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Tax Cut & Jobs Act creates winners and losers

Mon, 05 Feb 2018 17:17:43 GMT

The Tax Cuts And Jobs Act has created winners and losers - sometimes on the same team.  Take Sally Beauty Holdings (ticker: SBH).  This is a company whose 37% tax rate should fall to 23% under the new law.  This should boost their after-tax profits by roughly 25% or $50 million.

However, much of SBH’s rural sales reps will be on the losing side of the new tax law.  A typical SBH traveling sales rep might earn $55,000 per year, but will incur $20,000 in unreimbursed travel expenses.  Thus, this rep really only earns $35,000 per year. 

Under the old tax code, the typical rural SBH sales rep could deduct the $20,000 of unreimbursed travel expenses (stuff like 25,000 miles on their personal car and hotel and meals away from home) as a Miscellaneous Itemided Deduction via Form 2106 for Unreimbursed Employee Expenses.  So, while the SBH rep that really only netted $35,000 from their job, only paid taxes on the $35,000.

However, the new tax law completely eliminated all Miscellaneous Itenized Deductions.  Now the SBH rep has to pay income taxes like they earned $55,000 even though they spent $20,000 to earn that paycheck.  This will result in roughly $4,000-$6,000 in higher taxes for the SBH traveling sales rep.