week in 2018, but without the mileage deduction.


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## UberTaxPro (Oct 3, 2014)

SteveNBham said:


> Ubertaxpro,
> 
> If I cashed out via express pay right before midnight and stopped driving, then would all that money count in 2017 along with mileage deductions. The money would go on 2017 1099 right? Or would I still show the income of one week in 2018, but without the mileage deduction.


There's two accounting methods accrual and cash. On your schedule c you'll choose which method you used. If you used the cash method it will all go on 2017 if you cash out now. Most Uber drivers use the cash method. With the accrual method, income and expenses are recorded when you incur the income and expense, not necessarily when you receive the money.

https://www.investopedia.com/ask/answers/09/accrual-accounting.asp


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