The Tax Guru
The Tax Guru

Details and Analysis of the Trump Tax Reform Plan

Now that Donald Trump has been elected President of the United States, we thought it would be helpful in connection with your 2016 year-end and future tax planning to summarize the key proposals in his tax plan proposals made during the campaign.

Changes to Individual Income Taxes:

  • Consolidates the current seven tax brackets into three, with rates on ordinary income of 12 percent, 25 percent, and 33 percent.
  • Adapts the current rates for qualified capital gains and dividends to the new brackets.
  • Eliminates the head of household filing status.

 

Individual Income Tax Brackets Under the Trump Plan:
Ordinary Income Rate Capital Gains Rate Single Filers Married Joint Filers
12% 0% $0 to $37,500 $0 to $75,000
25% 15% $37,500 to $112,500 $75,000 to $225,000
33% 20% $112,500+ $225,000+
  • Eliminates the Net Investment Income Surtax.
  • Increases the standard deduction from $6,300 to $15,000 for single taxpayers and from $12,600 to $30,000 for married couples filing jointly.
  • Eliminates the personal exemption and introduces other childcare-related tax provisions.
  • Makes childcare costs deductible from adjusted gross income for most Americans (above-the-line), up to the average cost of care in their state. This deduction would be phased out for individuals earning more than $250,000 or couples earning more than $500,000.
  • Offers credits (“spending rebates”) of up to $1,200 a year for childcare expenses to lower-income families, through the earned income tax credit.
  • Creates new saving accounts for care for children or elderly parents, or school tuition, and offers a 50 percent match of contributions.
  • Caps itemized deductions at $100,000 for single filers and $200,000 for married couples filing jointly.
  • Taxes carried interest as ordinary income.
  • Eliminates the individual alternative minimum tax.

Changes to Business Income Taxes:

  • Reduces the corporate income tax rate from 35 percent to 15 percent.
  • Eliminates the corporate alternative minimum tax.
  • Allows firms engaged in manufacturing in the U.S. to choose between the full expensing of capital investment and the deductibility of interest paid.
  • Eliminates the domestic production activities deduction (section 199) and all other business credits, except for the research and development credit.
  • Enacts a deemed repatriation of currently deferred foreign profits, at a tax rate of 10 percent.
  • Increases the cap for the tax credit for employer-provided day care under Sec. 205 of the Economic Growth and Tax Relief Reconciliation Act of 2001 from $150,000 to $500,000 and reduces its recapture period from 10 years to 5.

Other Changes:

  • Eliminates federal estate and gift taxes but disallows step-up in basis for estates over $10 million.

Please contact us to see how these proposals may impact your individual tax planning.

Updated DOL Regulation On Overtime Pay Changes

On May 18, President Obama and Secretary Perez announced the publication of the Department of Labor’s final rule updating the overtime regulations, which will automatically extend overtime pay protections. The most significant change was to “white-collar workers” working more than 40 hours in a given week and who earn less than $913 per week will be entitled to overtime pay. If this applies to you, please read on.

Currently, employers are required to pay all employees covered by the Fair Labor Standards Act (“FLSA”) time-and-a-half for any hours they work in excess of 40 hours in a single workweek. Certain executive, administrative, and professional workers (white-collar workers) are exempt from overtime if their job responsibilities satisfy the “duties test” and they earn more than $23,660 per year (salary basis), or $455 per week (salary level).

Effective December 1, 2016, the Department of Labor updated the salary level above which certain white-collar workers were exempt from overtime pay requirements. This change raises the salary level from its previous amount of $455 per week or $23,660 per year to a new level of $913 per week or $47,476 per year. Salaried white-collar employees paid below the updated salary level ($913 per week) are generally entitled to overtime pay, while employees paid at or above the salary level may be exempt from overtime pay if they primarily perform certain duties that are executive, administrative, or professional.

Some businesses may employ certain professionals who will be unaffected by the new salary level. For example, the salary level and salary basis requirements do not apply to teachers, lawyers, or doctors.

Example: A business hires an attorney with a law degree to work in its General Counsel’s office. The attorney performs legal work for their business. The attorney is a bona fide professional, exempt from the FLSA’s provisions, regardless of whether he is paid on a salary basis or meets the salary level.

Finally, the new regulations also establish a mechanism for automatically updating the salary level every three years, beginning January 1, 2020.

Tax Extenders Bill Signed Into Law

The Protecting Americans from Tax Hikes Act of 2015 was recently signed into law.  It extended many individual, business and energy-related deductions and credits that had expired as of December 31, 2014, to be effective for 2015, and in many cases for 2016 and beyond.  Some provisions were also made permanent.  Some of the significant so-called “tax extenders” are:

Individual Extenders:
o    State and Local Sales Tax Deduction was made permanent
o    Post-Secondary Education Credit was made permanent
o    Teacher’s Classroom Expense Deduction was made permanent
o    Tax-free Charitable Distributions from Individual Retirement Accounts were made permanent
o    Transit Benefits Parity Exclusion was made permanent
o    Contribution of Real Property for Conservation Purposes Deduction was made permanent
o    Higher Education Deduction was extended through 2016
o    Mortgage Insurance Premium Deduction was extended through 2016
o    Mortgage Debt Cancellation Exclusion was extended through 2016
Business Extenders:
o    Bonus Depreciation extended through 2019, but at 50 percent for 2015 through 2017, then 40 percent for 2018 and 30 percent for 2019
o    Section 179 Expensing Deduction Limit of $500,000 was made permanent
o    15-Year Depreciation of Qualified Leasehold and Retail Improvements was made permanent
o    15-Year Depreciation of Qualified Restaurant Property was made permanent
o    Research Tax Credit was made permanent
o    Work Opportunity Tax Credit was extended through 2019
o    100-percent Exclusion of Gain on Qualified Small Business Stock was made permanent
o    Reduced Recognition Period for S-Corporation Built-In Gains Tax was made permanent
Energy Extenders:
o    Credit for Non-Business Qualified Energy-Efficient Improvements to Residential Property was extended through 2016
o    Deduction for Energy-Efficient Commercial Buildings was extended through 2016
o    Credit for Builders of Energy-Efficient New Homes was extended through 2016
Please contact our office if you have any questions about any of these provisions and how they could affect your individual or business income tax situation.

IRS Offers New Safe Harbor for Retail and Restaurant Remodel-Refresh Project

On November 20, 2015 the IRS released Revenue Procedure 2015-56. This procedure provides a safe harbor to “qualified taxpayers” engaged in a qualifying trade or business to deduct 75% of the costs associated with a “remodel-refresh project” to “qualified buildings” and capitalize the remaining 25%. A qualifying trade or business is engaged in (1) selling merchandise to customers at retail (but excluding car dealers, gas stations, manufactured home dealers, and non-store retailers), (2) preparing and selling meals, snacks, or beverages to customers for immediate on-premises and/or off-premises consumption (but excluding hotels, civic or social organizations, amusement parks, theaters, casinos, country clubs, and special food services, such as caterers & mobile food services), or (3) owning or leasing a qualified building to a taxpayer qualifying under (1) or (2).

Summary:

•    75% of qualified “remodel-refresh project” costs (including indirect costs) can be deducted the year they were incurred with the remaining 25% being capitalized.
•    The taxpayer must file an automatic method change to use the safe harbor for the first time.
•    Effective for tax years beginning on or after January 1, 2014.
•    Taxpayer must have a Applicable Financial Statement, normally an audited statement.
•    Building has to be in a MACRS general asset account (GAA).
•    Safe harbor claims must be identified separately on the GAA.
•    Taxpayer can look back and apply the safe harbor retroactively, although this requires a change in accounting method.
•    Partial Asset Disposition (PAD) is not allowed if you use the safe harbor.
•    If you already made a PAD to claim a loss and wish to use the safe harbor now you can revoke the PAD by filing an accounting method change in the taxpayer’s first or second tax year beginning after December 31, 2013.
•    Cannot apply safe harbor to costs paid prior to year of change in accounting method.
•    Applies to entire unit of property.
•    Don’t have to determine repair and maintenance or apply improvement rules separately.
•    If you adapt more than 20% total square footage of a property to a new or different use, the safe harbor does not apply.
•    Safe harbor excludes section 1245 property such as, land, site improvements and other specific requirements.
Please contact our office if you have any questions about this or any other issue.

December News And Notes

Required Minimum Distribution from Qualified Retirement Plans for 2015

For taxpayers who reached the age of 70 ½ during 2014 or earlier, you are required to withdraw the annual minimum distribution for 2015 from your qualified retirement plan(s) no later than December 31st.  Qualified plans include Individual Retirement Accounts, self-employed Keogh-type plans, 401(k) and other plans.  If you fail to withdraw the Required Minimum Distribution, an excise tax penalty can be imposed up to 50 per cent of the distributable amount. Required Minimum Distributions from 401(k) plans may not be required if the participant is still employed, unless the participant has an ownership interest in the employer-plan sponsor.

For taxpayers who reached age 70 ½ during 2015, they can either withdraw the Required Minimum Distribution during 2015, or by April 1, 2016.  While this one-time opportunity allows the deferral of tax on the distribution until 2016, it will also result in a “doubling up” of distributions taxable in 2016.

Required Minimum Distributions are calculated based on the plan account(s) value as of December 31, 2014 divided by the taxpayer’s life expectancy based on IRS tables.  If you need assistance determining your required distributions, or wish to confirm the amounts determined by your bank, broker or plan administrator, please contact our office.

4th Quarter Federal and State Estimated Tax Payments:

If you are required to pay your 2015 Federal and/or state(s) income tax liabilities by making estimated tax payments directly to the Internal Revenue Service and/or state(s), your fourth quarter estimated tax payment(s) are due by January 15, 2016.  For most clients, if you are required to make estimated tax payments for 2015, we provided you with the necessary payment vouchers, filing and payment instructions and mailing envelopes with your 2014 return.

However, due to significant Federal tax law changes that began in 2013 and affect 2015, and as we have discussed in e-bulletins over the last year, it would most likely be advantageous to review your current tax situation and adjust the amount and/or timing of your required payment(s) accordingly.  For example, the payment of your state(s) estimated tax payment before year-end could result in a reduction in your Federal tax liability for 2015.

Please call our office if you have any questions regarding these, or any other issues.

Recent Federal Law Changes to Social Security Benefits for Married Couples

File and Suspend Method of Claiming Social Security Benefits to be Eliminated:

The Bipartisan Budget Act of 2015 (The Act), signed by President Obama on November 2nd eliminates the File and Suspend Method, a popular strategy used by married couples to maximize their lifetime Social Security benefits.  Under this approach, the higher earning spouse claims benefits at his or her full retirement age (currently age 66) but suspends the benefits until a later date (e.g., at age 70 or sooner, if desired), allowing the Social Security credits to continue to grow.  The lower earning spouse claims benefits based on the higher earning spouse’s earning record, which are more than the benefits based on his or her own earnings record.  In a provision labeled “closure of unintended loopholes,” the Act effectively eliminates this opportunity for claims filed after April 30, 2016.  Please note that those who’ve been using this method or other eligible individuals who file to claim benefits under this method by April 30, 2016 should not be affected.

Restricted Application Method of Claiming Social Security Benefits to be Eliminated:

The Act also eliminates the Restricted Application Method (sometimes called the Claim Some Now, Claim More Later Method) for claiming Social Security benefits by married couples.  Under this strategy, a spouse reaching full retirement age who is eligible for both a spousal benefit (based on his or her spouse’s earnings) and a retirement benefit (based on his or her own earnings) could file a restricted application for spousal benefits only, then delay applying for retirement benefits based on his or her own earnings record (up until age 70).  This would allow the Social Security credits to continue to grow.  For those who turn 62 after 2015, the Act eliminates the ability to file a restricted application for spousal benefits only.  Please note that individuals who are age 62 or older in 2015 should still be able to use the Restricted Application Method for spousal benefits, but only upon reaching full retirement age.

November News And Notes

Internal Revenue Service Announces 2016 Pension Plan Contribution Amounts

The IRS has recently announced the following qualified plan contribution limits for 2016:
•    The elective deferral contribution limit for employees who participate in 401(k), 403(b) or 457 plans remains unchanged at $18,000.
•    The catch-up contribution limits for employees aged 50 or older who participate in these plans remains unchanged at $6,000.
•    The limit on contributions to an Individual Retirement Account remains at $5,500 and the additional catch-up contribution remains at $1,000.
•    The limit on contributions to a defined contribution plan remains at $53,000.
•    The limit on contributions to a SIMPLE retirement account remains at $12,500, and the additional catch-up contribution remains at $3,000.
Tax Planning for 2015 and Beyond

By now, all of our individual clients should have received our 2015 – 2016 Tax Planning Guide booklet and our 2015 Income Tax Planning Worksheet.  As described in the Guide, there were significant Federal tax changes that began in 2013 and continue to affect 2015 and beyond.  Therefore the tax planning process is important in preparing for these many tax law changes.  Please review the Tax Planning Guide and complete and return the Worksheet so that we can assist you in achieving the best result for you and your family.

There have been a few Federal tax proposals recently and should any proposal become law, future bulletins will address these changes.  These changes could include tax credits, increased deductions and other benefits that expired at the end of 2014, which might be extended into 2015.

Please contact our office if you have any questions regarding these or any other issues.

October News And Notes

Reminder – Extended Tax Returns Due By October 15th

Individuals:

Extended individual income tax returns must be filed no later than October 15th.  If you have not provided us with the information needed to complete your returns, we would appreciate receiving this information as soon as possible.  You may bring this information to our office, send it or e-mail it.  If you are unsure as to the information that needs to be provided, please contact us immediately so that we can discuss this and schedule an appointment if necessary.

Returns not filed by the deadline may be subject to an assessment of penalties and interest. These penalties and interest may be assessed retroactively to the original due date of the return (April 15th).  In addition, if certain tax elections are not made by the extended filing due date of the return, the tax opportunities provided by these elections may be lost.

Qualified Retirement Plans:

Also, plan administrators of qualified retirement plans, including 401(k) plans, are required to file Form 5500 with the Internal Revenue Service on an annual basis.  Furthermore, self-employed individuals who have established a qualified plan that either covers a non-spouse employee or has assets in excess of $250,000, are also required to file Form 5500.  Plan assets would include investments and any accrued contributions.

While the original filing due date of Form 5500 is July 31st, it could have been extended to October 15th, and if the employer’s 2014 income tax return was extended, Form 5500 would also be extended.  Failure to timely file a required Form 5500 could result in penalties of up to $1,000 for each day the form is late.

Tax Planning for 2015 and Beyond

By now, all of our individual clients should have received our 2015 – 2016 Tax Planning Guide booklet and our 2015 Income Tax Planning Worksheet.  As described in the Guide, while there were few significant Federal tax changes that affect 2015, it remains important to be prepared for the effect in 2015 of changes from recent years and to take full advantage of all tax-saving opportunities.  Please review the Tax Planning Guide and complete and return the Worksheet so that we can help you achieve the best result for you and your family.

Please feel free to contact our office if you have any questions regarding these or any other issues.

Employers: Affordable Care Act Reporting Requirements for 2015 Need to be Addressed Now

Many provisions of the Affordable Care Act apply only to so-called Applicable Large Employers (ALEs), which are currently defined as employers who employed 50 or more full-time equivalent employees in the prior year.  Full-time is defined as employees who averaged at least 30 hours weekly or 130 hours monthly. For purposes of this determination, related employers with common control are treated as a single employer.  If you are unsure if you are an ALE, that needs to be reviewed immediately.

The Act requires ALEs to file information returns in January 2016 with the IRS and provide statements to their full-time employees about the health insurance coverage the employer offered.  If you utilize a payroll-preparation service or professional employer organization, you need to immediately confirm that they will be handling this reporting requirement.

Please note that many payroll-preparation service-providers have established deadlines as soon as this week in order for them to be engaged to complete this reporting for 2015.

Monthly Tracking:

To prepare for the reporting requirements to be completed in early 2016, ALEs should be tracking various information each month of 2015, including:
•    Whether you offered your full-time employees and their dependents minimum essential coverage that meets the minimum value requirements and is affordable.
•    Whether your employees enrolled in the self-insured minimum essential coverage you offered, if applicable.
•    The cost of the health insurance coverage provided to each employee.
Annual Information Reporting:
•    ALEs must file Form 1095-C, Employer-Provided Health Insurance Offer and Coverage with the IRS annually, by February 28 of the following year.
•    ALEs are also required to provide a statement to each full-time employee that includes the same information provided to the IRS, by January 31.
•    Most employers are required to report the cost of the health insurance coverage they provided to each employee on his or her Form W-2.
Please contact our office if you have any questions about this or any other issues.

September News And Notes

3rd Quarter Federal and State Estimated Tax Payments Due by September 15th

If you are required to pay your 2015 Federal and/or state(s) income tax liabilities by making estimated tax payments directly to the Internal Revenue Service and/or state(s), your third quarter estimated tax payment(s) are due by September 15, 2015.  If your 2014 returns have been filed, and you are required to make estimated tax payments for 2015, we provided you with the necessary payment vouchers, filing and payment instructions and mailing envelopes with your 2014 return.  If your 2014 return is currently on extension, the necessary payment vouchers, instructions and envelopes have or will be provided to you shortly.

If you anticipate that your taxable income for 2015 will be considerably different from 2014, please contact our office immediately so that we can recalculate your payment(s).

Starting in 2013 and effective for 2015, the increased maximum Federal tax rate, the Medicare surtax on earned income and the surtax on net investment income could significantly affect your Federal tax liability.

Mail your Federal estimated tax voucher with your check or money order payable to the “United States Treasury”. Write your social security number and “2015 Form 1040-ES” on your check or money order. Do not send cash. Enclose, but do not staple or attach, your payment with the voucher. If you are filing a joint estimated tax payment voucher, use the social security number that will appear first on your joint return. However, if you and your spouse plan to file separate returns, file separate vouchers instead of a joint voucher.

The envelope must be postmarked by September 15, 2015.

However, electronic payment options are a convenient, safe, and secure alternative to paying by mail. You can authorize an electronic funds withdrawal, use a credit or debit card, or enroll in the U.S. Treasury’s Electronic Federal Tax Payment System (EFTPS)®.

For information on paying taxes electronically, go to www.irs.gov/e-pay.

For state estimated tax payments, please follow the provided instructions.

Please call our office if you have any questions regarding your estimated tax payment(s), or if you would like to discuss the alternative methods of paying your estimated tax.

Reminder – Extended Returns are Due Soon!

As discussed in our August News and Notes, extended individual returns must be filed by October 15 and extended returns for most corporations, partnerships and trusts are due by September 15.

Tax Planning for 2015 and Beyond

Shortly, all of our individual clients will be receiving our 2015 – 2016 Tax Planning Guide booklet and our 2015 Income Tax Planning Worksheet.  While there have not been many significant Federal tax changes between 2014 and 2015, it remains important to prepare for the effects of current Federal and state tax laws and take full advantage of all tax-saving opportunities.  We ask that you review the Tax Planning Guide and complete and return the Worksheet to us so that we can help you achieve the best tax results possible for you and your family.

Please contact our office if you have any questions about these, or any other issues.