Tag Archives: Tax deductions

IRS Issues 2015 Inflation-Adjusted Vehicle Depreciation Dollar Limits

Michael Blitstein, CJBS

Michael Blitstein, CJBS

by Michael W. Blitstein, CPA

The IRS has released the inflation-adjusted limitations on depreciation deductions for business use passenger automobiles, light trucks, and vans first placed in service during calendar year 2015. The IRS also modified the 2014 limitations to reflect passage of the Tax Increase Prevention Act of 2014 late last year.

At the end of 2014, Congress extended bonus depreciation to the 2014 tax year in the case of passenger vehicles. Congress has not, however, done the same for passenger vehicles placed in service during 2015. This means that although several of the 2015 limits have been adjusted upward for inflation, the total amount a taxpayer may deduct for a vehicle placed in service during 2015 will be effectively $8,000 lower than for a vehicle placed in service during 2014, unless Congress again provides retroactive relief this year.

Depreciation limits

The Internal Revenue Code imposes dollar limitations on the depreciation deduction for the year the taxpayer places the vehicle in service in its business, and for each succeeding year.  The IRS adjusts for inflation the amounts allowable for depreciation deductions.

Passenger automobiles

The maximum depreciation limits for passenger automobiles first placed in service during the 2015 calendar year are:

  • $3,160 for the first tax year;
  • $5,100 for the second tax year;
  • $3,050 for the third tax year; and
  • $1,875 for each succeeding tax year.

Trucks and vans

The maximum depreciation limits under for trucks and vans first placed in service during the 2015 calendar year are:

  • $3,460 for the first tax year;
  • $5,600 for the second tax year;
  • $3,350 for the third tax year; and
  • $1,975 for each succeeding tax year.

Sport Utility Vehicles (SUVs) and pickup trucks with a gross vehicle weight rating (GVWR) in excess of 6,000 pounds continue to be exempt from the luxury vehicle depreciation caps based on a loophole in the operative definition.

Michael W. Blitstein, CPA is a partner with the firm of CJBS, LLC, in Northbrook, Illinois. Michael advises his clients on tax, business and retirement planning, developing short and long-term strategic plans designed to achieve success for business owners and their businesses.

He can be reached at michael@cjbs.com

www.cjbs.com

Top Tax Developments of 2014 with Impact on 2015

Michael Blitstein, CJBS

Michael Blitstein, CJBS

by Michael W. Blitstein, CPA

2014 was a notable year for tax developments on a number of fronts. Selecting the top tax developments for 2014 requires judgment calls based upon uniqueness, taxpayers affected, and forward looking impact on 2015 and beyond. With respect to David Letterman, the following list of 2014 tax developments reflects this prioritization in no particular order.

Passage of the Extenders Package
2014 was not a year for major tax legislation in Congress. In fact, Congress even failed to pass its usual two-year extenders package, instead settling on a one-year retroactive extension to January 1, 2014. As one senator put it, “This tax bill doesn’t have the shelf life of a carton of eggs,” referring to the fact that the 50-plus extenders provisions expired again on January 1, 2015. Instead, it has been left to the 114th Congress to debate the extension of these tax breaks in 2015 and beyond, and for taxpayers to guess what expenses in 2015 will again be entitled to a tax break.

Affordable Care Act
In many ways, 2014 was a transition year for the Affordable Care Act. One of the most far reaching requirements, known as the “individual mandate”, took effect on January 1, 2014. Unless exempt, individuals who fail to carry minimum essential health coverage will make a shared responsibility payment in 2015. Another key provision, the “employer mandate”, was further delayed to 2015. Employer reporting for 2014 is voluntary. The IRS also developed new forms for reporting many new requirements.

Repair Regulations
In 2014, the IRS finished issuing the necessary guidance on the treatment of costs for tangible property under the sweeping “repair” regulations. The most important development was the issuance of final regulations on the treatment of dispositions of tangible property, including the identification of assets, the treatment of dispositions, and the computation of gain and loss. The complexity of the repair regulations has not gone unnoticed by many tax professionals, who have asked the IRS to simplify some of the provisions.

IRS Operations
IRS predicted a complex and challenging 2015 filing season due to cuts in the Service’s funding. This dictates the Service having to do more with less because of budget cuts. The IRS is funded $1.5 billion below the amount requested. IRS could face another round of budget cuts under the new Republican controlled Congress for 2016.

Net Investment Income Tax
Many higher income individuals were surprised to learn the full impact of the net investment income tax (“NII”) on their overall tax liability during the 2014 filing season when their 2013 returns were filed. Starting in 2013, taxpayers with qualifying income have been liable for the 3.8 percent net investment income tax. Recent run ups in the financial markets, combined with the fact that the thresholds are not adjusted for inflation, have increased the need to implement strategies that can avoid or minimize the NII tax.

Retirement Planning
A number of changes were made during 2014 affecting IRAs and other qualified plans, which cumulatively rise to the level of a “top tax development” for 2014:

  • Distributions from a qualified retirement plan account are now able to have the taxable and non-taxable portions of the distribution directed to separate accounts.
  • 401(k) plans can now offer deferred annuities through target date funds.
  • A Tax Court ruling held that a taxpayer is limited to one 60-day rollover per year for all IRA accounts rather than one 60-day rollover per year for each IRA account. The IRS stated that the new interpretation of the rollover rules would be applied to rollover distributions received on or after January 1, 2015.
  • A 2014 Supreme Court decision found that inherited IRA accounts were not retirement assets and therefore not subject to creditor protection under the Bankruptcy Code.
  • The IRS announced the 2015 cost-of-living adjustments for qualified plans. Many retirement plan contribution and benefit limits increase slightly in 2015.

Identity Theft
Although clearly not confined to the area of Federal tax, identity theft has been a major issue for both the IRS and taxpayers. In 2014, the IRS put new filters in place and took other measures to curb tax related identity theft. The agency also worked with software developers, financial institutions and the prepaid debit card industry to combat identity theft.

Tax Reform
Although 2014 was clearly not the year for tax reform, the foundations for serious tax reform discussions were laid in 2013 and 2014. Looking ahead to 2015 and beyond, it is possible that Congress will complete some form of tax reform in 2015 or 2016.  The major difference of opinion, however, surrounds whether or not the reform would only address corporate tax provisions or also include individual provisions. Many leaders have called for tackling comprehensive tax reform on both the business and individual side. The Senate Finance Committee expects to hold tax reform hearings in 2015.

Conclusion
So what does this all mean? To continue the theme from the last few years, the tax world is ever evolving with increased complexity. Both current and long term planning is as essential as ever. Other 2014 developments may prove more significant to your particular situation.  Be sure to seek advice from a dental specific tax accountant to discuss your unique circumstances.

Michael W. Blitstein, CPA is a partner with the firm of CJBS, LLC, in Northbrook, Illinois. For more than 30 years, Michael has worked closely with the dental community and is intimately familiar with the unique professional and regulatory challenges of creating, running and maintaining a successful dental practice. Michael advises his clients on tax, business and retirement planning, developing short and long-term strategic plans designed to achieve success for dental practice principals and their businesses.

He can be reached at michael@cjbs.com

www.cjbs.com

House Bill Would Expand 529 College Savings Plans

Michael Blitstein, CJBS

Michael Blitstein, CJBS

by Michael W. Blitstein, CPA

Representatives Lynn Jenkins (R-Kansas), and Ron Kind (D-Wisconsin), introduced legislation that would expand and strengthen tax-free Section 529 college savings plans. The bipartisan measure stands in stark contrast to President Obama’s proposal to end the program, which the administration outlined earlier and was referred to in the president’s State of the Union Address.  However, in a late-breaking development, the president, after pressure from Republicans and Democratic leaders, indicated that he would drop his proposal to end the tax break for Section 529 college savings plans.

The decision was made shortly after House Speaker John Boehner (R-Ohio), appealed to the president to drop the proposal in his budget, due out on February 2nd. House Democratic Leader Nancy Pelosi, (D-California), and House Budget Committee ranking member Chris Van Hollen (D-Maryland), also asked the president not to include the proposal in his budget.

The bill would clarify that computers are a qualified expense for Section 529 account funds and remove all distribution aggregation requirements. The current rules were designed for when earnings were taxed to the beneficiary at distribution. However, since 2001, the tax treatment changed and Jenkins said there is no policy need for such aggregation. This would also eliminate a paperwork burden for Section 529  plan administrators.

In addition, the bill would permit refunds to be re-deposited without taxes or penalties within 60 days of the student withdrawing from the college due to illness or other reason. Currently, the refund would be subject to income tax on the earnings and a 10% penalty.

“This bill would expand Section 529 plans to further promote college access and eliminate barriers for middle class families to save and plan ahead,” said Jenkins. “This bipartisan, sensible legislation strengthens an extremely popular savings plan for middle-class families so that all Americans have the opportunity to send their children to the college institution of their choice.”

Since the creation of Section 529 in 1996, the savings plan has grown to nearly 12 million accounts and resulted in college savings of more than $225 billion, according to figures released by Jenkins’ staff.

Michael W. Blitstein, CPA is a partner with the firm of CJBS, LLC, in Northbrook, Illinois. For more than 30 years, Michael has worked closely with the dental community and is intimately familiar with the unique professional and regulatory challenges of creating, running and maintaining a successful dental practice. Michael advises his clients on tax, business and retirement planning, developing short and long-term strategic plans designed to achieve success for dental practice principals and their businesses.

He can be reached at michael@cjbs.com

www.cjbs.com

Navigating the Tax Obstacles of Investing in 2014

Michael Blitstein, CJBS

Michael Blitstein, CJBS

by Michael W. Blitstein, CPA

It’s never been easy to navigate the various tax consequences of buying and selling securities and investments. Among the many obstacles investors need to consider in 2014 is the relatively new net investment income tax (“NIIT”). This 3.8% tax may apply to your net investment income if your income exceeds certain levels. And the tax can show up when you least expect it – for example, passive activity and qualified dividend income are subject to the tax. Some other tax issues related to investing should also be considered.

Capital Gains Tax and Timing
Although time, not timing, is generally the key to long-term investment success, timing can have a dramatic impact on the tax consequences of investment activities. Your long-term capital gains rate might be as much as 20 percentage points lower than your ordinary income rate. The long-term gains rate applies to investments held for more than 12 months. The applicable rate depends on your income level and the type of asset sold. Holding on to an investment until you’ve owned it more than a year may help substantially cut tax on any gain.

Remember, appreciating investments that don’t generate current income aren’t taxed until sold. Deferring tax and perhaps allowing you to time the sale to your advantage can help, such as in a year when you have capital losses to absorb the capital gain. If you’ve already recognized some gains during the year and want to reduce your 2014 tax liability, consider selling unrealized loss positions before the end of the year.

Loss Carryovers
If net losses exceed net gains, you can deduct only $3,000 ($1,500 for married filing separately) of the net losses per year against ordinary income. You can carry forward excess losses indefinitely. Loss carryovers can be a powerful tax-saving tool in future years if you have an investment portfolio, real estate holdings or a practice that might generate future capital gains. Also remember that capital gain distributions from mutual funds can absorb capital losses.

Income Investments
Qualified dividends are taxed at the favorable long-term capital gains tax rate rather than the higher, ordinary income tax rate. Qualified dividends are, however, included in investment income under the 3.8% NIIT.

Interest income generally is taxed at ordinary income rates, which are now as high as 39.6%. Stocks that pay qualified dividends may be more attractive tax wise than other income investments, such as CD’s, money market accounts and bonds. Note some dividends are subject to ordinary income rates.

Keep in mind that state and municipal bonds usually pay a lower interest rate, but their rate of return may be higher than the after tax rate of return for a taxable investment, depending on your tax rate. Be aware certain tax-exempt interest can trigger or increase alternative minimum tax.

Mutual Funds
Investing in mutual funds is an easy way to diversify your portfolio. But beware of the tax ramifications. First, mutual funds with high turnover rates can create income that’s taxed at ordinary income rates. Choosing funds that provide primarily long-term capital gains can save you more tax dollars.

Second, earnings on mutual funds are typically reinvested, and unless you keep track of these additions and increase your basis accordingly, you may report more gain than required when you sell the fund.

Additionally, buying equity mutual fund shares later in the year can be costly tax wise.  Such funds often declare a large capital gains distribution at year-end. If you own shares on the distribution record date, you’ll be taxed on the full distribution amount even if it includes significant gains realized by the fund before you owned the shares. And you’ll pay tax on those gains in the current year, even if you reinvest the distribution.

Paying Attention to Details
If you don’t pay attention to details, the tax consequences of a sale may be different from what you expect. For example, the trade date, not the settlement date, of publicly traded securities determines the year in which you recognize the gain or loss. And if you bought the same security at different times and prices and want to sell the high tax basis shares to reduce gain or increase a loss to offset other gains, be sure to specifically identify which block of shares is being sold.

Passive Activities
If you’ve invested in a trade or business in which you don’t materially participate, remember the passive activity rules. Why? Passive activity income may be subject to the 3.8% NIIT, and passive activity losses generally are deductible only against income from other passive activities. Disallowed losses can be carried forward to future years, subject to the same limitations.

The Internal Revenue tax code is ever evolving and recent tax law changes have provided increased complexity. Tax obstacles related to investing is just one reason why it’s important to plan ahead and consider taking advantage of strategies available to you. You should always consult with your tax adviser to determine the best course of action.

Michael W. Blitstein, CPA is a partner with the firm of CJBS, LLC, in Northbrook, Illinois. For more than 30 years, Michael has worked closely with the dental community and is intimately familiar with the unique professional and regulatory challenges of creating, running and maintaining a successful dental practice. Michael advises his clients on tax, business and retirement planning, developing short and long-term strategic plans designed to achieve success for dental practice principals and their businesses.

He can be reached at michael@cjbs.com

www.cjbs.com

House Passes Child Tax Credit Improvement Bill

Michael Blitstein, CJBS

Michael Blitstein, CJBS

by Michael W. Blitstein, CPA

Married couples with children would no longer face a tax penalty when claiming the child tax credit under a House bill passed on July 25, 2014. House lawmakers voted 237 to 173 to approve the Child Tax Credit Improvement Bill of 2014.  The bill would eliminate the marriage penalty in the child tax credit by increasing the income phase-out threshold for couples filing joint tax returns from $110,000 to $150,000 ($75,000 for individuals and married taxpayers filing separately).

The bill would also index for inflation the phase-out threshold for the $1,000 credit beginning in calendar year 2015. To combat fraud, taxpayers would be required to include their Social Security numbers on tax returns in order to receive the Additional Child Tax Credit (ACTC), which is refundable.

Ways and Means Chairman Dave Camp noted that the Treasury Inspector General for Tax Administration has reported that the number of filers for the ACTC without a Social Security number grew from 62,000 filers (claiming $62 million in benefits) in 2000 to 2.3-million filers (claiming $4.2 billion in benefits) in 2010. “This is a common-sense provision that will help safeguard taxpayer dollars from fraud, and put it in line with other refundable tax credits, like the Earned Income Tax Credit, which require a Social Security number,” he said.

House Rules Committee Chairman Pete Sessions said Republicans are fighting to make sure that hardworking American families keep more of their paychecks. “That’s why today the House passed legislation to provide common-sense reforms to ensure that the child tax credit keeps up with the rising cost of living,”” he said.

According to the Joint Committee on Taxation (JCT), eliminating the marriage penalty in the child tax credit and adding the inflation adjustment would cost $114 billion over the next decade. Part of that cost would be offset, in the amount of $24 billion, by requiring the use of Social Security numbers for the ACTC. In total, the JCT estimates that would cost $90.3 billion.

Under the bill, a married couple making $160,000 with two children would get an additional $2,200 in their 2018 tax refund, according to a study by the Center on Budget and Policy Priorities (CBPP).  The CBPP study estimates that a single mother of two making $14,500 would see her refund cut by $1,750 under the legislation.

The White House has threatened to veto the bill if it passes Congress. The measure would raise taxes for millions of struggling working families while enacting expensive new tax cuts without offsetting their costs, reflecting fundamentally misplaced priorities, the administration said. “If Republicans want to show they are serious about helping working families through the Child Tax Credit, they should start by extending current provisions past 2017,” the statement reads.

CJBS, LLC is a Chicago based firm that assists its clients with a wide range of accounting and financial issues, protecting and expanding the value of mid-size companies. E-mail me at michael@cjbs.com if you have any questions about this posting or if I may be of assistance in any way.

www.cjbs.com

House will not consider tax extender legislation in 2013

by Michael W. Blitstein, CPA 

Legislation to extend the group of expiring provisions commonly known as “tax extenders” will not be considered by Congress in 2013.  House lawmakers will begin their winter district work period on December 13th, but tax extender legislation is not on the legislative floor schedule and no markup is planned in the Ways and Means Committee.

The House is likely to consider legislation dealing with Medicare payment rates for physicians, a fiscal year 2014 budget conference agreement and, possibly, a conference report on the farm bill.

Rather than following its typical pattern of passing a one or two-year extension of tax incentives in late December, Congress could approve an extenders bill in 2014 that applies retroactively, possibly as part of larger comprehensive tax reform legislation.

CJBS, LLC is a Chicago based firm that assists its clients with a wide range of accounting and financial issues, protecting and expanding the value of mid-size companies. E-mail me at michael@cjbs.com if you have any questions about this posting or if I may be of assistance in any way.

www.cjbs.com

Will You Be Paying More Tax on Similar or Less Income?

by Michael W. Blitstein, CPA 

Most taxpayers would agree that paying more tax on similar or less income does not sound appealing.  The health care reform package (the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010) imposes a new 3.8 percent Medicare contribution tax on the net investment income of higher-income individuals. Although this tax has a wide reach, certain steps may be taken to lessen its impact.

Net investment income. Net investment income, for purposes of the new 3.8 percent Medicare tax, includes interest, dividends, annuities, royalties and rents and other gross income attributable to a passive activity. Gains from the sale of property that is not used in an active business and income from the investment of working capital are treated as investment income as well. However, the tax does not apply to nontaxable income, such as tax-exempt interest or veterans’ benefits. Further, an individual’s capital gains income – both long-term and short-term – will be subject to the tax. This includes gain from the sale of a principal residence, unless the gain is excluded from income under Code Section 121, and gains from the sale of a vacation home. Planning the sale of “big ticket items”, therefore, now often requires attention to the new 3.8 percent surtax.

The tax also applies to estates and trusts, on the lesser of undistributed net income or the excess of the trust/estate adjusted gross income (AGI) over the threshold amount ($11,200) for the highest tax bracket for trusts and estates, and to investment income they distribute. Use of family trusts and other trust-based strategies now must factor in the 3.8 percent surtax in the construction and operation of the trust.  Executors must also be aware of how the 3.8 percent surtax is applied against income on assets held by the estate rather than immediately distributed.

Deductions. Net investment income for purposes of the new 3.8 percent tax is gross income or net gain, reduced by deductions that are “properly allocable” to the income or gain. This is a key term that the Treasury Department expects to address in future guidance. For passively-managed real property, allocable expenses will still include depreciation and operating expenses. Indirect expenses such as tax preparation fees may also qualify.

For capital gain property, this formula puts a premium on keeping tabs on amounts that increase your property’s basis. It also puts the focus on investment expenses that may reduce net gains: interest on loans to purchase investments, investment counsel and advice, and fees to collect income. Other costs, such as brokers’ fees, may increase basis or reduce the amount realized from an investment.

Thresholds and impact. The tax applies to the lesser of net investment income or modified AGI above $200,000 for individuals and heads of household, $250,000 for joint filers and surviving spouses, and $125,000 for married filing separately.

The tax can have a substantial impact if you have income above the specified thresholds. Also, remember that, in addition to the tax on investment income, you may also face other tax increases that have taken effect beginning in 2013. The top marginal income tax rate is now 39.6 percent and the top tax rate on long-term capital gains has increased from 15 percent to 20 percent. Thus, the cumulative rate on capital gains for someone in the highest rate bracket has increased to 23.8 percent. Moreover, the 3.8 percent surtax’s thresholds are not indexed for inflation, so a greater number of taxpayers may be affected as time elapses.

Exceptions. Certain items and taxpayers are not subject to the 3.8 percent tax. A significant exception applies to distributions from qualified plans, 401(k) plans, tax-sheltered annuities, individual retirement accounts (IRAs), and eligible deferred compensation plans. At the present time, however, there is no exception for distributions from nonqualified deferred compensation plans, although some experts claim that not carving out such an exception was a Congressional oversight that should be rectified by an amendment to the law.

The exception for distributions from retirement plans suggests that potentially taxed investors may want to shift wages and investments to retirement plans such as 401(k) plans, 403(b) annuities, and IRAs. Increasing contributions will reduce income and may help you stay below the applicable thresholds. Business owners may want to set up retirement plans, especially 401(k) plans, if they have not yet established a plan, and should consider increasing their contributions to existing plans.

Prudent planning is necessary to create and implement efficient and effective tax strategies that will allow for goals and objectives to be met.  The new 3.8 percent Medicare contribution tax on the net investment income is no exception.  Please seek the advice from your tax professional to determine how this affects you.

CJBS, LLC is a Chicago based firm that assists its clients with a wide range of accounting and financial issues, protecting and expanding the value of mid-size companies. E-mail me at michael@cjbs.com if you have any questions about this posting or if I may be of assistance in any way.

www.cjbs.com

IRS Increases Standard Mileage Rate for 2013

by Michael W. Blitstein, CPA 

Optional standard mileage rates for use of a vehicle will go up by 1 cent per mile for 2013.  Taxpayers can use the optional standard mileage rates to calculate the deductible costs of operating an automobile.

For business use of a car, van, pickup truck, or panel truck, the 2013 rate will be 56.5 cents per mile. Driving for medical or moving purposes may be deducted at 24 cents per mile. Both rates are 1 cent higher than for 2012.

The rate for service to a charitable organization is unchanged, set by statute at 14 cents a mile.

The portion of the business standard mileage rate that is treated as depreciation will be 23 cents per mile for 2013, unchanged from 2012.

For purposes of computing the allowance under a fixed and variable rate (FAVR) plan, the maximum standard automobile cost for 2013 is $28,100 for automobiles or $29,900 for trucks and vans, increases of $100 and $600, respectively, from 2012. Under an FAVR plan, a standard amount is deemed substantiated for an employer’s reimbursement to employees for expenses they incur in driving their vehicle in performing services as an employee for the employer.

CJBS, LLC is a Chicago based firm that assists its clients with a wide range of accounting and financial issues, protecting and expanding the value of mid-size companies. E-mail me at michael@cjbs.com if you have any questions about this posting or if I may be of assistance in any way.

www.cjbs.com

2013 Business Standard Mileage Rate Increases

by Michael W. Blitstein, CPA 

The IRS has announced increases in both the optional business standard mileage reimbursement rate and the standard mileage rate for medical and moving expenses for 2013. All increased by one cent, to 56.5 cents and 24 cents per mile, respectively. Also showing a slight increase in 2013 is the maximum standard automobile cost that may be used in computing the allowance under a fixed and variable rate (FAVR) plan. The depreciation component of the business standard mileage rate, however, remains as it has been in 2012.

The standard mileage rate adjustment for 2013 reflects increases in maintenance and fuel costs. In recent years, the IRS made mid-year adjustments in the business and medical/moving standard mileage rates (except for the charitable rate which is set by statute) because of spikes in fuel costs. There was no mid-year adjustment in 2012.

The IRS works with an independent contractor to establish the business, medical and moving expense standard rates. The IRS and the independent contractor take into account the fixed and variable costs of operating an automobile, such as fuel costs and maintenance expenses.

The charitable mileage rate, in contrast, is set by statute at a flat 14 cents per mile without inflation adjustment each year.  Congress could increase the charitable mileage rate in year-end legislation but that prospect does not seem likely at this time.

CJBS, LLC is a Chicago based firm that assists its clients with a wide range of accounting and financial issues, protecting and expanding the value of mid-size companies. E-mail me at michael@cjbs.com if you have any questions about this posting or if I may be of assistance in any way.

www.cjbs.com

Tax Policies of the Major Presidential Candidates

by Michael W. Blitstein, CPA 

On November 6, 2012, Americans will elect the occupant of the White House for the next four years. As President of the United States, the winner will play a major role shaping tax policy and possibly reforming the entire Tax Code. This briefing describes the tax policies of President Obama and former Governor Mitt Romney, with analysis of the potential impact of their tax positions both for the immediate future and for 2014 and beyond.

Impact

Under current law, the Bush-era tax cuts (reduced income tax rates, reduced capital gains/dividends tax rates, and much more) are scheduled to expire after December 31, 2012. Effective January 1, 2013, sequestration under the Budget Control Act of 2011 is scheduled to take effect, with the goal of reducing the Federal budget deficit by nearly $1 trillion over 10 years. In addition, after 2011, a host of so-called tax extenders expired, and after 2012, numerous additional temporary incentives are scheduled to sunset. Moreover, the 2012 payroll tax holiday, which reduced the employee-share of OASDI taxes by two percentage points, is also slated to expire after December 31, 2012. The combination of all these events has many commentators referring to 2013 as “taxmageddon” or the “fiscal cliff.”

The balance between Democrats and Republicans in the House and the Senate may also change on election day. However, whether either party acquires sufficient political capital, let alone a mandate, on taxes to address short-term issues such as sunsetting provisions and long-term issues like tax reform, remains to be seen.

Caution

Between the date of publication and election day, the positions of the candidates may change. CJBS has based this briefing on what we consider accurate, nonpartisan and unbiased information at the time of publication.

SELECTED POSITIONS
Obama —Individual taxes Romney – Individual taxes
2013 rates higher for higher-income taxpayers only 2013 rates same as 2012 for all taxpayers
Unspecified future date: lower rates for middle/lower income brackets Unspecified future date: 20% income tax rate reduction for all taxpayers
Higher capital gains/dividend rate for higher-income taxpayers Eliminate tax on investment income for AGI below $200,000
$3.5 million estate tax exemption/45% rate Abolish the estate tax
Replace AMT with “Buffett rule” Repeal the AMT
Obama – Corporate Taxes Romney—Corporate Taxes
Reduce maximum corporate tax rate to 28% (25% for manufacturing) Reduce maximum corporate rate to 25%
Maintain worldwide system but with reforms Implement territorial system of international tax
 SELECTED CHANGES IN FEDERAL TAXES: 2012-2013 IF CONGRESS FAILS TO ACT
2012 2013
Top individual tax rate 35% 39.6%
Capital Gains 15%* 20%
Dividends 15%* Taxed at ordinary income rates
Top estate tax rate 35% 55%
Child tax credit $1,000 $500
AOTC Up to $2,500 Unavailable
Code Sec. 179 dollar limit $139,000** $25,000
WOTC for veterans Up to $9,600 Unavailable
Research tax credit Unavailable Unavailable
Wind energy PTC Available Unavailable
*Zero percent for taxpayers in the 10 and 15 percent brackets
**As adjusted for inflation

Individuals: 2014 and Beyond

The basic goal for tax reform on the individual tax level expressed by both candidates is to broaden the tax base and lower tax rates. The candidates agree that tax reform should be revenue neutral. Each candidate also forecasts an improved economy from the savings of a simplified tax system and lower overall rates.

Businesses: 2014 and Beyond

Corporate tax reform, and business tax reform in general, has been raised by several Congressional committees and both candidates over the past year as a necessary long range step in making businesses more innovative and competitive. Based upon the multilayered considerations involved, however, concrete changes are not anticipated until 2014 or later.  Specific issues include:

  • Corporate Tax Rates
  • International Proposals
  • Other Business Reforms

Note: A more comprehensive PDF version of this brief can be seen on the CJBS website at: http://www.cjbs.com/Email/October2012/CJBS_long.pdf

CJBS, LLC is a Chicago based firm that assists its clients with a wide range of accounting and financial issues, protecting and expanding the value of mid-size companies. E-mail me at michael@cjbs.com if you have any questions about this posting or if I may be of assistance in any way.

www.cjbs.com