tax reform

When an Elderly Parent Might Qualify as Your Dependent

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It’s not uncommon for adult children to help support their aging parents. If you’re in this position, you might qualify for an adult-dependent exemption to deduct up to $4,050 for each person claimed on your 2017 return.

Basic qualifications

For you to qualify for the adult-dependent exemption, in most cases your parent must have less gross income for the tax year than the exemption amount. (Exceptions may apply if your parent is permanently and totally disabled.) Social Security is generally excluded, but payments from dividends, interest and retirement plans are included.

In addition, you must have contributed more than 50% of your parent’s financial support. If you shared caregiving duties with one or more siblings and your combined support exceeded 50%, the exemption can be claimed even though no one individually provided more than 50%. However, only one of you can claim the exemption in this situation.

Important factors

Although Social Security payments can usually be excluded from the adult dependent’s income, they can still affect your ability to qualify. Why? If your parent is using Social Security money to pay for medicine or other expenses, you may find that you aren’t meeting the 50% test.

Also, if your parent lives with you, the amount of support you claim under the 50% test can include the fair market rental value of part of your residence. If the parent lives elsewhere — in his or her own residence or in an assisted-living facility or nursing home — any amount of financial support you contribute to that housing expense counts toward the 50% test.

Easing the burden

An adult-dependent exemption is just one tax break that you may be able to employ on your 2017 tax return to ease the burden of caring for an elderly parent. Contact us for more information on qualifying for this break or others.

Highlights of the New Tax Reform Law

tax reform

 

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!

The new tax reform law, commonly called the “Tax Cuts and Jobs Act” (TCJA), is the biggest federal tax law overhaul in 31 years, and it has both good and bad news for taxpayers.

Below are highlights of some of the most significant changes affecting individual and business taxpayers. Except where noted, these changes are effective for tax years beginning after December 31, 2017.

Individuals

  • Drops of individual income tax rates ranging from 0 to 4 percentage points (depending on the bracket) to 10%, 12%, 22%, 24%, 32%, 35% and 37% — through 2025
  • Near doubling of the standard deduction to $24,000 (married couples filing jointly), $18,000 (heads of households), and $12,000 (singles and married couples filing separately) — through 2025
  • Elimination of personal exemptions — through 2025
  • Doubling of the child tax credit to $2,000 and other modifications intended to help more taxpayers benefit from the credit — through 2025
  • Elimination of the individual mandate under the Affordable Care Act requiring taxpayers not covered by a qualifying health plan to pay a penalty — effective for months beginning after December 31, 2018
  • Reduction of the adjusted gross income (AGI) threshold for the medical expense deduction to 7.5% for regular and AMT purposes — for 2017 and 2018
  • New $10,000 limit on the deduction for state and local taxes (on a combined basis for property and income taxes; $5,000 for separate filers) — through 2025
  • Reduction of the mortgage debt limit for the home mortgage interest deduction to $750,000 ($375,000 for separate filers), with certain exceptions — through 2025
  • Elimination of the deduction for interest on home equity debt — through 2025
  • Elimination of the personal casualty and theft loss deduction (with an exception for federally declared disasters) — through 2025
  • Elimination of miscellaneous itemized deductions subject to the 2% floor (such as certain investment expenses, professional fees and unreimbursed employee business expenses) — through 2025
  • Elimination of the AGI-based reduction of certain itemized deductions — through 2025
  • Elimination of the moving expense deduction (with an exception for members of the military in certain circumstances) — through 2025
  • Expansion of tax-free Section 529 plan distributions to include those used to pay qualifying elementary and secondary school expenses, up to $10,000 per student per tax year
  • AMT exemption increase, to $109,400 for joint filers, $70,300 for singles and heads of households, and $54,700 for separate filers — through 2025
  • Doubling of the gift and estate tax exemptions, to $10 million (expected to be $11.2 million for 2018 with inflation indexing) — through 2025

 

Businesses

  • Replacement of graduated corporate tax rates ranging from 15% to 35% with a flat corporate rate of 21%
  • Repeal of the 20% corporate AMT
  • New 20% qualified business income deduction for owners of flow-through entities (such as partnerships, limited liability companies and S corporations) and sole proprietorships — through 2025
  • Doubling of bonus depreciation to 100% and expansion of qualified assets to include used assets — effective for assets acquired and placed in service after September 27, 2017, and before January 1, 2023
  • Doubling of the Section 179 expensing limit to $1 million and an increase of the expensing phaseout threshold to $2.5 million
  • Other enhancements to depreciation-related deductions
  • New disallowance of deductions for net interest expense in excess of 30% of the business’s adjusted taxable income (exceptions apply)
  • New limits on net operating loss (NOL) deductions
  • Elimination of the Section 199 deduction, also commonly referred to as the domestic production activities deduction or manufacturers’ deduction — effective for tax years beginning after December 31, 2017, for noncorporate taxpayers and for tax years beginning after December 31, 2018, for C corporation taxpayers
  • New rule limiting like-kind exchanges to real property that is not held primarily for sale
  • New tax credit for employer-paid family and medical leave — through 2019
  • New limitations on excessive employee compensation
  • New limitations on deductions for employee fringe benefits, such as entertainment and, in certain circumstances, meals and transportation

 

More to consider

This is just a brief overview of some of the most significant TCJA provisions. There are additional rules and limits that apply, and the law includes many additional provisions. Contact your tax advisor to learn more about how these and other tax law changes will affect you in 2018 and beyond.

US Senate Presents A Different Take On Tax Reform

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by Mike Godfrey, Tax-News.com, Washington

The Senate Finance Committee released its tax reform plan on November 9, presenting a draft bill with marked differences to that agreed by the House Ways and Means Committee on the same day.

The proposal was drafted by Finance Committee Republicans under the leadership of Senate Finance Committee Chairman Orrin Hatch (R-UT), based on the Unified Tax Framework agreed by the Trump Administration, the House Committee on Ways and Means, and the Senate Committee on Finance in September 2017.

While said to adopt a similar “pro-growth approach” to the House Ways and Means proposal, the Senate plan differs in a number of areas.

The Senate bill would preserve the current seven income tax brackets, compared to the reduced four brackets proposed under the House bill. Under the Senate proposal, the zero tax bracket would be expanded, and a slightly lower 38.5 percent tax rate would be introduced for high-income earners (compared with 39.6 percent in the House Bill, in line with current law).

Both the Senate and House bills include a proposal to double the standard deduction, to USD12,000 for individuals and USD24,000 for married couples; to repeal the Alternative Minimum Tax; and eliminate the state and local tax deductions. Where the House bill would repeal the medical expense deduction, the Senate bill would retain it.

The treatment of the Child Tax Credit is also largely similar in both bills, with the Senate proposing to increase the credit from USD1,000 to USD1,650 (compared to USD1,600 in the House Bill). However, the Senate Bill would preserve the existing mortgage interest deduction, which the House Bill proposes to curb from USD1m to USD500,000.

The Senate bill also proposes to preserve the estate tax, which the House Bill would repeal for persons dying after 2024. The Senate bill also proposes to double both the estate and gift tax exemption for individuals, from USD5m to USD10m.

For businesses, the Senate Bill would also cut the corporate tax cut from 35 percent to 20 percent, but would delay implementation until January 2019. The bill proposes a new 17.4 percent deduction for certain pass-through businesses, which are taxed under the personal income tax regime, and enhanced Section 179 expensing. There is an exclusion from the deduction for specified service businesses, except in the case of a taxpayer whose taxable income does not exceed USD150,000, for married individuals filing jointly, or USD75,000 for other individuals.

The Senate Bill would tax multinationals’ offshore holdings under a repatriation tax proposal at lower rates than under the House bill. Cash holdings would be subject to a repatriation tax of five percent, rather than seven percent under the House proposal, and at 10 percent on non-cash holdings, rather than 14 percent as under the House proposal.

Both bills would cap the deduction for net interest expenses at 30 percent of adjusted taxable income, with exclusions for small businesses.

“This is just the start of the legislative process in the Senate. We expect robust committee debate on the policies in this bill, will have an open amendment process, and hope to report legislation by the end of next week,” said Hatch.

Trump Looks To Democrats To Shore Up Tax Reform Push

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by Mike Godfrey, Tax-News.com, Washington

 US President Donald Trump has reached out to Democrat lawmakers to discuss tax reform, in a bid to obtain bipartisan support to get a package through Congress.

The President met with senators Heidi Heitkamp (D-ND), Joe Donnelly (D-ID), and Joe Manchin (D-WV) over dinner on September 12 to discuss possible support for a tax reform bill.

“I will tell you, for the tax bill, I would be very surprised if I don’t have at least a few Democrats,” Trump told reporters following the dinner.

The White House and Congress have so far failed to propose a joint comprehensive tax plan, despite months of negotiations. Trump has indicated that, if some members of the Republican party hold back reform, he may try to instead bring on board Democrat lawmakers to push through a bipartisan bill.

Americans For Tax Reform Backs Simple Tax Form For Seniors

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By Tax-News

Tax Reform

Americans for Tax Reform (ATR) has urged all members of Congress to support a bill aimed at simplifying tax filing for American seniors.

The president of the taxpayer advocacy group, Grover Norquist, wrote to Congressman Bill Posey (R – FL), who is introducing the Seniors’ Tax Simplification Act. The bill would create a new tax form, 1040SR, aimed at senior citizens with relatively simple tax affairs. It would include the most common types of income reported by seniors on it, such as interest, dividends, capital gains, Social Security benefits, and pension payments.

Norquist noted that a similar form already exists: form 1040EZ. However, this covers some forms of income not relevant for those who have retired.

He suggested that introducing form 1040SR could benefit some 23 million taxpayers.

Norquist said “All members of Congress should have no hesitation supporting and co-sponsoring this helpful legislation.”

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.

US Pass-Throughs Set Out Tax Reform Wish List

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By Tax-News

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The Parity for Main Street Employers business coalition has issued a new letter that calls on the US Congress to enact tax reform “that is comprehensive, restores tax rate parity for all businesses, and reduces or eliminates the double tax on corporate income by integrating the corporate and individual tax codes.”

The March 17 letter, signed by more than 110 business associations and addressed to the Chairmen and Ranking Members of the House of Representatives Ways and Means Committee and the Senate Finance Committee, noted that tax reform needs to be comprehensive, so as to encompass both C corporations and pass-through entities, including partnerships, sole proprietorships, and S corporations.

Pointing out that, with nearly 70m workers employed at pass-through entities, whose profits are passed directly to their owners and are taxed on their individual tax returns, tax reform should “ensure that we avoid harming these critical employers, [and therefore] needs to be comprehensive and improve the tax code for corporations and pass-through businesses alike.”

The letter also urged that Congress should “restore rate parity by reducing the tax rates paid by pass-through businesses and corporations to similar, low levels. The 2012 fiscal cliff negotiations resulted in pass-through businesses paying, for the first time in a decade, a significantly higher top marginal tax rate than C corporations.”

“Taxing business income at different rates penalizes pass-through businesses and encourages planning to circumvent the higher rates,” it added, “ultimately resulting in wasted resources and lower growth.”

Finally, it recommended that “Congress should eliminate the double tax on corporate income [at both the corporate and the shareholder levels] by integrating the corporate and individual tax codes. … A key goal of tax reform should be to continue to reduce or eliminate the incidence of the double tax and move towards taxing all business income once.”

US Senate Finance Committee Chairman Orrin Hatch (R – Utah) has recently confirmed that he is working on a proposal for corporate tax integration. However, this year’s tax reform efforts in the House of Representatives are being concentrated on international tax reform, with indications that it could include a corporate rate cut (which would increase the disparity with individual tax rates).

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.

Could Wal-Mart spur tax reform?

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!

By Bankrate

Wal-Mart, the world’s largest retailer, is both loved by millions of bargain-seeking consumers and hated by millions of others, including activist groups who see it as the epitome of corporate greed.

taxes-blog-could-wal-mart-spur-tax-reform

 

The Bentonville, Arkansas-based company also might be the catalyst that prompts Congress to finally act on long-stalled tax reform.

This week the Americans for Tax Fairness, or ATF, a liberal-leaning Washington, D.C., consortium of other advocacy groups, released a report charging Wal-Mart with using an “extensive and secretive web of subsidiaries located in countries widely known as tax havens.”

And although ATF questions the legality of some of Wal-Mart’s financial moves, most tax experts say the company is adhering to convoluted corporate tax laws.

Wal-Mart in Luxembourg

So just what is Wal-Mart accused of doing in the international tax arena?

ATF says that research compiled by the United Food & Commercial Workers International Union shows Wal-Mart has 22 shell companies in Luxembourg. Twenty of the companies were established since 2009 and five in 2015 alone, according to the report.

But as for retail outlets, ATF says that Wal-Mart does not have one store in that European nation, which is infamous as a tax haven country.

Dollar-wise, ATF says Wal-Mart has transferred ownership of more than $45 billion in assets to Luxembourg subsidiaries since 2011.

And as for taxes, the company reported paying less than 1 percent in tax to Luxembourg on $1.3 billion in profits from 2010 through 2013.

Added to a long international tax list

Wal-Mart is not alone in using its global presence to trim, or even eliminate, its U.S. tax liability. Other well-known American firms with worldwide reaches — Apple, Amazon, Starbucks, Goodyear Tire and Wynn Resorts to name a few — have managed to pay the U.S. Treasury very little or even nothing by making specific tax code moves.

Typically, these companies set up subsidiaries in lower tax nations and get U.S. tax credits for the payments they make abroad. Others move their corporate headquarters to a foreign location, on paper at least — a process known as inversion.

Problem with repatriation

But would changes to the U.S. international tax system be better or worse? One of the most frequently discussed ways to return U.S. companies fully to the domestic tax fold is to offer incentives.

This possibility, contends ATF, is part of what it calls the big box retailer’s long game.

Wal-Mart, says the advocacy group, “apparently hopes the U.S. Congress will reward its use of tax havens by enacting legislation that would allow U.S.-based multinationals to pay little U.S. tax when repatriating current low-taxed foreign earnings (such as to fund infrastructure spending) and pay no tax with the adoption of a territorial tax system.”

Tax change isn’t easy or cheap

Point taken. But any tax code changes will produce winners and losers. The goal is to offset the short-term losses in exchange for longer-term corporate tax benefits — not for just the companies, but also for Uncle Sam.

Changes to U.S. taxation of multinational companies already have been getting a closer look. Our combined state/federal corporate tax rate of 39 percent is the highest among global developed countries and there is bipartisan agreement that changes need to be made to bring that rate down so that truly U.S.-based firms remain internationally competitive.

Now that Wal-Mart’s role in corporate tax-reduction maneuvers is under the spotlight, the company’s size and notoriety might just spur Congress to finally make some Internal Revenue Code changes.

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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.