Developments in the GOP Tax Bill

by | Accounting News, IRS, News, Tax, Tax Planning, Tax Planning - Individual, Tax Preparation - Individual

Although it came a few days later than expected, the Republican Party has finally released its most recent version of their tax bill. Below are 12 major changes that would affect most taxpayers:

  1. Lowering the number of income tax brackets
    Currently, our tax code has seven brackets, but the new bill would lower that to four: 12% for those making less than $45,000, 25% for those making between $45-$200,000, 35% for those making between $200-$500,000, and 39.6% for those making over $500,000.
  2. Doubling the standard deduction
    Singles would see their standard deduction rise from $6,350 to $12,000 and couples filing jointly would see an increase from $12,700 to $24,000.
  3. Child tax credit expansion
    The credit itself would increase from $1000 to $1,600 for every child under 17, although low income families with no income tax would still be given the standard $1000 as a return. However, the phase out income for this tax would increase from $75,000 to $115,00 for single parents and from $110,000 to $230,000 for married parents.
  4. New family credits
    Both credits are in the amount of $300. One credit is for each parent (so $600 for those filing jointly and $300 for single parents). The other would be for any non-child dependents, including elderly parents, adult children with disabilities or a child over 17 whom you are still supporting.
  5. Elimination of tax exclusion for dependent care FSA’s
    Our current tax code allows parents to save up to $5,000 to place into a dependent care flexible spending account, which is considered nontaxable income. The new bill would make that income taxable.
  6. Elimination of personal exemptions
    Current code permits a $4,050 personal exemption for each member of your family, but the new bill would eliminate personal exemptions entirely.
  7. Does not change 401K’s
    Previous proposals had considered lowering the cap on pre-tax contributions to a 401K, but it appears that enough opposed this move so 401K’s were left alone.
  8. Deductible mortgage interest limited
    If you already have an existing mortgage, your deduction would remain the same. However, new mortgages would only be allowed to claim a deduction for interest on mortgage debt up to $500,000, a drop from $1 million.
  9. Repeals the Alternative Minimum Tax
    The tax intended to ensure the highest filers pay some tax by disallowing many breaks, although it usually affects those who make between $200,000 and $1 million, would be repealed in the new code.
  10. Repeals state and local deductions
    The new bill would remove the deduction for state and local income or sales tax. However, in the light of strong opposition, the new bill would preserve a property tax break as an itemized deduction for property taxes up to $10,000.
  11. Estate tax repealed
    The current estate tax only affects those with assets over $5.5 million, but the new proposal would eliminate this tax beginning in 2024 and would raise the exemption amount in the meantime.
  12. Other deductions repealed
    Deductions for student loan interest, moving expenses, alimony payments, medical payments and tax preparation fees would all be removed.

 

 

 

Wrangling Continues over the Payroll Tax Cut

by | Accounting News, Audit and Accounting, CPA, IRS, QuickBooks, Tax Consulting, Uncategorized

By AccountingWEB Staff

Time is running out before the payroll tax rate automatically increases in two weeks, and the dispute over how to fund it continues.

The tax measure at issue would maintain the payroll tax rate at 4.2 percent for the year 2012 instead of allowing it to revert to 6.2 percent January 1. It’s a tax cut worth about $1,000 to families earning $50,000 a year. The payroll tax bill also would renew benefits for the long-term unemployed and prevent a cut in Medicare benefits for seniors.

This morning (December 19), the Associated Press reported that “Boehner spoke after a chaotic weekend in which Senate leaders first failed to agree on a full-year bill, then coalesced around the two-month extension that passed overwhelmingly, only to spark a revolt among GOP conservatives in the House.”

Here’s a summary of what’s been happening:

While the GOP-led House passed a bill on December 14 extending the tax cut, the legislation relied on a pay freeze and increased pension contributions for civilian federal employees. In addition, it raised Medicare premiums for seniors, and it raised a fee that’s charged to banks with mortgages guaranteed by Fannie Mae and Freddie Mac. The bill didn’t have the votes to pass the Senate.

On Friday, December 16, Senate leaders reached an agreement to pass a two-month extension on the payroll tax cut, keeping the 4.2 percent rate through February. The agreement requires the administration to decide within 60 days if the controversial 1,700-mile Keystone XL pipeline is in the nation’s best interests. Some environmental groups oppose the project, but several unions support it.

Senate Republican Leader, Mitch McConnell, said Keystone XL would create about 20,000 jobs. Critics say the figure would be fewer than 3,500, including fewer than 1,000 that would be permanent.

House Speaker, John Boehner, said Friday that his chamber will not sign off on an extension of the payroll tax cut without including a provision to force a quick decision on the pipeline construction.

Obama would prefer to postpone the controversial matter, and he threatened to veto any bill that forces a decision. Because the project crosses international borders, it requires White House approval. The administration complained that House Republicans are injecting “ideological issues into what should be a simple debate about cutting taxes for the middle class.”

Original Article: http://www.accountingweb.com/topic/tax/wrangling-continues-over-payroll-tax-cut