by Jean Miller | Accounting News, Healthcare, News, Resources, Tax, Tax Planning, Tax Planning - Individual, Tax Preparation - Individual
The Trump administration has wasted little time taking action on many of the promises that were made throughout the campaign. One major proposition made by President Trump was the immediate repeal and replacement of Obamacare. While the replacement of our current healthcare system seems to be pending, the repealing of the current system is certainly at the top of the administration’s list. Although the insurance aspect of the current system would seemingly stick around until the GOP and the Trump administration develop a suitable alternative, the tax aspects of Obamacare could be subject to immediate repeal. Thus, the insurance industry may have until 2018 or 2019 before they saw changes, but the tax industry (and therefore taxpayers) could see effects as early as this year.
How exactly the current administration chooses to repeal the tax aspects of Obamacare could be positive or negative for most taxpayers though. Under current law, there is an individual insurance mandate that penalizes monthly those who do not have insurance coverage, as well as an employer mandate penalizing employers (with more than 50 full-time employees) who do not offer affordable health care. However, if individuals obtain coverage through the state marketplaces and their income is between 100% and 400% of the federal poverty level, they receive a tax credit to assist in paying for their insurance premiums. Additionally, Obamacare levies a 0.9% Medicare tax and a 3.8% net investment income tax on certain high wage earners, or the wealthiest 2% of Americans.
Where repealing taxes associated with Obamacare could be positive for Americans is if Congress removed all taxes while maintaining the premium tax credit (until a replacement system is established). This would mean employers are no longer charged for not providing insurance coverage, taxpayers are not penalized for not having insurance and high wage earners will not be levied the additional taxes discussed above. If Congress chose this route, tax experts estimate that low to middle income wage earners could receive a tax break in the hundreds of dollars, whereas high end wage earners could receive a break in the thousands of dollars.
However, if Congress chose to repeal all tax aspects, including the premium credit, certain tax brackets would most certainly see negative effects. Without the credit, lower income brackets could see their taxes rise by an average of $4,000, middle income brackets could see their taxes rise by an average of $6,000, but higher income brackets would still see their taxes lowered by the thousands of dollars. But, these negative changes would only exist for lower or middle income brackets who currently claim the premium tax credit. Fortunately, at this point, Congress nor the Trump administration has made any claims about what they will do in terms of repealing Obamacare-related taxes, so Americans will simply have to wait and see what direction our nation’s leaders choose and how their wallets will be affected.
by Pete McAllister | Accounting News, News, Resources, Tax, Tax Planning - Individual, Tax Preparation - Individual
“New Year, New Me.” This phrase is often uttered in the early parts of a new year as individuals prepare to make changes in their health, career, relationships or a variety of other personal traits. This phrase could ring true for 2017 as America prepares to inaugurate our 45th President and witnesses many political and policy shifts. One proposition that may enact some major adjustments is President-Elect Trump’s new tax plan. If you’d like to learn more about his tax proposals, check out our article highlighting major changes for individuals and businesses here. However, Trump’s plans have the potential to cause more shifts than just tax cuts; researchers believe it could have an impact on the housing market, specifically on mortgage interest deductions.
The President-Elect’s current plans include a rise in standard deductions for both individual filers and those filing jointly. Under current laws, many filers itemize their deductions rather than taking the standard deduction of $6,300 in order to receive additional tax breaks. But now, single filers could see a rise in exemption from $6,300 to $15,000 and joint filers could see a rise double that, at $30,000. Therefore, previously, those paying $10,000 in mortgage interest would have benefited from itemizing, but under Trump’s new proposals, in many cases, taxpayers would benefit more by taking the new standard deduction rather than itemizing. Although these propositions could simplify the filing process, they could also discourage individuals from buying. If homeowners no longer have an incentive to itemize and deduct their mortgage interest, then many may feel that renting is just as advantageous as buying.
Many economists would suggest that mortgage interest deduction does not actually motivate individuals to buy, but just encourages them to spend more or buy larger homes. However, limiting tax preferences for homeownership could cause a drop in the value and price of homes, a potential benefit to buyers, though a definite negative for sellers. One positive the market may have to look forward to is lower tax rates for many tax brackets, which has the potential to encourage individuals to spend more money on a variety of things, including housing. While the President-Elect’s tax changes could cause shifts to housing and homeownership, his proposals are ever changing and still being ironed out in many places. Current homeowners (who aren’t looking to sell in the next year) may have nothing to worry about, but future homeowners might consider what unfolds in the coming months before purchasing a home in 2017.
by Daniel Kittell | Bookkeeping, IRS, News, Resources, Tax, Tax Consulting, Tax Planning, Tax Planning - Individual, Tax Preparation - Individual
The dust has ultimately settled from the somewhat turbulent Presidential Election of 2016 and preparations are fully underway for our new President’s January 20th inauguration. The transition period from President Obama to President Trump is in full swing with staff being nominated and confirmed and policies taking shape. One such plan that taxpayers would do well to pay notice to is the President-Elect’s tax plan. Trump’s plans for both businesses and individuals may involve some considerable shifts and could impact your early 2017 filing decisions. Although tax laws and regulations are in almost constant flux, Trump’s proposals could trigger some significant changes.
One major alteration Trump has proposed is to shift from seven tax brackets to only three tax brackets at 12%, 25% and 33% respectively. While this would present a cutting of taxes for some higher income brackets who had seen rates as high as 43.4% under President Obama, some lower income brackets could actually see their tax rates raised from 10% to 12%. Joint filers without children could also see definitive benefits from Trump’s plan, though large families or single parent filers may not. The President-Elect has also proposed to remove the 3.8% net investment income tax enacted under Obamacare. Thus, the top tax rate would be capped at 33%, and the top capital gains and dividends rate would not exceed 20%. Another proposal of Trump’s plan for individuals would include capping itemized deductions for married couples at $200,000.
On a business level, Trump’s proposals seem even more drastic. The President-Elect has suggested that he would cut all business tax rates to 15%, a drastic shift from the average 35% tax rate for most major corporations. Under President Obama, corporations have been paying a 35% tax rate, and those owning LLC’s, partnerships and S corporations are taxed for their flow-through business income at their respective income rate, though not exceeding 43.4%. Trump’s plan would prove especially beneficial for sole proprietors who had previously fit into the highest tax bracket; these entities could see their tax rates drop by almost 30%.
However, Trump’s tax plan is not presenting significant changes for many IRS tax rules, including the constructive receipt doctrine, which affects both businesses and individuals. Essentially, the IRS can tax you on any income or payment you have the legal right to in 2016, even if you don’t actually receive it until 2017. This includes sales made but not officially received until January, or bonus checks sent out but not cashed until January, something to keep in mind when filing in 2017. In addition to tax cuts, Trump’s plans have the potential to affect the housing market as well. To read more about the President-Elect and the housing market, check out our blog here. Of course, some of Trump’s proposals may not occur, but with a Republican majority in both the House and Senate, some level of tax cuts are likely. However, no matter what changes eventually come into effect, these prospective tax revisions could have significant impacts on 2017 and the years beyond.
