income tax

Trump dumps 0% tax-rate proposal

By Bankrate

Westchester NY accountant Paul Herman of Herman & Company CPA’s is here for all your financial needs. Please contact us if you have questions, and to receive your free personal finance consultation!

trump-dumps-0-tax-ratre-idea-getty-mst

When Donald J. Trump issued his original tax plan in September of last year, the then-candidate for the Republican presidential nomination promised that some Americans wouldn’t owe any tax at all.

In a speech Monday before the Detroit Economic Club, the now nominee erased that no-tax option.

Original plan had a 0% rate

Trump’s original proposal called for 4 tax brackets, ranging from 0% to 25%.

“If you are single and earn less than $25,000, or married and jointly earn less than $50,000, you will not owe any income tax,” Trump proclaimed last year. “That removes nearly 75 million households — over 50% — from the income tax rolls.”

His new plan would put some of those folks back on the Internal Revenue Service’s radar.

Fewer brackets, higher tax rates

Trump, apparently in a sign of Republican Party conciliation and economic reality, has revised his tax plan to follow the tax rates and income brackets included in the House Republicans’ tax reform plan.

That proposal, backed by Republican budget guru and current House Speaker Paul Ryan, calls for 3 individual tax rates: 12%, 25% and 33%.

Trump’s 0% tax rate is gone.

Still, the Republican candidate told his packed house at the Detroit event that “many American workers” will find “their tax rate will be zero.” He’s basing this on a proposal for higher standard deduction amounts that was included in a GOP tax reform plan released in June.

“This, in effect, creates a larger 0 percent bracket,” the Republican tax plan says. “As a result, taxpayers who are currently in the 10-percent bracket always will pay lower taxes than under current law.”

Reaching out to parents

Trump has offered another new tax proposal that takes aim at Democratic opponent Hillary Clinton and her lead among women voters.

He wants to allow parents to fully deduct from their taxes the average costs of child care spending.

Clinton has proposed capping child care costs at 10% of a family’s income. The former secretary of state also supports a tax credit of up to $1,200 for adult family members who care for their aging parents.

Deficit question lingers

Trump’s speech to the Motor City gathering dealt with broad tax policy generalizations, as is generally the case for such talks during an election year.

He did promise, though, that “in the coming weeks, we will be offering more detail on all of these policies.”

Those details should tell us whether his new tax plan will be less costly than the nearly $10 trillion estimate that bedeviled his original proposal. Some Trump surrogates have suggested the new figure will be in the $3 trillion deficit range. Bankrate will let you know if that lower deficit amount is correct, as well as what’s in the other new Trump tax-plan specifics as they are announced.

Paul S. Herman CPA, a tax expert for individuals and businesses, is the founder of Herman & Company, CPA’s PC in White Plains, New York.  He provides guidance and strategies to improve clients’ financial well-being.

Rich tend to stay put despite high taxes

taxes-blog-rich-tend-to-stay-put-despite-high-taxes

Opponents of higher taxes on the wealthy often invoke the fable about the disastrous killing of the goose that laid the golden eggs. Over-taxing the rich, they argue, will produce the same results metaphorically. The rich will simply move, taking their money with them.

New research, however, indicates that those opposing taxes for the wealthy are playing a bit loosey-goosey with the facts.

The study “Millionaire Migration and Taxation of the Elite: Evidence from Administrative Data,” published in the June issue of the American Sociological Review, finds that most millionaires don’t move from state to state simply to avoid big tax bills.

Millionaires tend to stay put

The study is based on 45 million tax records from U.S. tax filers who earned $1 million or more in any year between 1999 and 2011. Using that data, researchers at Stanford University and economists at the Office of Tax Analysis at the U.S. Department of Treasury discovered that most millionaires aren’t very mobile.

“The most striking finding in our study is how little elites seem willing to move to exploit tax advantages across state lines,” Cristobal Young, an assistant professor of sociology at Stanford and lead author of the study, said in a press release. “Millionaire tax flight is occurring, but only at the margins of significance.”

Young and his fellow researchers found that in any given year, of roughly 500,000 individuals filing tax returns reporting incomes of $1 million or more, only about 12,000 millionaires moved to another state.

The researchers also note that millionaires are no more likely to live in states with low or zero income taxes, like Texas or Florida, than in high income tax states, such as New Jersey or California.

Moving is a hassle even for the rich

The annual millionaire migration rate of 2.4% actually is lower than the migration rate of the 2.9% moving rate of the general population, according to the study. In fact, the researchers found the highest rates of migration among low-income tax filers. Folks making around $10,000 a year move at a 4.5% rate.

“There is a widely held perception that elites are extremely mobile, that they are more attached to money than to place, and with money you can live anywhere you want,” said Young.

While we tend to see moving at will as one of the privileges enjoyed by the rich, such relocation comes with high social and economic costs, said Young. It’s difficult for folks at all income levels to uproot family, break away from social networks and restart in a new place.

Not so different after all

And while the rich definitely are different in many ways from the rest of us working stiffs, work is one thing most of us do share.

Young notes that most millionaires today are the working rich. Rather than living off inherited wealth, they rely on earnings from employment.

“They work as lawyers, doctors, managers and financial executives,” said Young. “They are at the peak of their careers and typically earn million-dollar incomes only for several years. People avoid potentially disruptive moves when they are performing at the very top of their game.”

Limited moves are to low-tax locales

Those opposed to taxing the rich do, however, get one thing right.

The study says that in the limited instances where the rich do relocate, they are more likely to move to a state with a lower tax rate. And the most popular destination for mobile millionaires is Florida.

Of course, that could mean that they like sunny days on the beach as much as they like low taxes. But that’s a topic for additional research.

 

Details of the President’s State of the Union Tax Proposals

Westchester NY accountant Paul Herman of Herman & Company CPA’s is here for all your financial needs. Please contact us if you have questions, and to receive your free personal finance consultation! 

President Barack Obama used Tuesday’s State of the Union address to announce that he will propose tax increases for higher-income individuals and provide tax relief for middle-class taxpayers. Ahead of the speech, the White House provided details of what the president plans to propose, which it characterized as simplifying the Internal Revenue Code, eliminating loopholes, and helping “middle class families get ahead and grow the economy.”

ttatop

Specific proposals on the president’s wish list include:

  • Eliminate the step-up in basis for assets that are transferred at death, treating transfers at death as realization events for capital gains tax purposes;
  • Raise the top tax rate on capital gains and dividends to 28%, which would be imposed on taxpayers with incomes over about $500,000;
  • Impose a 7-basis-point fee on the liabilities of large financial institutions to discourage “excessive borrowing”;
  • Create a $500 second-earner tax credit for families in which both spouses work (5% of the first $10,000 of the lower-earning spouse’s income; credit would phase out for couples with incomes between $120,000 and $210,000);
  • Modify various child care tax incentives, including increasing the earned income tax credit (EITC) for childless taxpayers, increasing the EITC phaseout level, making permanent EITC increases that are scheduled to expire after 2017, tripling the maximum child and dependent care credit and making the income cutoff $120,000, and eliminating child care flexible spending accounts;
  • Consolidate and expand education tax benefits, including making the American opportunity tax credit permanent and folding the lifetime learning credit into it, increase the refundable portion to $1,500, and make it available to more students; and
  • Reform retirement tax incentives, including automatically enrolling workers in IRAs, requiring employers to allow more part-time workers to participate in their retirement plans, and providing a cap of about $3.4 million in an IRA.

The White House did not provide a timeline for when legislation embodying these proposals would be introduced. Since both houses of Congress are now controlled by Republicans, any proposal by the president will face a steep uphill climb.

Article: The Tax Advisor

Herman and Company CPA’s proudly serves Bedford Hills NY, Chappaqua NY, Harrison NY, Scarsdale NY, White Plains NY, Mt. Kisco NY, Pound Ridge NY, Greenwich CT and beyond.

Individual Year End Tax Planning Ideas

Westchester NY accountant Paul Herman of Herman & Company CPA’s is here for all your financial needs. Please contact us if you have questions, and to receive your free personal finance consultation!  

DeathtoStock_Simplify10As we approach year end, it’s time again to focus on last-minute moves you can make to save taxes — both on your 2014 return and in future years. Here are a few ideas.

Maximize the benefit of the standard deduction. For 2014, the standard deduction is $12,400 for married taxpayers filing joint returns. For single taxpayers, the amount is $6,200. Currently, it looks like these amounts will be about the same for 2015. If your total itemized deductions each year are normally close to these amounts, you may be able to leverage the benefit of your deductions by bunching deductions in every other year. This allows you to time your itemized deductions so they are high in one year and low in the next. For instance, you might consider moving charitable donations you normally would make in early 2015 to the end of 2014. If you’re temporarily short on cash, charge the contribution to a credit card — it is deductible in the year charged, not when payment is made on the card. You can also accelerate payments of your real estate taxes or state income taxes otherwise due in early 2015. But, watch out for the alternative minimum tax (AMT), as these taxes are not deductible for AMT purposes.

Consider deferring income. It may be beneficial to defer some taxable income from this year into next year, especially if you expect to be in a lower tax bracket in 2015 or affected by unfavorable phase out rules that reduce or eliminate various tax breaks (child tax credit, education tax credits, and so forth) in 2014. By deferring income every other year, you may be able to take more advantage of these breaks every other year. For example, if you’re in business for yourself and a cash-method taxpayer, you can postpone taxable income by waiting until late in the year to send out some client invoices. That way, you won’t receive payment for them until early 2015. You can also postpone taxable income by accelerating some deductible business expenditures into this year. Both moves will defer taxable income from this year until next year.

Secure a deduction for nearly worthless securities. If you own any securities that are all but worthless with little hope of recovery, you might consider selling them before the end of the year so you can capitalize on the loss this year. You can deduct a loss on worthless securities only if you can prove the investment is completely worthless. Thus, a deduction is not available, as long as you own the security and it has any value at all. Total worthlessness can be very difficult to establish with any certainty. To avoid the issue, it may be easier just to sell the security if it has any marketable value. As long as the sale is not to a family member, this allows you to claim a loss for the difference between your tax basis and the proceeds (subject to the normal rules for capital losses and the wash sale rules restricting the recognition of loss if the security is repurchased within 30 days before or after the sale).

Invest in tax-free securities. The most obvious source of tax-free income is tax-exempt securities, either owned outright or through a mutual fund. Whether these provide a better return than the after-tax return on taxable investments depends on your tax bracket and the market interest rates for tax-exempt investments. With the additional layer of net investment income taxes on higher income taxpayers, this year might be a good time to compare the return on taxable and tax-exempt investments. In some cases, it may be as simple as transferring assets from a taxable to a tax-exempt fund.

Again, these are just a few suggestions to get you thinking. Please call us if you’d like to know more about them or want to discuss other ideas.

Herman and Company CPA’s proudly serves Bedford Hills NY, Chappaqua NY, Harrison NY, Scarsdale NY, White Plains NY, Mt. Kisco NY, Pound Ridge NY, Greenwich CT and beyond.

 

Fourth Quarter Tax Planning

Scarsdale CPA Paul Herman has all the answers to your personal finance questions! For many individuals, the ordinary federal income tax rates for 2013 will be the same as last year: 10%, 15%, 25%, 28%, 33%, and 35%. However, the so-called fiscal cliff legislation passed early this year increased the maximum rate for higher-income individuals to 39.6% (up from 35%). Plan your end of year taxes with these tips from scarsdale accountant Paul HermanThis change only affects taxpayers with taxable income above $400,000 for singles, $450,000 for married joint-filing couples, $425,000 for heads of households, and $225,000 for married individuals who file separate returns. Higher-income individuals can also get hit by the new additional 0.9% Medicare tax and the 3.8% net investment income tax (3.8% NIIT), which can result in a higher-than-advertised federal tax rate for 2013.

Despite these tax increases, the current federal income tax environment remains relatively favorable by historical standards. This article presents some tax planning ideas to consider this fall that may apply to you and/or your family. Note that it is critical to evaluate all tax planning strategies in light of the alternative minimum tax (AMT).

Leverage Standard Deduction by Bunching Deductible Expenditures

If your 2013 itemized deductions are likely to be just under, or just over, the standard deduction amount, consider bunching together expenditures for itemized deduction items every other year, while claiming the standard deduction in the intervening years. The 2013 standard deduction is $12,200 for married joint filers, $6,100 for single filers, and $8,950 for heads of households.

For example, say you’re a joint filer whose only itemized deductions are about $4,000 of annual property taxes and about $8,000 of home mortgage interest. If you prepay your 2014 property taxes by December 31 of this year, you could claim $16,000 of itemized deductions on your 2013 return ($4,000 of 2013 property taxes, plus another $4,000 for the 2014 property tax bill, plus the $8,000 of mortgage interest). Next year, you would only have about $8,000 of mortgage interest, but you could claim the standard deduction (it will probably be around $12,500 for 2014). Following this strategy will cut your taxable income by a meaningful amount over the two-year period (this year and next). You can repeat the drill all over again in future years. Examples of other deductible items that can be bunched together every other year include charitable donations and state income tax payments.

Consider Deferring Income

It may pay to defer some taxable income from this year into next year if you expect to be in the same or lower tax bracket in 2014. For example, if you’re self-employed and a cash-method taxpayer, you can postpone taxable income by waiting until late in the year to send out some client invoices. That way, you won’t receive payment for them until early 2014. You can also postpone taxable income by accelerating some deductible business expenditures into this year.

Both moves will defer taxable income from this year until next year. Deferring income may also be helpful if you are affected by unfavorable phase-out rules that reduce or eliminate various tax breaks (child tax credit, education tax credits, and so on). By deferring income every other year, you may be able to take more advantage of these breaks.

Time Investment Gains and Losses

For many individuals, the 2013 federal tax rates on long-term capital gains are the same as last year: either 0% or 15%. However, the maximum rate for higher-income individuals is now 20% (up from 15% last year). This change only affects taxpayers with taxable income above $400,000 for singles, $450,000 for married joint-filing couples, $425,000 for heads of households, and $225,000 for married individuals filing separately. Higher-income individuals can also get hit by the new 3.8% NIIT on net investment income, which can result in a maximum 23.8% federal income tax rate on 2013 long-term gains.

As you evaluate investments held in your taxable brokerage firm accounts, consider the tax impact of selling appreciated securities (currently worth more than you paid for them). For most taxpayers, the federal tax rate on long-term capital gains is still much lower than the rate on short-term gains. Therefore, it often makes sense to hold appreciated securities for at least a year and a day before selling to qualify for the lower long-term gain tax rate.

Biting the bullet and selling some loser securities (currently worth less than you paid for them) before year-end can also be a tax-smart idea. The resulting capital losses will offset capital gains from other sales this year, including high-taxed short-term gains from securities owned for one year or less. For 2013, the maximum rate on short-term gains is 39.6%, and the 3.8% NIIT may also apply, which can result in an effective rate of up to 43.4%. However, you don’t need to worry about paying a high rate on short-term gains that can be sheltered with capital losses (you will pay 0% on gains that can be sheltered).

If capital losses for this year exceed capital gains, you will have a net capital loss for 2013. You can use that net capital loss to shelter up to $3,000 of this year’s high-taxed ordinary income ($1,500 if you’re married and file separately). Any excess net capital loss is carried forward to next year.

Selling enough loser securities to create a bigger net capital loss that exceeds what you can use this year might also make sense. You can carry forward the excess capital loss to 2014 and beyond and use it to shelter both short-term gains and long-term gains recognized in those years. Note that the wash sale rules can limit the deduction for securities losses.

Make Charitable Donations from Your IRA

IRA owners and beneficiaries who have reached age 70 1/2 are permitted to make cash donations of up to $100,000 to IRS-approved public charities directly out of their IRAs. These so-called qualified charitable distributions (QCDs) are federal-income-tax-free to you, but you get no itemized charitable write-off on your Form 1040. That’s okay, because the tax-free treatment of QCDs equates to an immediate 100% federal income tax deduction without having to worry about restrictions that can delay itemized charitable write-offs.

Note: To qualify for this special tax break, the funds must be transferred directly from your IRA to the charity. Also, this favorable provision will expire at the end of this year unless Congress extends it.

Scarsdale accountant Paul Herman is here to help you with all your personal finance needs. Please contact us for all inquiries and to receive your free personal finance consultation!

Herman and Company CPA’s proudly serves Bronxville NY, Purchase NY, Scarsdale NY, Chappaqua NY, Harrison NY, Katonah NY, Greenwich CT and beyond.

Photo Credit: StockMonkeys via Photopin cc

The Tax Calendar

Scarsdale accountant Paul Herman has all the answers to your personal finance questions! Mark your calendars and stay on top of your taxes with these important dates in the tax world:

October 15 — Personal returns that received an automatic six-month extension must be filed today and any tax, interest, and penalties due must be paid.

— Electing large partnerships that received an additional six-month extension must file their Forms 1065-B today.

— If the monthly deposit rule applies, employers must deposit the tax for payments in September for social security, Medicare, withheld income tax, and nonpayroll withholding.

October 31 — The third quarter Form 941 (Employer’s Quarterly Federal Tax Return) is due today and any undeposited tax must be deposited.

Important dates on tax calendar from scarsdale accountant

Add these tax dates to your calendar to stay on top of your finances!

(If your tax liability is less than $2,500, you can pay it in full with a timely filed return.) If you deposited the tax for the quarter in full and on time, you have until November 12 to file the return.

— If you have employees, a federal unemployment tax (FUTA) deposit is due if the FUTA liability through September exceeds $500.

November 15 — If the monthly deposit rule applies, employers must deposit the tax for payments in October for social security, Medicare, withheld income tax, and nonpayroll withholding.

December 16 — Calendar-year corporations must deposit the fourth installment of estimated income tax for 2013.

— If the monthly deposit rule applies, employers must deposit the tax for payments in November for social security, Medicare, withheld income tax, and nonpayroll withholding.

 

 

Scarsdale CPA Paul Herman is here to help you with all your personal finance needs. Please contact us for all inquiries and to receive your free personal finance consultation!

Herman and Company CPA’s proudly serves Bedford NY, Bedford Hills NY, Harrison NY, Purchase NY, Rye Brook NY, Scarsdale NY, Greenwich CT and beyond.

Photo Credit: photosteve101 via Photopin cc

Tips and Taxes

The tips you earn on the job will be accounted for during the 2013 tax season.

Westchester tax preparers at Herman & Company CPA’s have all the answers to your personal finance questions!

Do you work at a hair salon, barber shop, casino, golf course, hotel or restaurant or drive a taxicab? The tip income you receive as an employee from those services is taxable income, advises the IRS.

As taxable income, these tips are subject to federal income, Social Security and Medicare taxes, and may be subject to state income tax as well.

You must keep a running daily log of all your tip income and tips paid out. This includes cash that you receive directly from customers, tips from credit card charges from customers that your employer pays you, the value of any non-cash tips such as tickets or passes that you receive, and the amount of tips you paid out to other employees through tip pools or tip splitting and the names of those employees.

You can use IRS Publication 1244, Employee’s Daily Record of Tips and Report of Tips to Employer, to record your tip income. For a free copy of Publication 1244, call the IRS toll free at 1-800-TAX-FORM (1-800-829-3676).

If you receive $20 or more in tips in any one month, you should report all your tips to your employer. Your employer is required to withhold federal income, Social Security and Medicare taxes and to report the correct amount of your earnings to the Social Security Administration (which will affect your benefits when you retire or if you become disabled, or your family’s benefits if you die).  Contact Westchester tax preparation firm Herman & Company CPA’s to make sure your tips are accurately taxed!

Any U.S. tax advice contained in the body of this website is not intended or written to be used, and cannot be used, by the recipient for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions.