by Stephen Reed | Accounting News, Bookkeeping, Business Consulting, IRS, News, Professional Services, Resources, Tax, Tax Consulting, Tax Planning, Tax Planning - Individual, Tax Preparation - Individual
With their first plan shot down in Congress, the GOP has released another, broader tax framework as the Trump Administration attempts to shift the tax code. This new plan has many elements that Congress will need to hash out before anything is signed into law, but taxpayers of all income levels are wondering how this plan may affect them personally. Below are five major developments in the new plan that could affect you come tax season:
- Rate Shift
Our current code has seven different income tax brackets, but the new plan would drop that number down to three: 12, 25 and 35 percent. Although the plan does not specify which income levels would be taxed at each new rate, the wealthy would likely see the greatest benefit since the current top bracket at 39.6% would drop to 35%. The current lowest bracket (at 10%) would see an increase to join the 12% bracket, but the plan claims to aid families in that bracket through an increase in the standard deduction and a greater child tax credit.
- Deduction Increase (for most)
For many taxpayers, the new plan would almost double the current standard deduction. Filers who claim multiple children would not see as high of a increase, but could potentially see that offset by a steeper child tax credit. Presently, about 70% of taxpayers take the standard deduction as it is higher than itemizing. However, experts believe that number would increase significantly if the standard deduction is doubled. The GOP’s plan would remove other deductions to offset the increased standard deduction, but the charitable contribution and mortgage interest deductions would be kept.
- Some Taxes and Deductions Eliminated Entirely
The largest deduction that would meet its end with the new GOP plan is the local and state tax deduction. This deduction is often taken in states where taxes, and average income, is higher, states that are often Democratic. Other taxes that would be eliminated include the alternative minimum tax and the estate tax for those who inherit funds in excess of $5.49 million.
- New Tax Rate for “Pass-Through” Businesses
S corporations, sole proprietorships and partnerships could see a new tax rate at 25% under the new plan. Currently, those “pass-through” businesses pay at the individual rate of their owners, and those businesses make up about 95% of the nation’s business demographic. Although many business owners currently pay a rate lower than 25%, just under 2% of those business owners pay the top rate of 39.6%, which means they could see a significant drop in rate if they are permitted to incorporate as a “pass-through.”
- Change in the Corporate Tax Code
The current plan taxes corporations at 35%, but the new plan would drop that rate to 20%. To offset this steep drop in rate, the proposal submits to eliminate certain business deductions and credits. The plan suggests that the deduction for domestic production could be eliminated, while maintaining exceptions for low income housing and research and development, but leaves many of those choices up to Congress.
Congress must still comb through the GOP’s newest plan and make adjustments before a finalized plan is voted upon, so taxpayers should prepare for more adjustments to be made before anything is signed into law. As developments arise, MKR will continue to keep our clients up to date in future newsletters.
by Jean Miller | Accounting News, Fraud, News, Professional Services, Resources, Tax, Tax Consulting, Tax Planning, Tax Planning - Individual, Tax Preparation - Individual, Technology
Although Equifax has yet to reveal specifics about the individuals who were affected by their data breach, as many as 143 million Americans may have been impacted. With that in mind, anyone with credit should consider taking measures to protect their identity and funds. Many experts are suggesting individuals freeze their credit, but this may not be the most effective method. While freezing your credit is not a bad decision, it only protects you from new accounts being opened in your name, a form of identity theft that is actually quite rare.
While many taxpayers are now deeply concerned about their lives being destroyed from identity theft, there are many other ways to guard your identity and your money that may be more beneficial than freezing your credit:
- Use two-step verification and secure passwords
Most identity theft occurs on existing accounts, so making it difficult for hackers to access your accounts with financial information is one step you can take to safeguard your personal data.
- Choose ID-verification questions and answers cautiously
Consider choosing questions whose answers cannot be easily found online. Questions such as “Where were you born?” or “What was your high school mascot?” could be easily discovered by checking your social media accounts, so be wise when creating those protective measures.
- Monitor current accounts as often as possible
Ideally, you should check your bank accounts daily to ensure all posted charges were made by you or whoever has access to the account. Since most financial institutions today have an app for accessing account information, monitoring your credit can be as simple as a quick log on from your phone. If you notice suspicious activity, you can then notify your bank immediately to avoid racking up more false charges.
- Set up alerts for new credit activity
Although you can set up a fraud alert or credit freeze, there are other free services that monitor your credit and any new account openings or activity.
- Check credit reports regularly
Every individual is allowed one free credit report annually from each of the three major credit bureaus through AnnualCreditReport.com, a site sponsored by the government. You can receive all three reports at once, or request one every 4 months to space out your monitoring tactics.
- File taxes early
One form of fraudulent behavior that is becoming more common is filing for taxes under someone else’s SSN. But, organizing your tax information quickly and filing as early as possible could lower the chances that someone will file in your name. Plus, if you are owed a refund, you will likely get it sooner than April if you file early.
While none of these methods are entirely foolproof, taking precautionary steps to protect your credit are always advised. If you do fall victim to identity theft, check out the Federal Trade Commission’s step-by-step recovery guide for helpful information.
by Daniel Kittell | Healthcare, News, Tax Planning, Tax Planning - Individual
Our world is filled with seemingly constant changes and developments, however, most Americans have been paying close attention to the potential changes coming out of Washington. While President Trump made many statements about how he would revamp Washington if elected, one long-awaited claim has finally been revealed: his, and the GOP’s, promise to repeal and replace Obamacare. Now that their plan has been presented to the general public, questions many are asking include, what exactly does the plan entail? And how, or will, it affect me specifically, the taxpayer? Below are several points that will attempt to identify the main differences between the GOP’s plan and Obamacare, and what that truly means for you, the taxpayer.
- Changes the Insurance Mandate
Under Obamacare, individuals and employers are required to either buy or offer coverage, or else face a fine. The GOP’s plan would do away with those penalties for both individuals and employers. However, in an attempt to prevent individuals from simply adding coverage when they need care, the GOP’s plan would permit insurance companies to enforce higher premiums on individuals who do so for the first year of their coverage.
- Changes in Medicaid
Another major difference between Obamacare and the GOP plan is how they approach Medicaid. Many who gained coverage under Obamacare did so through Medicaid provisions, including an expansion that covered those within 138% of poverty levels, as well as a federal payout to those states that expanded their coverage and insured those newly eligible. The GOP plan would eventually eliminate the expansion, only giving states extra funding for those enrolled before 2020, and provide a set amount of money to states based on their enrollment numbers in 2016, rather than providing open-ended matching for Medicaid beneficiaries.
- Changes in Age-based Premiums
While Obamacare did allow insurance companies to vary their premiums based on factors such as location, tobacco use and age, there was a 3-to-1 limit based on age. Essentially, the premium for an older individual could not be more than three times the amount charged for a younger person purchasing the same plan. The GOP would alter this limit and allow insurance companies to charge older individuals up to five times the amount of those who are younger.
- Changes in Tax Credits
The tax credits under Obamacare subsidized insurance for those using government-run insurance exchanges, providing credits based on the enrollee’s income and cost of coverage in their area. The GOP’s plan would tie credits to age and income (rather than cost of coverage), and would look to end cost-sharing subsidies. Credits would start at $2,000 for those in their 20’s and increase gradually, reaching to $4,000 for those over 60. However, these credits would only be available to individuals making $75,000 or less and households making $150,000 or less.
The GOP’s bill would still allow adults under the age of 26 to be covered under their parent’s plans, as well as maintain the provision blocking insurers from denying coverage to those with pre-existing conditions. Because the plan has significant reviews to undergo , and most likely many amendments to be made, before American’s see a final proposal, many will want to wait and see before assuming they may qualify for specific credits or that their coverage may be affected based on age or income. Though change will certainly occur, taxpayers would be advised to maintain their current coverage until the final bill is passed.
If you have any questions about how the changes to the Health Care Laws may affect you, please contact me at [email protected].
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.
