Tax lawyer Jed Bodger has publised an analysis in the journal Tax Notes detailing the expected gains for superheroes under the Trump tax plan.
It's a reminder that America's imaginary heroes are mostly ultra-rich one-percenters -- even so,the sheer number of heroes who benefit from a credit for private plane ownership is a bit croggling. And then there are the heroes who also run huge swathes of the military-industrial complex, the owners of companies like Stark Industries and Wayne Industries.
There's even a "little person" who gets a little benefit: Peter Parker's Aunt May gets a couple of years' worth of tax relief, $6901, but that will go away shortly and she'll be expected to do a lot more with much less in the form of social services. Still, it's worth it to make sure that Tony Stark gets $685m/year in tax relief.
Nelson and Murdock (Daredevil) are perpetual bachelors and best friends, as well as graduates of Columbia University School of Law. After graduation, they formed the law firm Nelson & Murdock, of which they are the principal partners. For the sake of this discussion, let’s assume that Nelson and Murdock each hold a 50 percent interest in firm profits.
Further, assume that the firm earned $350,000 in fees in 2018, paid $100,000 in ordinary business expenses (rent, supplies, etc.), and paid $50,000 to their secretary Karen Page for administrative services, it would have $200,000 of QBI, with Nelson and Murdock each having an allocable interest of $100,000 in that QBI.
As a general starting point to calculating the deduction under section 199A, one needs to determine the lesser of 20 percent of QBI or 50 percent of Form W-2 Wages. Twenty percent of each of Nelson and Murdock’s QBI would be $20,000 ($100,000 x 20 percent = $20,000). Next, the allocable share of their Form W-2 wages would be $25,000, and each would have a deduction of $12,500 (($50,000 Form W-2 wages x 50 percent to determine each partner’s share) x 50 percent reduction under section 199A = $12,500). Therefore, the lesser of the two factors would be their deduction against QBI, or $12,500.
However, because each of the partners is under the $157,000 income threshold for individuals, both Nelson and Murdock will apply a deduction of $20,000 against their QBI because the Form W-2 wage limitation is not triggered. Thus, each will have gross QBI of $100,000 and a deduction of $20,000 for a net QBI of $80,000, and they will each pay $17,600 of tax on that QBI (($100,000 - $20,000 section 199A deduction) x 22 percent marginal tax bracket). This would take Nelson and Murdock’s effective tax rate from the stated marginal rate of 22 percent down to 17.6 percent.
Tax Avengers Assemble: The Impact of Tax Reform on Superheroes [Jed Bodger/Tax Notes]
(via Law and the Multiverse)