As a taxpayer earning ordinary income, you once could deduct most of
your ``losses'' against that income. But no more. New provisions
of the tax law now in effect significantly limit tax write-offs that
were previously available.
Particularly hard-hit are professionals (stockbrokers, insurance
brokers, consultants, physicians, lawyers, etc.) who have new
limitations on how their business income and investments are taxed,
says Robert E. Reetz, Jr., an Austin, Texas tax attorney associated
with Matthew Bender & Co. - publishers of tax manuals for lawyers
and tax preparers.
This means your 1989 tax return due in mid-April will be
considerably more complicated and that you should begin now to plan
for calendar 1990, taking the new rules into consideration.
The intention of lawmakers was to end the abuse of tax shelters.
The new rules do that, and also unintentionally saddle anyone with
business or rental activities with a mountain of paper work - and
``Tax professionals now will focus on what the law calls an
activity - this means all money that is earned - and determine
whether each activity is passive or active,'' said Reetz.
Don't try to apply dictionary definitions to any of these terms.
The law and regulations define them at length.
``There are 300 pages of regulations that try to attack every
loophole that ever existed,'' Reetz points out. ``Tax planning
opportunities for buiness have been curtailed greatly. This was
meant to enhance tax revenues and was written to comply with
President Reagan's intention - to remove tax planning as a subsidy to
While this sounds fair and simple, it's certainly not simple,
says Reetz. Every time a business person makes a financial decision,
he or she has to thumb through complicated regulations, including
many which keep changing. One consequence: Fewer individuals are
seeking socially useful investments like low-income housing credits
which previously attracted investors and helped provide housing for
If you are self-employed or have money to invest, your financial
counselor presumably already has warned you of pitfalls in the
return you are preparing for the 1989 tax year. What do you need to
keep in mind for your future planning? Here's what Reetz advises:
- Under the Tax Reform Act of 1986, most passive losses can be
deducted only against passive income. …