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YOUR TAXES : PART SIX: PROFILE : 2-income yuppie couple

March 15, 1987|N. R. BROOKS | Times Staff Writer

The tax reform law that went into effect Jan. 1 had Sydney Gilner and Howard Davis worried.

"I figure we're probably going to get the old shaft," Gilner said.

"I don't think we really know at this stage," Davis countered hopefully.

After all, the two are "buppies--I'm a black urban professional and he's a British urban professional," Gilner quipped. The couple, married six years, fit much of the image of the young professionals--one of the groups that was expected to benefit least from the tax law changes.

They rent a roomy two-bedroom apartment in Beverly Hills and are busy breaking into the entertainment industry. Davis, 28, is an apprentice film editor who recently worked on the forthcoming life story of Ritchie Valens called "La Bamba"; Gilner, 30, is a script supervisor whose latest major film was "Native Son."

But Gilner and Davis had a surprise coming to them.

Although Gilner and Davis probably will pay more tax for 1987, their federal tax bill will decline as the provisions of the new tax law are phased in, according to an analysis by Robert E. Billings and Jacqueline Patterson of the Beverly Hills office of Arthur Young & Co.

"Well, that's fabulous," Gilner said.

"It's not as bad as we'd anticipated," Davis added.

The Arthur Young analysis, however, assumes something that may not exist in the real world: that the couple's financial situation will remain the same during the next few years. The study was based on the couple's 1986 income of $63,000, which was more than double what they earned the year before. Gilner and Davis said they expect their incomes to increase even more as their careers take hold.

What's more, even though the new law killed many deductions, there are still some steps that Gilner and Davis can take to reduce their tax bite.

Under the new tax code, Gilner and Davis win some and lose some.

In their favor, they do not itemize and they have no tax shelters that are being phased out, Patterson said.

Working against them, however, is the loss of the two-earner deduction (worth about $1,500 for them in 1986), the elimination of income averaging and the death of the sales tax deduction, she said.

"In 1986, they could income-average, which really made a difference," Patterson said. "Income averaging has really been a big deal for young people starting their careers. They go from working in the cafeteria or whatever to getting a decent job with a decent salary."

As for the sales tax deduction, "with yuppies and rampant consumerism, if you save all your receipts--for some people--it could come out to a significant deduction."

In 1986, Gilner and Davis benefited mightily from income averaging because their salaries jumped so sharply. But because they lose that provision in 1987, they will pay nearly $250 more in federal taxes, or a total of about $12,600, assuming their income stays the same.

However, significantly lower tax rates kick in by 1988, and Gilner and Davis will see their federal tax fall by $1,233--even below their 1986 federal tax total. Their federal tax bill is projected to decline by $28 more in 1989.

High on the list of tax-cutting maneuvers is the purchase of a home, although the tax benefits of homeownership decline under the new law because of lower overall tax rates, Patterson said.

Gilner and Davis will pay $12,343 in 1986 federal taxes without a home, the analysis found. But if Gilner and Davis had bought a home with a $125,000 mortgage at the beginning of 1986, their tax would drop to $8,295 under 1986's higher rates, a saving of $4,048, the analysis concluded.

A home purchase should probably wait a few years until the couple have saved a good down payment and their incomes are more predictable, since those working in the entertainment business sometimes have to endure periods of unemployment, Patterson said.

Gilner and Davis cannot take the deduction for an individual retirement account under the new tax law because Davis is covered by a qualified retirement plan administered by his union.

However, an IRA can still be a good investment, Patterson said, because the income accrues tax-deferred, even though the contribution is not deductible.

Young couples like Gilner and Davis might also consider some form of life insurance policy, Patterson said. Premiums are low in the early years, and the added value of the policy is not taxed unless the savings are withdrawn before the holder dies, she said.

Although it's not an option for Gilner and Davis right now, they might consider incorporating when their income rises--a tax-saving maneuver often employed by people in show business, said accountant Robert Matthews, whose clients include many in the entertainment industry. The tax advantages of incorporation have been reduced by the new tax law, but people who do this can, for example, shelter some of their income by setting up a tax-deferred pension plan for themselves.

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