5 Ways Trump Tax Plan Could Impact 2016 Year-End Planning

Donald Trump’s victory are and his proposed tax plan are making waves in the wake of the election last week. Robert W. Wood from Forbes gives us the 5 ways his tax plan could impact your year-end planning.

5-ways-trump-tax-plan-could-impactWith Republicans retaining control over the House and Senate, some tax cuts are inevitable. With this quite extraordinary confluence of events, President-elect Trump and Congress might tell the tax code, “you’re fired!” This could suggest that deferring income into next year if you can might be wise. Next year, the rates should be lower. 

1. Individual Rate Cuts
Trump proposes cutting the tax brackets to three: 12%, 25%, and 33%. He would eliminate Obamacare’s 3.8% net investment income tax, too. As a result, the top rate would be 33%, with the top rate on capital gains and dividends a firm 20%.

2. Business Tax Cuts
Corporations currently pay 35%. President-elect Trump would cut it to 15%. But he would eliminate most business deductions. And there would be simplicity. Instead of depreciation over many years, he would allow up-front deductions. 

3. Overseas Profits 
Trump’s plan would impose up to a 10% deemed repatriation tax on the accumulated profits of foreign subsidiaries of U.S. companies. That 10% toll charge would be payable over 10 years, Trump has proposed. Trump and his team say this change would trigger a huge inflow of funds back to the U.S. 

4. No Death Tax
Under current law, you can pass up to $5.45 million to your heirs tax-free. But beyond this, you pay an estate tax of 40%. It is entirely separate from income taxes. The president-elect said he would repeal it entirely. But if the estate tax is repealed, Trump’s proposal would allow income tax on the appreciation inherent in the assets for an estate valued in excess of $10 million.

5. Top v. Bottom
Not everyone is wild about the Trump proposals. Much of the criticism of Trump’s tax plans are that he would give the biggest breaks to the highest earners. Trump and his team have suggested that loosening of capital at the top will encourage investment, trigger transactions, create jobs and fuel economic growth. Change in the tax world is constant. Yet by any standards, some of the tax changes likely in 2017 and beyond are going to be huge.

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4 Areas Where The Election Might Take a Bite of Your Wallet

4 Areas ElectionMajor economic policy issues likely won’t make it to the floor this election cycle. But that doesn’t mean your pocketbook won’t be affected by Tuesday’s vote.

According to Jacob Davidson in an article on Money.com, here are 4 areas that will most certainly be addressed after the Midterm elections.

Minimum Wage

Many conservative economists say a higher minimum wage will slow job growth and price low-skill workers out of the job market. “The guy who gets the job gets more,” says Douglas Holtz-Eakin, former head of the Congressional Budget Office and an economic advisor for John McCain’s presidential campaign. “But the guy who doesn’t is out of work.”

Liberals, on the other hand, see little evidence that a higher minimum wage will mean fewer jobs. “We think it shows really immeasurable employment effects,” says Josh Bivens, director of research in policy at the left-leaning Economic Policy Institute.

Obamacare

The Affordable Care Act, known by the popular moniker Obamacare, has been a topic of contention ever since it was first envisioned. But while Republican opposition has been virtually constant throughout the law’s history, the GOP’s stance appears to have softened in recent months. “The GOP has been fighting over what to do about ACA, but there is no Republican proposal,” says Gleckman. “You can’t beat something with nothing and it doesn’t work to say to people who got insurance under the ACA, ‘We’re going to take it away from you and we can’t tell you what we’re going to replace it with.’”

That said, there is bipartisan support for a handful of Obamacare reforms.

Taxes

The mythical-sounding “grand bargain” over the tax code won’t happen in the next two years, if ever, but some tweaks around the edges are a realistic possibility.

For example: Last December, about 80 tax provisions were allowed to expire. Most of them affected businesses, but some will be felt by consumers if they’re not approved in time for tax season 2015. Among the provisions in need of renewal are tax incentives for electric cars and energy-efficient appliances, meaning anyone who purchases said items this year will lose money if the provisions aren’t reintroduced.

Banking Regulations

The Dodd-Frank law, which introduced a host of new regulations for financial institutions, is deeply unpopular among Republicans. But as with Obamacare, any major reforms would almost certainly be vetoed by the president.

One provision has at least a chance of change: Under the current law, big and small banks generally have to follow the same rules, which are heavily influenced by international requirements. That’s arguably appropriate for large companies that have a global footprint, says Holtz-Eakin, but not so for smaller institutions, which pose far less systemic risk. He believes less burdensome regulations could make it easier for small banks to give loans on things like houses, cars, and small business expenses.

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Super Sized Tax Bite at Super Bowl

Super Sized Tax BiteWhile most of the nation views the Super Bowl with an eye to inhaling vast quantities of wings, chips and beer, checking out the best commercials and, oh yes, even watching the game, the state of New Jersey has its eyes on a bigger feast. It will be closely watching, and reaching into, the players wallets! In what has become a major source of revenue for many states, NJ will be taxing the income of every player and employee of the Broncos and Seahawks who make the trip. As detailed in an article on NJ.com they have no choice in the matter.

The state Division of Taxation will be taking a cut of Denver Bronco quarterback Peyton Manning’s estimated $15 million salary, as well as a portion of the $7 million paid to Seahawks running back Marshawn Lynch, and a piece of the $662,434 Seattle starting quarterback Russell Wilson will earn next season.

Indeed, every member of the two Super Bowl teams coming here this week will take a tax hit during their brief stay in New Jersey — every player, every coach and trainer and anyone else who regularly travels with two organizations.

Unlike Florida — which has hosted 15 Super Bowls and had been vying for this one too, will see temperatures this week in the 70s and has no personal income tax for National Football League players (or anyone else for that matter) — New Jersey imposes an 8.97 percent tax bite on all out-of-state athletes that come here to play.

They call it the “jock tax,” and New Jersey is not the only state that targets the multimillion-dollar paychecks of professional athletes. From California to New York, state tax authorities routinely take a percentage of the salary out of every visitor’s locker room.

“If a doctor or executive goes to Chicago for a business meeting, nobody cares,” said Robert Raiola, a CPA who specializes in sports taxation. “But if a ballplayer goes to Chicago for a game, the state of Illinois will be looking for him to file a tax return.”

Raiola, senior manager of the sports and entertainment group within the accounting firm of O’Connor Davies LLP in its Cranford office, said athletes across the country often file more than a dozen tax returns every year, paying taxes in every state in which they compete — and sometimes local taxes as well, if they play games in cities like Cleveland, Detroit and Philadelphia. So do many of the high-profile sportscasters who join them on the road.

The tax is essentially a super-sized commuter tax, based not just on the gameday itself, but how many days an athlete is in the state, imposed on a prorated portion of the player’s salary for the year.

A spokesman for the New Jersey Treasury Department said both basic pay for any games played in the state and any bonuses paid for championship, playoff or bowl games played by a team are covered by the state’s tax rules.

“For all professional athletes covered by this regulation, the average amount of income tax the state collects each year is about $10 million,” said spokesman Christopher Santarelli.

That doesn’t include the taxes paid by members of the Giants, Jets and Devils who are New Jersey residents.

Pay to play

Soon afterward, though, nearly every state with a professional sports team wanted a piece of the action and athletes across the country suddenly were getting bills every time they stepped off a plane.

“Everywhere they play, they must pay,” said Steven Piascik, a CPA and financial adviser whose Glen Allen, Va., firm specializes in sports accounting and has members of both Super Bowl teams as clients.

If the Super Bowl had gone to Tampa or Miami, both starting quarterbacks would have paid nothing to Florida in taxes —a big reason why players love playing there.

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