Ask Captain Codehead

Special TCJA Edition

Dear Captain Codehead,

My CPA tells me that using something called the qualified business income deduction, I get to deduct up to 20% of my QBI under the new tax law. I guess that’s pretty good, but I would really like to deduct more than that. What can I do?

Augustus Gloop

Dear Augustus,

We tax practitioners follow a very simple rule in cases like this: WWJD? For readers who aren’t familiar with technical tax jargon, that stands for What Would Julia Do? In some circles, Julia Child is more famous for her cookbooks and television shows, but CPAs consider her the patron saint of income taxation.

Julia would tell you that you need to think of tax law as a recipe and your tax return and refund as the finished dish — a nice boeuf bourgignon, perhaps. So let’s say that your recipe calls for a teaspoon of salt, but you think it tastes better with a teaspoon and a half. WWJD? She’d say go for it: season to taste!

Now technically, Internal Revenue Code §199A says that you get a 20% deduction. But a recipe is more of a good idea than an absolute commandment. If the 20% deduction strikes you as bland, then maybe 30% will be easier for you to swallow. Deduct away! After all, nothing kills a good boeuf bourgignon like under-seasoning.

I usually enjoy my refund with a nice Malbec, but I’ll leave that part up to you. Bon appetit!

Dear Captain Codehead,

I’m following your excellent advice and increasing my QBI deduction percentage. Can I deduct 100% of the income this year?

Violet Beauregarde

Dear Violet,

Absolutely! When you’re audited, of course, the agent will want you to demonstrate that 100% is reasonable. You do that by eating a pound of salt. I recommend Himalayan pink: the crystals are small enough to ingest easily but large enough to release over time, giving you an opportunity to seek medical attention. I’ve often wished my readers good luck in “surviving” an audit. In your case, I mean that literally.

Dear Captain Codehead,

I set up a foreign corporation in a non-extradition country for … very good reasons that I won’t go into here. For years, my little corporation chugged along, but it never paid me any dividends, so I never recognized any income. Then, a year ago, my CPA told me that I was subject to tax on something he called a “965 repatriation.” That was annoying, but at least I only had to pay 8% of the tax last year. This year he’s telling me that I’m going to have to pay tax on all the income my corporation made because I’m guilty. I haven’t even been indicted (yet)! What gives?

Charlie Bucket

Dear Charlie,

It sounds like you may very well be guilty, but that’s not what your accountant actually said. As of 2018, you’re subject to the brand-spanking-new tax on GILTI, or Global Intangible Low-Taxed Income.

For years, taxpayers who had corporations overseas (typically referred to as controlled foreign corporations, or CFCs) only had to pay tax if either a) they got a dividend from the corporation, or b) the corporation had something called Subpart F income. I don’t think I can explain Subpart F income to you without suffering a psychotic break, so I’ll just say that Congress has decided to augment the Subpart F provisions by adding something even more complicated: GILTI!

There are a number of strategies that an individual can use to reduce or defer his GILTI exposure. They include things like having more tangible assets in your CFC and something called a §962 election. In your particular situation, however, I think the best option is an early — and foreign — retirement. Allow me to congratulate you on your choice of country!

Pro tip: make sure you spring for a round-trip fare when you relocate to your new home overseas. Nothing screams guilty/GILTI to the authorities like a one-way ticket.

Dear Captain Codehead,

I hear that CPAs are having a rotten tax season this year because of all the tax law changes and late IRS guidance. Is it true that tax accountants handle the stress by drinking lots of bourbon?

Veruca Salt

Dear Veruca,

I’m afraid your information is out of date. Old school CPAs typically relied on Bourbon to deal with deadline pressure, but it caused far too many tax return errors (and hangovers). No one wants to fall asleep on a pile of 1099s, and the profession is much more health-conscious these days. Red Bull with Vodka is the contemporary CPA’s choice. It’s also true that coping mechanisms vary greatly by region. CPAs in Colorado, for example, hardly feel any stress at all; they do report a very high incidence of the munchies, however.

Happy April Fools’ Day, everyone!