Who Benefits From Trump’s Tax Plan?

Who are the Winners & Losers in Trump’s Proposed  Tax Plan

While the details are just emerging and the final plan is sure to change, the tax overhaul that Trump & the Republican party recently unveiled has clear beneficiaries; and early indications are it is NOT the “middle class”.  In fact, according to this analysis, Trump’s tax plan will see the majority of the benefits—i.e. tax cuts— to the rich; particularly the top 1% & 0.1%.

 In Indianapolis last Wednesday, Trump outlined his proposal and stated, “…the biggest winners will be the everyday American workers as jobs start pouring into our country, as companies start competing for American labor and as wages start going up at levels that you haven’t seen in many years…”.   This is your classic “trickle down economics” argument that has been made for decades; that by cutting taxes on big businesses and the wealthy, the average American worker will see the benefits work their way down to them in the form of higher wages and more jobs.  The only problem is that study after study has shown these benefits never really reach the middle class.  Staying true to theory of trickle down, Trump proposes slashing taxes dramatically for Americans who earn north of $730,000 a year.

What’s in Trump’s Tax Plan? 

Although far from finalized, the main points of the plan that affect Individual taxpayers are:

  1. Reduce the tax bracket from seven brackets to three: with tax rates of 12%, 25% and 35% percent with a possibility of adding a fourth bracket.
  2. Doubling the standard deduction from $6,000 to $12,000 for individuals and from $12,000 to $24,000 for those married filing jointly.
  3. Creation of a new tax credit for non-child dependents while increasing the current child tax credit.
  4. Elimination of most itemized deductions but keeping the mortgage interest and charitable giving deductions.  Tax incentives for retirement saving and education plans will be retained; i.e SEP, Traditional, Roth IRA’s and 529 college saving plans etc.

As far as business & corporate taxes, this proposal is just as ambitious.  In President Trump words: “This will be the lowest top marginal income tax rate for small and midsize businesses in this country in more than 80 years…”.  Under this plan, businesses and corporations would see:

  1. A decrease in overall tax rate from 35% to 20%
  2. A new tax rate of 25% for “pass-through” income for businesses like sole proprietorships and partnerships which currently make up nearly 95% of all businesses which are taxed at the rate of their owners.
  3. Limitation of the deductibility of corporate interest expenses, in exchange for the option to immediately expense business investments
  4. Preserves tax credits for research and development and low-income-housing from a business standpoint.

Although the tax plan has a vast amount of changes for individuals & business on many levels, the benefits overwhelming favor the affluent and business owners.

How is the Public Reacting to the Trump Tax Plan?

Proponents of this tax plan for companies are overjoyed: “An encouraging step forward in our shared goal of a tax system that delivers higher economic growth, job creation and wages that our country desperately needs.” said Jamie Dimon, the chief executive of JPMorgan Chase and the chairman of the Business Roundtable.  John Stephens, the AT&T chief financial officer, said it was “A big step toward meaningful reform that would encourage more investment and job creation in the United States.”

Opponents like Edward D. Kleinbard, a tax expert at the University of Southern California law school calls Trump’s Tax Plan “a very cynical document…The extraordinary thing about the proposal is that we know that it loses trillions of dollars in revenue, yet at the same time the only people we can identify as guaranteed winners are the most affluent.”  Even Republican Rand Paul recently came out against Trump’s tax plan calling it a “middle class tax hike”.

 

This analysis from the Tax Policy Center above clearly illustrates how the current tax proposal favors the wealthy; particularly  the top 1 percent and top 0.1% them.  Pay particular attention to the Share of Total Federal Tax Change.  It breaks down U.S. income earners into 5 categories—from those making the least in the lowest quintile to those making the most in the top quintile.  As you can see, the top quintile reaps a whopping 86.6% of these potential tax cuts!  The other 4 quintiles combined would only realize 13.4% of these cuts. Parsing these numbers even further for the top quintile the majority of tax cuts go to the top 1% (79.7%) and the top 0.1% (39.6%) which equate to an average tax cut of $207,060 & $1,022,120 respectively.  Most Americans don’t even come close to earning the amount of money the top 1% would gain in tax cuts. 

Time & time again, Trump has pledged on the campaign trail and as President that the middle class will see the rewards of his tax cuts and it was time for the rich to pay their fair share by closing tax loopholes amongst other things. However, it is hard to come to any other conclusion than this tax plan, if passed, would overwhelmingly benefit the wealthy and not the middle class. In fact, this plan may create even more tax loopholes that would directly benefit wealthy families.

How Does Trump’s Tax Plan Affect You?

If the previous health care battles are any guide, the political fight to get these cuts enacted will be fierce and has only just begun.  This means that the ordinarily taxpayer can most likely expect tax filing delays—similar or worse than in recent years—while congress bickers…especially for taxpayers who file early.  It will be a while before we can really dig into the ultimate affects of whichever Trump’s tax proposal is ultimately passed.  One thing is for certain: In it’s current form the only real beneficiaries to this proposal are those that make nearly a $1 million or more annually.  Because of all this uncertainty and the prospect for an increase in taxes for the middle class, hiring the services of a Tax Professional this tax season may be well worth the money as they can help you navigate this complicated tax climate as well as potentially unlock benefits you might ordinarily overlook.

If you’d like more information about out how Trump’s existing or eventual tax proposal will affect you, feel free to contact us via the web or call us toll-free at (888) APRIL-15 to speak to an R&G Brenner Tax Professional.

Please feel free to comment below on Trump’s proposed tax overhaul.

Will My Refund Be Delayed This Year?

If your rely on your refund, plan for delays
If your rely on your refund, plan for delays

“Will my refund be delayed this year” is becoming an all too common refrain these days. Delayed e-filing dates, IRS not accepting tax forms & documents not being mailed out on time have all occurred over the last few years and have caused refund delays. However for the 2017 tax filing season (2016 tax year), it looks like we will get hit with all three of these scenarios at once:

Electronic Filing Start Date

Electronic filing has historically began around January 15th.  However, over the past few years, these dates have been pushed back from a couple of days to a couple of weeks.  This year is notable because as of time of this writing, the IRS has not even formally announced a beginning date to electronic filing!  A commencement date is usually announced weeks if not months earlier.  Therefore, it is a good bet to expect electronic filing to begin after 1/15 this year.  We will post the official start date once the IRS releases it.

IRS Delaying Processing of Popular Tax Credits

The IRS has announced that the following tax credit forms will not be accepted for processing until February 15th, 2017:

  • Earned Income Tax Credit (EITC)
  • Child Tax Credit (CTC)
  • Additional Child Tax Credit (ACTC)
  • The American Opportunity Credit (AOTC).

This is a nationwide law change required by Congress in the Protecting Americans from Tax Hikes (PATH) Act; this is not a company or state change. If you normally file your taxes around this time (2/15/17), this delay should have a minimal impact on you.  However, if you tend to file early and/or have plans for your tax refund in advance, R&G Brenner suggests that you prepare yourself accordingly. For example: if you rely on your refund for critical services (rent, utilities, etc), we suggest that you save some funds to carry you through any potential delays.

IRS Delays Form 1095 Distribution Deadline

The original deadline for distributing Form 1095-B and Form 1095-C to individuals was January 31, 2017. The new deadline is March 2, 2017. The extension provides Applicable Large Employers (ALEs), self-insured group health plans, and health insurance carriers more time to populate and distribute the forms.  Since a final tax return cannot be filed without these health care related reporting, this too may delay the filing of your return and receipt of your refund.

These delays will affect taxpayers who claim popular credits & professional tax preparers the most as it may create a backlog and crush of appointments later on in the year.  R&G Brenner suggests that you bring with you all supporting documentation for the above tax credits which will allow for the accurate preparation of your return and help minimize any potential delays.

If you have any additional questions about this or anything else, please feel free to contact an R&G Brenner professional via the web, or by calling us toll free: (888) APRIL-15.

Tax Breaks for New Parents

Tax Breaks For New Parents
Tax Breaks For New Parents

Having a child changes your life in countless ways, one of which is how you are taxed. New parents unlock several different tax breaks not otherwise offered which are designed to make raising a family financially easier. Here’s a look at a few of them.

Adoption Credit/Adoption Assistance

If you adopt a child, you might be able to use the costs associated with the adoption to reduce your tax burden. Adoption tax breaks come in two forms: a tax credit and a tax exclusion for adoption assistance provided by an employer. These apply if the adopted person is under 18 or unable to care for themselves. In 2013, the overall amount was worth up to $12,970 per child.

Here’s how it works: In one example provided by the IRS, you pay $12,970 in adoption expenses. You receive $2,970 from your employer to help, which lets you reduce your gross (taxable) income by that amount. The remainder ($10,000) becomes a tax credit—so you owe $10,000 less in taxes.

Higher Education Tuition Deduction

If you pay for a child’s higher education at an eligible institution, you can probably deduct many of the expenses and fees involved. The IRS defines an eligible institution as “any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the U.S. Department of Education. It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions.” 

Regardless of whether you take the standard deduction or itemize your deductions, you can adjust your taxable income by up to $4,000 by paying for the education of a dependent. Tuition and fees are deductible, but some expenses (such as room and board) are not. 

Child Tax Credit

In perhaps the simplest of all child-driven tax breaks, the child tax credit might let you “reduce your federal income tax by up to $1,000 for each qualifying child under the age of 17,” per the IRS. There are several conditions to this credit, which are easy to meet for many, if not most, families.  For instance:

  • The child must be under the age of 17
  • The child must live with the taxpayer for the majority of the year
  • the child itself must provide less than half of their support

A phase-out of the credit starts at the following income levels: $110,000 for married taxpayers filing jointly, $55,000 for separately-filing married taxpayers, and $75,000 for everyone else.

Earned Income Tax Credit (EITC)

This one’s a bit more complicated than the child tax credit, but can be just as rewarding. The EITC applies to some individuals with no children, but its amount scales up the more children there are in a family. In an IRS-provided example from 2013, a joint-filing married couple making less than $48,378 (in both earned an adjusted gross income) with two qualifying children could receive a $5,372 maximum credit. With three or more children, the maximum income goes to $51,567 and the maximum credit leaps to $6,044. Several more combinations work as well, so some research may be necessary to see if your family qualifies. Note: to receive the EITC, a family must have earned no more than $3,300 in investment income.

Having a child can be a wonderful, if stressful, experience. However, new parents can rest a bit easier knowing that there are new tax options open to them. Contact an R&G Brenner tax professional to see if you qualify for these tax exemptions, credits and deductions and new parents can spend more time enjoying their family, and less time stressing about their finances.