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.

March 15th Corporate Tax Filing Deadline Approaching

March 15th Corporate Deadline Approaches
March 16th Corporate Deadline

The Deadline to file corporate tax returns (forms 1120, 1120A, and 1120S) is Tuesday March 15th, 2016. Most corporate returns are required to be filed electronically therefore they must be sent to the IRS before midnight on the 15th.  If for some reason you are filing a paper corporate tax return, the post mark on the envelope must show 11:59pm or earlier in order to avoid late filing penalties.

If you require more time to file your corporate return, you can request a 6-month extension by filing federal Form 7004 and any corresponding state(s) extensions, however these too must be electronically filed or mailed before the March 16th Deadline.

If you require immediate assistance regarding filing your corporate return(s), contact an R&G Brenner professional before the deadline.

March 16th Corporate Tax Deadline Approaching

March 15th Corporate Deadline Approaches
March 16th Corporate Deadline

The Deadline to file corporate tax returns (forms 1120, 1120A, and 1120S) is Monday March 16th, 2015. Most corporate returns are required to be filed electronically therefore they must be sent to the IRS before midnight on the 16th.  If for some reason you are filing a paper corporate tax return, the post mark on the envelope must show 11:59pm or earlier in order to avoid late filing penalties.

If you require more time to file your corporate return, you can request a 6-month extension by filing federal Form 7004 and any corresponding state(s) extensions, however these too must be electronically filed or mailed before the March 16th Deadline.

If you require immediate assistance regarding filing your corporate return(s), contact an R&G Brenner professional before the deadline.

How a Tax Loophole Allows Corporations to ‘Invert’

Corporate Inversions Are Increasing Drastically
Corporate Inversions Are Increasing Drastically

Imagine, as an American, choosing to become a teacher in Russia, or a tour guide in Italy. According to U.S. tax law, you would have to pay taxes on your earnings, just as you would if you worked domestically. Now, imagine you’re an American corporation which has just purchased a foreign company. You shift over ownership and operations to your new foreign holdings and become subject to a different set of tax laws, allowing your business to avoid paying what it otherwise would in taxes.

In fact, the money wouldn’t even be treated as American money. The process described above is known as inversion, and will be used by American corporations to shift their ownership overseas and dump profits into tax shelters around the world to the tune of $20 billion over the next ten years. Congress is aware of it as an issue, but a successful approach to stemming capital flight remains elusive.

Are Inversions Helping the Economy… or Corporations?

While the Obama administration made fixing these loopholes a priority earlier this year, most on all sides agree these are temporary measures unlikely to stop any real, long-term capital flight. The main reason for this is because while such capital expatriation schemes work in the short-term, other loopholes exist to shift ownership. As a result, there are two solutions that are seriously being discussed: one on the side of the multinational corporations themselves, and another which is now starting to gain traction in economic circles and which was the subject of recent lectures at NYU.

Changing the Tax Structure to Inhibit Capital Flight

Most multinationals and think-tanks that want change would prefer change that would continue to allow corporations to do multinational business. The general basis of this argument runs as follows: if the taxation scheme in the U.S. were friendlier to businesses, this would stem capital flight and cause corporations to reinvest in the U.S. The motivation would stem primarily from tax incentives to do business in the U.S., thus reducing the costs of operation for corporations who would otherwise turn overseas.

Not all investors agree that a “trickle-down” solution would actually work. Controversial venture capitalist Nick Hanauer points out that companies given indirect incentive to reduce their costs at a domestic level often fail to reinvest in their domestic workforce, but in fact simply add that money into their general profits. It is difficult to see how continuing to provide incentive to reduce corporate costs internationally would change that paradigm. Since such a program would in no way incentivize such corporations to shift their profits back into U.S.-based research and development, this answer seems to simply reward corporations already using a tiered structure.

Internationalizing Capital Taxation

An alternate solution being proposed, however, would more directly impact how inverted companies do business: by requiring a consistent standard on global profits as opposed to simply reported American profits. This would immediately force companies profiting in the U.S. but diverting their profits outside the country to still pay taxes on them. This would ensure that companies making money in the United States would have to pay their fair share, regardless of where they try to move their money.

5 Reasons To Call Your Tax Pro Today!

Start Your Tax Planning Now

Kelly Phillips Erb–better known as the Taxgirl (@taxgirl) lists 5 reasons why you should contact a tax professional today:

  1. Corporate extensions are over but individual returns on extension are due in a little over three weeks. Individuals who timely requested a extension – about 10 million taxpayers – have until October 15, 2012 to file their 2011 federal income tax returns. Don’t wait until the last minute: the whole point of getting that extension was so that your return wouldn’t be sloppy, right?
  2. Estimated tax payments were due earlier this week. September 17, 2012, to be exact. The whole point of making estimated payments is not to owe too much at tax time (and end up paying a nasty penalty), especially for those folks who rely on income not subject to withholding (generally, independent contractors and those that are partners in an LLC, LLP or LP or members of S corporations). Now that most of the year has flown by, it’s a good chance to run those numbers to make sure that you’re withholding enough – or too much. You don’t want to err on the side of paying in too much, either. If 2011 wasn’t as banner a year as 2010, you might be paying the IRS too much. A tax pro can help you sort this out in advance so that April 2013 isn’t quite so painful.
  3. The Tax Code is constantly changing. Credits expire, deductions shrink and rates can fluctuate from year to year. For planning purposes, it’s best to know what to expect ahead of time. If you’re trying to plan, knowing when tax breaks for hiring certain employees or making energy efficient improvements to your house expire is useful. A good tax professional can point you in the right direction (with the caveat that Congress is still wont to undo it all at any second).
  4. End of the year planning opportunities are just around the corner.Many taxpayers start thinking about their options in January but many tax savings plans have to be completed in December in order to count for that tax year. If you want to save tax dollars for tax year 2012, in most instances (retirement plan contributions being an exception), you have to act before December 31, 2012 – including the really big ones like getting married. And this doesn’t just apply to individual income taxes: planning for estate and gift taxes, as well as most corporate and partnership taxes, is focused on the same year end: December 31. If you have moves to make by year end, get things going now – and get some help.
  5. Finally, business slows down a little (just a little) at the end of the year for many tax professionals. This might be the best time to get some personal attention if there’s something you’ve been concerned about. Maybe your bookkeeping isn’t terrific and you want to change software packages… or maybe the pencil on your old green ledgers is too hard to read these days and you’re thinking about diving in and trying online accounting. Maybe you’re thinking about contributing to an IRA for your spouse or a 529 savings plan for the kiddos. Maybe you just want to find a new preparer. The very best time to do those things is January 1. But that’s the worst time to start thinking about it – just after the holidays can be hectic. Ask now. Get the facts. Organize. Fill out the papers. Resolve to start fresh.

Contact an R&G Brenner Tax Professional today to discuss your tax strategy for the upcoming tax season.

Source:  Forbes