Tag Archives: Tax Reform

Executive Board Members, Officer Columns

Advocacy and Pension Reform Take Precedence in Washington, DC

As AFM members are confronted with the uncertainties of both tax and pension reform, AFM President Ray Hair has refocused the work of the union’s Office of Government Relations to maximize its visibility and effectiveness relating to issues that impact our jobs and lives.

As I have stated previously, it is important for us to build relationships with coalitions that have similar interests. For some time now, the AFM has joined forces with nationally respected groups that come together to enhance our power of persuasion. One group we work with every year is Americans for the Arts, a nationally recognized organization that enhances the public policy voices of hundreds of national, state, and local arts organizations across the country.

For Arts Advocacy Day this year, in cooperation with the AFL-CIO Department for Professional Employees (DPE) Arts, Entertainment, Media Industries group (our primary coalition partner on most issues), American labor affiliates came together March 12-13 to make your concerns known to federal legislators who are recognized leaders on our issues. Seven meetings, attended by 12 union entertainment affiliates, worked both House and Senate offices on a variety of issues, including unreimbursed tax expenses; pension reform; support for the National Endowment for the Arts (NEA), the National Endowment for the Humanities (NEH), and the Corporation for Public Broadcasting; music licensing; and arts education policy.

Through one collective voice, key legislators learned of the negative impact that the elimination or weakening of these programs will have on artists, American communities, and the overall national economy.

National Endowment of the Arts: This federal program is one of a few that actually pays dividends back to the economy. We emphasized that NEA grants are not frivolous giveaways of public dollars to elite arts groups. In FY 2017, the NEA’s $150 million budget generated more than $500 million in matching support in communities across the country. For each of the 16,000 communities in every congressional district served that takes advantage of the process, every dollar in grant money awarded generates a $9 (9:1) return. As for the artistic value of the NEA, between 2012 and 2016, NEA grant programing reached 24.2 million adults and 3.4 million children. Challenge America grants also supported projects in communities where the arts are limited by geography, economics, or disability.

NEA school and community-based programs supported adult and student programming, state arts collaborations, and programs between arts institutions and pre-K, college, and university educators. Art Works supports art that meets the highest standards of excellence, and inspires public engagement and lifelong learning in the arts to strengthen communities. Last but not least, NEA grants support military veterans and their families through the Creative Forces Program, in cooperation with the Department of Defense and Veterans Affairs.

The NEA and NEH were not terminated and will each see a $3 million increase to
$152.8 million in the omnibus budget bill, which passed the Senate early March 23. The Corporation for Public Broadcasting received level funding at $445 million. This is a huge Congressional win for AFM members.

Taxes: For musicians suffering from shortcomings of tax reform changes in the new tax law, during lobbying visits the AFM and its affiliated unions made clear the disadvantages posed by the loss of itemized deductions. We took time with legislative staff to detail the effect of the shortsighted elimination of these deductions, specifically we listed items that will no longer be deductible for musicians working as W-2 employees. This issue also affects members of affiliate unions. Our concerted effort will help move this matter to the front burner when new tax negotiations begin.

As a tool to help understand the tax dilemma, in each office I left a copy of the article by Local 72-147 (Dallas-Ft. Worth, TX) member Scott Stratton, CFP, CFA, that appeared in last month’s International Musician on page 2. This useful tool was shared with each congressional member and his/her tax staffer to use as resource material. (We thank Stratton for his timely article and AFM President Hair for its prominent placement in the IM.)

Music Licensing and Protection of Intellectual Property Rights

As Congress prepares to introduce the comprehensive Music Modernization Act, affiliate unions joined in raising awareness in each legislative office about the importance of supporting new copyright reform/music licensing reform, which has not been updated in more than 30 years. Our primary ask was for members to sign onto one of the principal components of that bill, the Classics Act, which would require digital services to pay both rightsholders and artists for the use of recordings made before 1972. As the musicFIRST Coalition works closely with members of Congress to introduce the overall Music Modernization package, which includes the Music Modernization Act, the Classics Act, and the AMP Act (with willing buyer, willing seller language), the AFM and its affiliates continue to lobby legislators to increase cosponsorship of the Classics Act.

Overall, the DPE-coordinated labor lobbying group left a profound impact on staff and legislators. Many saw this as the first time organized labor made a concerted visit during Arts Advocacy Day to push their powerful arts and entertainment agenda. Though this lobbying group was organized by the DPE, it is our hope to reduce costs in 2019 in order allow more AFM Signature and rank-and-file members to join our lobbying efforts in Washington, DC.

Pension Progress

AFM President Hair, along with the AFM International Executive Board and the AFM-EPF trustees, has made it a priority to engage pension concerns on every level. Official word on AFM pension comes directly from the Office of the President in cooperation with pension plan trustees. However, Hair has instructed the AFM Office of Government Relations, after endorsing S.2147, the Butch Lewis Act of 2017, to monitor and report ongoing Washington, DC, multi-employer pension reform debate activities. Under the last continuing resolution, Congress inserted language that created a new Joint Select Committee to take up the issue of pension reform and solvency.

The comprehensive budget bill that passed February 9, formed the bipartisan-bicameral Joint Congressional Select Committee on Multi-Employer Pension Plans, comprising eight Democrats and eight Republicans from the House and Senate. It is governed by the rules of the Senate Finance Committee.

On process, the United Mine Workers of America reports on its website:

Committee members must be selected by February 23, and the committee must hold its first meeting by March 12 (which took place March 14). The committee is required to make a report to Congress by the last week of November 2018. If there is an agreement to take action, the committee will draft and submit legislative language as part of that report. Agreement to move forward will require at least five Democrats and five Republicans. Any bill they propose will go before the relevant committees in the House and the Senate, where it cannot be amended or voted down. The bills will get expedited votes in both chambers. There will be no amendments allowed. The committee will hold at least five meetings, of which at least three must be public hearings. The committee is encouraged to hold at least one field hearing, away from Washington, DC.

At the initial meeting, it was clear that there is a real need to come up with a solution to this issue. Failure to do so could have devastating consequences for all workers, retirees, affected plans, the public in general, as well as the national economy.

The responsibility of the AFM Office of Government Relations is to engage congressional staff, do real-time reporting of pension related events, and work directly with other AFL-CIO affiliated unions to coordinate information for the AFM President’s Office.

Now that the Select Committee is in full operation, the focus will shift momentarily to policy matters relating to the committee’s design on these troubled pension funds. Committee appointees include Republicans: Co-Chair Orrin Hatch (UT), Rob Portman (OH), Lamar Alexander (TN), Mike Crapo (ID), Virginia Foxx (NC), Phil Roe (R-TN), Vern Buchanan (FL), and David Schweikert (AZ); and Democrats: Co-Chair Sherrod Brown (OH), Joe Manchin (WV), Heidi Heitkamp (ND), Tina Smith (MN), Bobby Scott (VA), Richard Neal (MA), Debbie Dingell (MI), and Donald Norcross (NJ).

Tax Changes
Officer Columns

Big Tax Changes for Musicians in 2018

Guest columnist Scott Stratton, trombonist and member of Local 72-147 (Dallas-Fort Worth, TX), provides commentary and direction for musicians navigating changes to US tax law. It is provided for informational purposes only, not as a substitute for advice from your personal tax professional.

The Tax Cuts And Jobs Act (TCJA) passed in December presents the most sweeping changes to US tax policy in 30 years and will have a significant impact on working musicians. The changes discussed below apply to your 2018 taxes. Your 2017 taxes (to be filed in April 2018) are still under the old rules.

Many musicians will find their federal income taxes decrease slightly, but there are so many changes that some musicians may actually see their taxes go up, especially if they are a W-2 employee, live in a high tax state, and previously had a significant amount of itemized deductions.

Most taxpayers will see a 1% to 4% reduction in their marginal tax rate, although some single taxpayers in the 28% bracket for 2017 have been bumped up to 32% and some in the 33% bracket will pay 35% in 2018. The new tax brackets have a sunset after 2025, when the 2017 tax rates are scheduled to return.

The standard deduction will increase from $6,350 in 2017 to $12,000 in 2018 for single taxpayers, and from $12,700 to $24,000 for married couples. However, the personal exemption of $4,050 has been eliminated, so the increase in tax-free income is really only from $10,400 to $12,000. A family of four previously would have had a standard deduction and personal exemptions of $28,900 and they will actually see this fall to $24,000. Offsetting this is an expansion of the Child Tax Credit from $1,000 to $2,000 and an increase of the qualifying income cap from $75,000 to $200,000 (single) and $110,000 to $400,000 (married).

For musicians who are W-2 employees, perhaps for an orchestra or university, it will become very difficult to have enough itemized deductions to exceed the standard deduction of $12,000/$24,000. That’s not only because of the higher levels, but also because the TCJA caps or eliminates many of our prior deductions. It is expected that the number of taxpayers who itemize will fall from around one-third to less than 10% in 2018.

First, your deduction of state and local taxes will be capped at $10,000 (single or married). For musicians who live in high tax areas, it is very possible that you spend significantly more than this amount on your property tax, state income tax, and sales tax. If you have a home equity loan or line of credit, those interest payments will no longer be deductible in 2018, unless the loan was used for the acquisition of that property.

Second, the TCJA has repealed all “Miscellaneous Itemized Deductions.” Starting in 2018, W-2 musicians can no longer deduct “Unreimbursed Employee Expenses,” such as buying an instrument, sheet music, supplies or equipment, required concert clothing, mileage, job search/audition expenses, research expenses for professors, or your home office expenses. Additionally, you can no longer deduct tax preparation fees, investment management fees, memberships to professional organizations, or union membership and work dues.

What is so unprecedented about this change is that it penalizes W-2 employees (who itemize deductions on Schedule A), but most of those costs remain valid expenses for musicians who are self-employed and report their business income on Schedule C. If you are a W-2 employee, and face losing all these deductions, I’d recommend you try to add some Schedule C income on the side, such as teaching private lessons in your home, so you can claim some of these expenses on Schedule C.

For self-employed musicians (including 1099), there are two additional benefits starting in 2018. First, there is a new 20% deduction for small businesses that are “pass-through” entities. Pass through entities will be taxed on only 80% of their qualified business income (QBI). A lot of musicians have asked me if they need to form an LLC or S-corporation to be eligible, but thankfully, the answer is no. Anyone who is a sole proprietor and reports on Schedule C can claim this deduction. You do not need to incorporate.

Here’s where it gets more complicated. Congress sought to limit the ability of service professionals such as doctors or lawyers to use this deduction, but the IRS definition of a “specified service business” also includes performing arts. This means that there is an income cap for musicians to qualify for the QBI deduction. To be eligible, your taxable income must be under $157,500 (single) or $315,000 (married). Above these amounts, the 20% deduction is phased out over the next $50,000 (single) or $100,000 (married). That’s still good news for most self-employed musicians.

The second benefit for self-employed musicians is the expansion of Section 179 rules. Section 179 allows small business owners to immediately deduct business purchases, such as musical instruments, sound and recording equipment, computers, office furniture, or certain business vehicles like an SUV or van. Without Section 179, these large purchases would have to be depreciated over a number of years. For 2018 through 2022, Section 179 limits have been increased, bonus depreciation has been increased from 50% to 100%, and used equipment is now eligible for bonus depreciation.

Please talk with your tax advisor about how these changes might impact your individual situation. The authors of the TCJA were clearly more concerned with helping businesses than employees. This is seen in how positive things are for self-employed musicians versus how W-2 musicians were given a mixed bag of small benefits in the standard deduction and lower tax rates, but an effective loss of the ability to itemize. One thing is for sure—it will help if you know in advance what you will be able to deduct and what is not deductible, and be sure to keep excellent records of receipts, mileage, and expenses.

—Scott Stratton, CFP, CFA is the president of Good Life Wealth Management and the publisher of www.FinanceForMusicians.com. He is a member of Local 72-147 (Dallas-Fort Worth, TX) and can be contacted at scott@goodlifewealth.com.

International Musician, Legislative Update

Federal Government Tax Reform: What It Means for You

The Republican-led Congress and administration have now embarked on a debate over another feature piece of legislation promised during the 2016 campaign: tax reform. At this writing, the Republican-led House of Representatives has introduced its far reaching reform proposal, which it claims focuses on a tax savings for middle-class Americans. Along with White House regulatory reforms, the House says the bill will provide tax savings and incentives for American businesses, especially those with overseas or offshore operations.

Working alongside the majority party in Congress, the White House is expecting delivery of a complete tax package to the President’s desk before Christmas. The steady grind of the legislative machine in both the US House and Senate since the end of the August recess may drive this package through (loopholes and all), especially if the House and Senate can make a final deal with disgruntled Republicans and some nationally recognized outside groups like the Mortgage Bankers Association, national real estate organizations, and others who are on the fence.

Though the philosophy of the majority party is to move this process through before too many stakeholders weigh in, there are those who believe that the package as written, containing a limit on interest deductions for new home purchases of $500,000 or more and an expansion of the standard deduction (as outlined in a November 3 New York Times article), is a losing proposition, too difficult to sell to their constituents. In the same New York Times article, others, including Congress’s Joint Committee on Taxation and the independent Tax Foundation, find that America’s highest earners would receive at least twice the tax cut that middle-class workers would get, as a percentage of their income.

Democrats, along with other outside groups who sit in opposition to the package, say that the plan is not well thought-out and is moving too quickly. It will harm, not help, middle-class Americans because it will raise taxes. Meanwhile, it will eliminate some much sought-after and expected annual tax staples such as state and local tax write-offs (businesses will continue to be able to deduct state and local taxes incurred in the conduct of a trade or business) and House reductions in the mortgage interest cap. Also, it will use funds from the elimination of important programs, such as the CHIP and state Medicaid Expansion, which were put in place to help middle-class Americans. Opponents say this, along with other loopholes, is all to help pay for a tax reform package designed to help wealthy taxpayers.

Concerns for Members

A look at the tax reform package reveals some issues—changes for the average American and for musicians and others in the media and entertainment fields.

The House Ways and Means Committee, the committee that oversees the drafting and implementation of tax legislation, has outlined what the new tax law does. You can read the Tax Cuts and Jobs Act at https://waysandmeans.house.gov/taxreform/. The committee states that the bill:

Lowers individual tax rates for low- and middle-income Americans

Eliminates special-interest deductions

Establishes a new Family Credit, which includes expanding the Child Tax Credit

Reduces the tax rate on the hard-earned business income of Main Street job creators

Significantly increases the standard deduction

Takes action to support American families

Preserves the Child and Dependent Care Tax Credit

Lowers the corporate tax rate to 20%

Opposition forces say that the bill falls short of all these goals and leaves the average American subsidizing proposals that only benefit the rich.

Yeh Shen of Local 6 (San Francisco, CA) states, “Under GOP’s tax plan, all of the necessary costs associated with maintaining a freelance career and professional activities are not tax deductible, if players continue to be paid as W-2 wage [earners].”

Winners v. Losers

But, who are the winners and losers? An article from The Hill  describes who stands to gain and who stands to lose. Here’s a summary:

Winners—Corporations will see their tax rate go down from 35% to 20%. Companies would be allowed to deduct the full costs of buying new equipment for five years. And businesses that had been keeping profits overseas to avoid the 35% tax rate would be able to bring the money back, or repatriate to the US, and pay only a 12% tax for cash assets. Major business groups like the US Chamber of Commerce and the National Association of Manufacturers back provisions to lower rates for businesses, in order to move to a “territorial” tax system that exempts dividends from companies’ foreign subsidiaries and to enhance expensing of capital investments.

Super wealthy individuals will keep the top tax rate in place, but they have a lot to gain from the bill.  First off, the income tax bracket thresholds increase, which will accrue savings at the top. Second, the bill would double the limit on the estate tax and then phase it out altogether. Currently, the estate tax only applies to estates of $5.5 million or more, and twice that for couples. The bill would immediately double that, giving tax shelter to anyone with an estate between $5.5 million and $11 million (or, again, double those amounts for couples). After a few years, the tax would be eliminated altogether, meaning that the very wealthiest in the country could receive their inheritances tax-free. Third, the plan would lower the taxation rates of “pass-through” corporations, or S-corps, to 25%, allowing certain business owners to claim part of their income at the lower rate. Fourth, it would eliminate the alternative minimum tax, which was intended to create a floor on tax exemptions.

Losers—Blue states, the budget deficit, universities, homeowners, and nonprofit organizations.   

House v. Senate Bills

As for House and Senate bill comparisons, Sarah Babbage from Blumberg outlines direct differences in the bills. You can read her analysis at: https://about.bgov.com/blog/bgov-onpoint-comparing-house-senate-tax-bills/.

For musicians, the tax plan in its earliest form hit on two issues that would have directly impacted artists and their supporting institutions. The first was a provision in the code that provided the time and manner rules for electing capital asset treatment for certain self-created musical works. The original temporary regulatory proposal was published in the Federal Register February 8, 2008. No comments appeared in response of the proposed rulemaking and no request for a public hearing was received. The Treasury then decided to adopt the proposed regulation with some minor changes. However, on November 6, 2017, the provision was removed from the Ways and Means Manager’s Report. The Manager’s Report would have allowed a taxpayer to treat the sale or exchange of a musical composition or a copyright of their personal musical work as a capital gain or loss.

Secondly, the House bill eliminates certain language referring to business entertainment write-offs. This could mean fewer business professionals using theater, restaurant, and other performance venues as write-off activities for their clients. Section 3307 entitled “Entertainment, etc. Expenses,” denies a business deduction for entertainment, amusement, recreation, and other fringe benefits in the media and entertainment industry to embrace or entice business partners. The provision goes on to say: “No deduction otherwise allowable under this chapter shall be allowed for amounts paid or incurred for any of the following items … this may impact any entertainment, amusement, or recreation activity; membership dues; amenities not directly related to the taxpayers trade or business; or on-premise athletic facilities, not related to a trade or business.” 

The Senate bill, introduced November 14, is currently under debate. We must consider that, at this writing, the House bill is still under consideration and the Senate bill, though just introduced, has additional changes. No new policy is set in stone until the chamber has a final vote on it. However, we expect those votes very soon. The AFM will continue to work with its affiliates and outside partners to help mitigate the negative effects of this legislation.