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Major Areas Addressed in President Trump’s Tax Plan

 

As a candidate in 2016, Donald Trump promised significant tax reform. A few months after becoming President, Trump released a one-page outline of his goals in that area. As the year goes on, we may see details added to his plan and eventually learn whether major tax legislation is enacted. Here are the major areas that will be addressed. 

Taxes on business

Trump wants to cap the corporate income tax rate at 15%. Currently, the top rate is 35%. Such a reduction, he asserts, would make American companies more competitive worldwide.

The outline also includes a one-time tax on “trillions of dollars” held overseas. Previously, Trump indicated that he favors a 10% tax on corporate offshore profits brought into the United States.

In addition, the plan would eliminate tax breaks for unspecified “special interests” and implement a “territorial tax system” to level the playing field for American companies. Generally, in a territorial tax system, domestic profits are taxed at the full rate, whereas profits from abroad are not subject to domestic income tax.

Taxes on individuals

The Trump plan calls for reducing the number of tax brackets from seven to three. Today, individual taxpayers start with a 10% income tax rate and move into the 15%, 25%, 28%, 33%, 35%, and 39.6% brackets, as their taxable income increases. The three proposed tax rates would be 10%, 25%, and 35%.

Depending on the cut-off points for these tax rates, it’s possible that taxpayers now in the 15% bracket would have a 10% marginal tax rate under this plan. Those in the 28%, 33%, and perhaps the 35% bracket could be in the 25% bracket, whereas the top rate would fall from 39.6% to 35%.

The tax plan also calls for doubling the standard deduction, which is available to individual taxpayers. That standard deduction is now $6,350 for single taxpayers, $9,350 for heads of households, and $12,700 for couples filing joint returns. Doubling those numbers would produce standard deductions of $12,700 for single filers, $18,700 for household heads, and $25,400 for married couples filing jointly.

In addition, the outline calls for tax relief for families with child and dependent care expenses without giving details. Press reports hint that one approach could be an increase in the child and dependent care tax credit, which now allows people with care-related outlays to reduce their tax bill by up to $2,100.

Tax simplification

Under this heading, the outline would “protect” the home ownership and charitable gift tax deductions. In other words, many itemized deductions, such as medical expenses as well as state and local taxes paid, would be eliminated, but the deductions for home mortgage interest and charitable contributions would be spared.

Assuming the preceding proposals are enacted, more taxpayers would take the larger standard deduction rather than itemizing deductions. The only ones still itemizing would be taxpayers with mortgage interest and charitable deductions that exceed the standard deduction amounts.

The next item on the list—repeal the alternative minimum tax (AMT)—would possibly make the interaction between the standard deduction and itemized deductions more thought-provoking. As mentioned, state and local income and property tax no longer would be deductible. However, some people who now pay large amounts of those taxes owe the AMT and don’t get the benefit of deducting such taxes. Would the repeal of the AMT make up for the loss of deducting state and local tax payments? Our office can go over the numbers for you in your specific circumstances.

The Trump outline also calls for repeal of the 3.8% surtax on net investment income, a tax that applies to taxpayers with high incomes. Currently high-income taxpayers can be subjected to a 43.4% marginal tax rate on some income, if they are in the 39.6% bracket and have ordinary investment income subject to the 3.8% tax. Long-term capital gains can be taxed at a rate as high as 23.8%, with the surtax included.

Also on the outline’s “to repeal” list is the federal estate tax. This tax now has an exemption of $5.49 million, which can be $10.98 million for married couples, so relatively few estates owe this tax anyway. Still, owners of valuable small companies and investment property might get some relief when those assets pass to younger generations, if the estate tax is repealed.

Another bullet point in this section calls for eliminating targeted tax breaks that mainly benefit the wealthiest taxpayers.

From outline to legislation

Such an outline must be fleshed out before it’s presented to Congress for approval or rejection. Observers predicted that the process probably would last beyond the lawmakers’ August recess. Therefore, it’s likely that taxpayers won’t know until the fall whether any of these changes will become law this year.

Passport Control Under Code Section 7345

In 2015, President Obama signed the Fixing America’s Surface Transportation (FAST) Act  in order to provide long-term funding certainty for federal, state, and local surface transportation. Included in this act was a provision that comes with significant impact for U.S. citizens and permanent residents living abroad called Code Section 7345 which authorizes the IRS to control issuance and termination of passports. The IRS began implementing Code Section 7345 earlier this year; therefore, taxpayers who live or often travel abroad should become familiar with this new provision.

Under code section 7345, if a taxpayer has a Seriously Delinquent Tax Debt (SDTD), the IRS can notify the State Department to deny, revoke, or limit the taxpayer’s passport. The State Department, though, retains the right to make exceptions and issue passports to individuals with SDTDs for emergency or humanitarian reasons.  A SDTD is an assessed federal tax liability of more than $50,000, which remains unpaid, and with respect to which either the IRS has filed a Notice of Federal Tax Lien (NFTL) and the administrative rights have been exhausted or lapsed, or the IRS has levied.

There are certain situations in which an outstanding tax debt is not considered a SDTD.

  • The taxpayer enters into an installment agreement with the IRS and is making timely payments.
  • The IRS accepts an Offer-in-Compromise and timely payments are being made by the taxpayer.
  • The Justice Department enters into a settlement agreement to satisfy the debt.
  • Collection is suspended because the taxpayer requests innocent spouse relief.
  • The taxpayer makes a timely request for a collection due process hearing in connection with a levy to collect the debt.

When the tax debt is fully satisfied or becomes legally unenforceable, the IRS will reverse its certification with the State Department. The IRS will also reverse its certification if a tax debt is no longer considered seriously delinquent or the certification is erroneous.

In addition to paying the SDTD, taxpayers living abroad should be current with their U.S. tax filings including the reporting of foreign bank accounts. There are various programs and relief available such as Streamlined Procedure and Offshore Voluntary Disclosure Program (OVDP) for taxpayers that are or may be out of compliance with their U.S. tax filings.

HLB Gross Collins, P.C. can assist with outstanding and future tax matters for U.S. citizens and permanent residents living abroad. Our International Practice is committed to offering exceptional service and knowledge in all tax, accounting, and financial needs whether locally or across the globe.

The Work Opportunity Tax Credit

The Work Opportunity Tax Credit (“WOTC”) is a Federal credit provided to employers hiring persons belonging to specific groups, and there are special guidelines with extended credit for qualified veterans. The goal of the WOTC is two-fold: first is to help targeted workers move from economic dependency to self-sufficiency by earning a steady income and becoming contributing taxpayers, and second is to help employers reduce their income tax liability. There is no limit on the number of individuals an employer can hire to qualify and claim the credit, but there is a maximum tax credit that can be earned.

Created in 1996, the WOTC has been modified several times since its establishment, the most recent of which was the passage of the Protecting Americans from Tax Hikes Act of 2015 (the PATH Act) which retroactively reauthorized the credit for a 5-year period from December 31, 2014 to December 31, 2019.

The target groups of the WOTC are below. Each group has its own qualifications and applicable WOTC amounts.

  • Unemployed Veterans (including disabled veterans)
  • Temporary Assistance for Needy Families (TANF) Recipients
  • Food Stamp (SNAP) Recipients
  • Designated Community Residents (living in Empowerment Zones or Rural Renewal Counties)
  • Vocational Rehabilitation Referred Individuals
  • Ex-Felons
  • Supplemental Security Income Recipients
  • Summer Youth Employees (living in Empowerment Zones)
  • Qualified Long-term Unemployment Recipients

Employers qualifying for the WOTC can typically earn a tax credit equal to 25% or 40% of a new employee’s first-year wages, up to the maximum for the target group to which the employee belongs. The 25% credit is if the employee works at least 120 hours, and the 40% credit is if the employee works at least 400 hours. The total amount of WOTC is limited to 90% of business income tax liability or social security tax owed. Depending on the employee’s target group and the number of hours worked, the maximum credit ranges from $1,200 to $9,600.

If you believe your business qualifies for the Work Opportunity Tax Credit, please contact us. HLB Gross Collins, P.C. has been serving some of the Southeast’s most prominent businesses for nearly 50 years. Our experts work closely with clients to ensure that they are taking advantages of all available credits and savings opportunities.

HLB International Appoints New Member in Switzerland

 

HLB International, one of the leading global accountancy networks with presence in 140 countries, continues its growth with the recent signing of a new member firm in Switzerland – Veco Group.

Veco Group is based in Lugano, a city in Southern Switzerland’s Italian-speaking Ticino region. Established in 1998, the firm provides Tax and Estate Planning, Establishment and Management of Trusts/Foundations, Incorporation and Administration of Companies and Asset Management.

Antonio Mandra, Managing Partner of Veco Group, commented: “It is a great pleasure to join the HLB International family. With our experience as corporate and tax advisers, we now have the ability to benefit from an international network, as well as local consultants, who have specific knowledge in the jurisdictions our clients do business in. It is very important for us to be able to assist our clients not only with providing relevant advice but also with the execution of this advice. We know that with HLB International we have found a great match for our business. We look forward to sharing with the HLB International colleagues our experience and capacity of structuring, administration and management of companies and banking assets.”

Veco Group will work closely with the other HLB members and makes a great addition to our coverage across Europe.

Valuable Tax Credits for Manufacturers and Distributors

Many Federal and Georgia tax credits are available to manufacturers and distributors, though they are often overlooked and go unused. With proper planning and assessment, these credits can go a long way toward improving the bottom line. Following is a summary of some of the more recognizable credits available. In the coming months we will delve into the details of each type of credit.

Research & Development (“R&D”) Tax Credit
The R&D Tax Credit is a Federal credit introduced in 1981 as a boost of the economy. Usage became so prolific that many states, including Georgia, created their own version of the R&D Tax Credit. In general, the R&D Tax Credit is to help a company offset dollar-for-dollar incremental research expenses. Manufacturers and distributors may be eligible for the credit, for example, if new processes or materials are being used in manufacturing and distribution of products. This credit was made permanent with the passage of the Protecting Americans from Tax Hikes Act of 2015.

Work Opportunity Tax Credit (“WOTC”)
The WOTC is a Federal credit provided to employers hiring persons belonging to specific groups, and there are special guidelines with extended credit for qualified veterans. In general, the credit can be equal to 40% of first-year wages up to $6,000. The Protecting Americans from Tax Hikes Act of 2015 extended the hiring deadline to January 1, 2020, meaning the employee must be hired and start working before that date to be counted as part of this credit.

Georgia Retraining Tax Credit
The Georgia Retraining Tax Credit is only a Georgia credit. The purpose is to encourage employers to continually invest in their employees by upgrading equipment, acquiring new technology, and completing ISO 9000 training. The annual maximum credit is $1,250 per employee. This credit is available to any business that files a Georgia income tax return.

The three credits described above are not an exhaustive list and there may be more Federal and Georgia credits that apply specifically to your business. HLB Gross Collins, P.C. has been serving some of the Southeast’s most prominent manufacturers and distributors for nearly 50 years. Our Manufacturing and Distribution Practice works closely with clients to ensure that they are taking advantage of all available credits and savings opportunities.

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