Tax Cut And Jobs Act, Insurance Policy, Net Pay Calculation, Household Inventory, Jaguar E-Pace Car Insurance And Techniques To Minimize Premium Costs

Overview of Tax Cut and Jobs Act

The car that has been chosen is Jaguar E-Pace having the model number of P250 S. The average market price for this car is $41,481 (Truecar.com 2018). The two auto insurers selected for the particular car model include Progressive and Geico. Progressive offers car insurance to its customers at an annual premium of $1,450 or $115 per month, while Geico charges annual premium of $1,500 or $125 per month. The following techniques could be used for minimizing premium costs:

Deductibles:

The rise in deductibles or voluntary deduction could minimize auto insurance premium. Deductibles are out-of-the pocket amounts that the policyholders incur at the time of making a claim (Xiao, Chen and Chen 2014). An increased voluntary deduction is applicable in two cases. Firstly, the driver rides safely automatically minimizing the chance of an accident and secondly, insurance is not claimed for some consecutive years.

Searching for bigger discounts:

Depending on the age, profession, driving record and other criteria mentioned by the insurance organization, it becomes possible for the policyholder to avail discounts related to insurance premium (Xiao and O’Neill 2016).

Loyalty:

At the time an individual has several insurance policies with the same insurance organization and the person approaches the identical provider for a car insurance policy, the latter provides a lower insurance of car premium in the form of loyalty reward.

The five significant changes made by the bill include the following:

The Act accounts for a deduction of 20% for domestic qualified business income from a partnership, corporation or sole proprietorship. However, this deduction is not applicable to particular service businesses except the taxpayers having taxable income below the threshold amount. In case of conference agreement, the threshold amount is $157,500 or $315,000 for joint return. According to the expectations of the conferees, the minimized threshold amount would act to deter high-income taxpayers from making efforts to transfer wages or other compensation in relation to personal services to income eligible for 20% deduction under provision (Faulkner 2017). However, it is clarified in the conference agreement that the above deduction is not allowed to calculate adjusted gross income and instead, it would be allowed in the form of a deduction minimizing taxable income. In a similar manner, the conference agreement clarifies that deduction is available to itemizers as well as non-itemizers.

On the other hand, the trusts and estates are eligible for the deduction of 20% in accordance with the provision. The regulations identical to those in accordance with current law section 199 apply for allocating between beneficiaries and fiduciaries any W-2 wages and unadjusted qualified property basis, as per the limitation based on W-2 capital and wages (Agarwal et al. 2014). Corporate dividends, Qualified REIT dividends as well income related to publicly traded partnership are eligible for such deduction. However, the qualified REIT dividends do not constitute of any part of dividend obtained from REIT, which is a qualified dividend or capital gain dividend.

Insurance Policy and Heir

As per this act, the maximum amount a taxpayer might expense increases under Section 179 to $1 million, while the threshold amount related to phase-out is $2.5 million. The limitation of $1 million is minimized by the amount by which the qualifying property cost put in service in the taxable year increases $2.5 million (Campbell 2016). The amounts of $2.5 million and $1 million along with $25,000 limitation related to sport utility vehicle are indexed for inflation in relation to taxable years starting after 2018. This act diversifies the qualified real property definition for Section 179 expensing to incorporate any of the below-stated improvements to non-residential actual property put in service after the date that property was initially placed in service:

• Heating
• Roofs
• Ventilation
• Property related to air-conditioning
• Alarm systems and fire protection
• Security systems

Interest deductions for each business irrespective of entity form, would be related to disallowance of expense related to net interest in additional of 30% of the adjusted taxable income of the business. This is considered as a taxable income of the business calculated in relation to business interest income, business interest expense, depreciation, net operating losses, depletion and amortization (Lusardi 2015). The deductions related to disallowed interest expense could be transferred forward indefinitely; however, there are certain restrictions for partnerships.

Net operating loss rules have been changed and due to such change, the taxpayers could deduct NOLs up to 80% of taxable income only and majority of the taxpayers could not carry any net operating loss back two years. Instead, it becomes possible for the taxpayers to carry forward suspended net operating losses indefinitely rather than the carry forward limitation of 20 years (Stiglitz and Rosengard 2015).

This act formulates a new restriction for the non-corporate taxpayers having additional business losses. In this case, the additional business losses imply the amount by which the business deductions are more than gross income (Thaler and Ganser 2015). The provision would restrict the losses to $500,000 for joint married filing ($250,000 for others) per annum with both the amounts indexed for inflation. More precisely, business losses could not offset non-business income by exceeding the allowed amounts in a taxable year. Any additional loss would be transferred forward in the form of net operating loss carry forward in consecutive taxation periods. This has been deemed as a significant restriction over the then existing law.

After considering the significant changes in the new act, it has been evaluated that this act would have negative impact on budget deficit. The entire implementation of the changes would result in loss of $1.5 trillion of federal revenue over the consecutive decade. If the loss could not be compensated by economic growth, it would further aggravate the national debt crisis of the nation (Tyson 2018). In addition, this new act might have negative impact on the business owners as well. For instance, lack of confidence in a nation or currency owing to increased debt could lead to banks becoming more resilient in providing loans to burgeoning organizations. Therefore, the scenario would become identical to the Housing Bubble of 2008. Hence, it could be inferred that the new act might not prove to be beneficial over long-term.

In accordance with the above table, Alternative C is a feasible option in terms of pure value calculation. This is because the present value of amount receivable for Alternative C is higher in contrast to the other three alternatives. Therefore, Stuart is recommended to select Alternative C.

References:

Agarwal, S., Chomsisengphet, S., Mahoney, N. and Stroebel, J., 2014. Regulating consumer financial products: Evidence from credit cards. The Quarterly Journal of Economics, 130(1), pp.111-164.

Campbell, J.Y., 2016. Restoring rational choice: The challenge of consumer financial regulation. American Economic Review, 106(5), pp.1-30.

Faulkner, A.E., 2017. Financial literacy education in the United States: Exploring popular personal finance literature. Journal of Librarianship and Information Science, 49(3), pp.287-298.

Lusardi, A., 2015. Financial literacy: Do people know the ABCs of finance?. Public understanding of science, 24(3), pp.260-271.

Stiglitz, J.E. and Rosengard, J.K., 2015. Economics of the public sector: Fourth international student edition. WW Norton & Company.

Thaler, R.H. and Ganser, L.J., 2015. Misbehaving: The making of behavioral economics (p. 358). New York, NY: WW Norton.

Truecar.com., 2018. 2019 Jaguar E-PACE Prices, Incentives & Dealers | TrueCar. [online] Available at: https://www.truecar.com/prices-new/jaguar/e-pace-pricing/ [Accessed 30 Nov. 2018].

Tyson, E., 2018. Personal finance for dummies. For Dummies.

Xiao, J.J. and O’Neill, B., 2016. Consumer financial education and financial capability. International Journal of Consumer Studies, 40(6), pp.712-721.

Xiao, J.J., Chen, C. and Chen, F., 2014. Consumer financial capability and financial satisfaction. Social Indicators Research, 118(1), pp.415-432.