​Demystified Blog Archive #51 – Create Permanent Tax Savings #4

Historically, October has been an economic month of reckoning.

The terrible stock market crash that signaled the beginning of the Great Depression was in October of 1929.

The stock market crash known as Black Monday was in October of 1987.

In 1997, the Asian financial crisis sparked another stock market crash in October.

And back in 2007 at the height of the giant bubble that almost brought down the entire financial system, the stock market peaked, once again, October.

It’s not that October is cursed, maybe just coincidence. But, I do find it interesting that asset prices seemed to have peaked last month, which was October, and have been in decline ever since.

Real estate prices are starting to show signs of strain, more than one-third of homes for sale had a large price cut in October, the most discounting in the past eight years.

Corporate and government bonds are falling.

The S&P 500 is down 7%, and the big popular technology stocks that have been fueling the boom in stock prices for the past several years have been violently declining.

Facebook is down 36% from its peak. Apple is down 18%, even more recently on news of production cuts for iPhones. Semiconductor giant NVIDIA is down 45%.

It’s not just in the US either.

Deutsche Bank says 89% of all asset classes it tracks are negative this year which is the worst year since 1901.

This is often how a big downturn begins, gradually, then suddenly. Asset prices stew and fester, slowly grinding downward for months while people maintain hope that prices will recover.

Total global debt back in 2008 was about $173 trillion, worth about 280% of GDP.

Today total global debt is $250 trillion, worth about 320% of GDP.

This is the sequel of the same movie we saw ten years ago and it would be pretty foolish to not expect the same ending.

This is why it is important to create permanent tax savings.

Remember, every tax dollar saved is cash directly back into our pocket, bank account, etc. that can be re-directed, re-invested, etc.

The 2018 Tax Cuts & Jobs Act has brought about tremendous positive benefits for business owners in the area of tax savings, we’ve written about a few. However, when government’s give they must also take… a necessity in keeping a balanced the budget.

Thus, beginning January 1st, 2018 ‘entertainment’ has been completed taken off the board as a tax deductible expense.

That’s right, entertainment expenses that include taking client, employee, etc. to dinner, to a theater show, to a sporting event, etc. can no longer be written off beginning in 2018.

I do not understand the logic in this new law as it seems Trump’s pro-business administration would want to harness this tax deduction in “making America great again”, but I do not make the rules. I am only obligated to play by them.

Now, obviously my purpose is not to bum you out with bad news, so let’s talk about a couple of the exceptions so you can plan accordingly.

• 1.If you give an employee ‘entertainment perks’ you must include that amount in their W-2 as taxable income. This may not be the end of the world for your employee, and they may still be obliged to take your offer. But, at the end of the day, you (and employee) now have to pay tax on this expense.

• 2.If you have a larger business with employees and you throw a “social activity” for morale-building purposes with the majority of your employees, you can write that off.

Note, both exceptions are still subject to the 50% limitation.

And, do not confuse entertainment with marketing, they are not the same.

In addition, remember to consider travel and meals if you are planning on throwing an entertainment-related event, as they are questionable.

Of course, there is always additional information you should consider when setting up any type of business, finance, or taxation strategy plan. And, you should always be working with a team of professionals to help mitigate the risk of any investment.

Happy Turkey Day.