How Wealthy Americans Are Already Trying To Game Trump’s Tax Bill

Earlier this month, Trump touted the idea that, under his tax plan, thousands of Americans would be able to “file their on a single, little beautiful sheet of paper.” Of course, this so-called “postcard” that Trump and Paul Ryan have referenced repeatedly over the past several months is basically nothing more than a 1040EZ shrunken down to fit on a smaller piece of paper but who are we to rain on their parade?

That said, while many Americans will enjoy an easier tax filing in 2018, or at least as easy as the 1040EZ, others, especially high-income folks living in high-tax states like New York and California, are suddenly scrambling to retain accountants to figure out how they might best game the new tax code to avoid higher rates. 

Of course, one of the key opportunities for ‘gaming' results from the new taxation rules for “pass-through” entities. Unlike high-income earners filing as individuals who lost a substantial portion of their deductions, pass through entities, with the exception of certain professionals like doctors, lawyers and stockbrokers, are still eligible for a 20% deduction from their earnings. To put that into perspective, a 20% deduction reduces Trump's top marginal tax rate for pass-through entities to 29.6% from the 37% that will be paid by individual filers.

Not surprisingly, as CBS points out, the change has pretty much everyone suddenly plotting a post-holiday discussion with their boss to see if they can be fired and promptly re-hired as an independent contractor.

First, you convince your boss to let you quit and hire you back as a contractor after you've set yourself up as a sole proprietorship. Assuming you can do that and your tax treatment is better, you can offer your ex-employer the same services for less — the company does not have to worry about giving you benefits or paying its share of your and Medicare taxes. That latter part is the iffy one for you, and the numbers would have to work out. “Do you really want to go without health care and a 401(k)?” asked online financial adviser group Betterment's tax expert, Eric Bronnenkant.

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