While the House has passed its healthcare bill, the Senate bill continues to sit on the shelf. Apparently, the Senate is waiting for the scoring of the proposed bill by the Congressional Budget Office. Essentially, scoring is the CBO's estimate of how much all of the will cost over the next 10 years. I would really like to see that excel spreadsheet.
New reports are coming out that Senate Majority Leader Reid is considering an increase in the Medicare tax from its current 1.45% as part of the bill. He is also considering the application of a new Medicare tax on capital gains.
In its current form the Medicare tax is applied to earned income (wages, etc.). Most wage earners pay the Medicare tax by withholdings on their wages. Self employed individuals pay it through the Self Employment Tax on their self employment income with their individual tax return. It is suggested that potential increases in the Medicare tax rate on earned income might only be applied to income in excess of $250,000. A Medicare tax on capital gains does not currently exist in the tax law. I guess wealth redistribution in the United States begins at $250,000.
A strange twist in the Senate bill is a reduction in the amount that taxpayers can contribute to flexible spending accounts. Many employees take advantage of flexible spending accounts to pay for qualifying healthcare expenses with pre-tax funds. Generally the maximum contribution to a flexible spending account is $5,000 per year. The Senate bill would reduce this maximum to $2,500 per year. This provision is all about raising additional revenue and is in effect an additional tax. Lowering the maximum contribution simply results in more of an individuals earnings being subject to income tax. I thought we wanted to encourage people to spend wisely on healthcare.
Friday, November 13, 2009
Thursday, November 05, 2009
Extension of First Time Homebuyer Tax Credit
Included in a bill to extend unemployment benefits to many Americans is an extension of the First Time Homebuyer Tax Credit. The credit is currently slated to expire on November 30, 2009.
As would be expected, Congress continues to tinker with tax law provisions like this credit. The proposed credit would not longer be limited to first time buyers who may be able to claim an $8,000 credit, but would be expanded to people who have owned a home for at least five of the last eight years. Those individuals could get up to a $6,500 credit on the purchase of a new residence. I suspect the name of the credit will need to be changed to the "First, Second, Third and possibly Fourth Time Homebuyer Tax Credit".
Annual income limits (before the credit begins to phase out) to claim the credit are proposed to increase to $125,000 for individuals and $225,000 for married couples.
To qualify purchase contracts would need to signed before April 30, 2010 and closing would need to occur before June 30, 2010. The proposal also limits the cost of the new home to $800,000. That's a lot of house...
Any tax advice contained in the body of this blog was not intended or written to be used and cannot be used, by the reader for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions.
As would be expected, Congress continues to tinker with tax law provisions like this credit. The proposed credit would not longer be limited to first time buyers who may be able to claim an $8,000 credit, but would be expanded to people who have owned a home for at least five of the last eight years. Those individuals could get up to a $6,500 credit on the purchase of a new residence. I suspect the name of the credit will need to be changed to the "First, Second, Third and possibly Fourth Time Homebuyer Tax Credit".
Annual income limits (before the credit begins to phase out) to claim the credit are proposed to increase to $125,000 for individuals and $225,000 for married couples.
To qualify purchase contracts would need to signed before April 30, 2010 and closing would need to occur before June 30, 2010. The proposal also limits the cost of the new home to $800,000. That's a lot of house...
Any tax advice contained in the body of this blog was not intended or written to be used and cannot be used, by the reader for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions.
Saturday, October 31, 2009
Team DKB Tax at the AICPA National Tax Conference
Jim Saylor and I attended this year's AICPA National Tax Conference in Washington DC on October 26 and 27. This conference is attended by more than 500 CPA's annually. Team DKB Tax has attended this conference since 1995. It is a great way to see how the income tax landscape is shaping up.
Conference topics tend to reflect the times. That was definitely true this year. Some of the more expansive topics addressed this year include law changes from the Emergency Economic Stabilization Act and the American Recovery and Reinvestment Act related to:
The take away from these recent law changes is that tax planning for individual and business taxpayers will be more important than ever. Taxpayers need to understand how they can benefit from these and other law changes in reducing their overall tax liabilities for 2009 and future years. Tax planning right now will be critical once you understand what the Congress and President may be planning for future tax rate increases and new taxes.
Topics at the conference also address expectations by speakers about potential legislative changes. The hottest topic was healthcare. I think the healthcare debate is a mystery to most individuals and business owners. There are a number of bills in the House and Senate that will needed to be merged by both houses. Once a bill is passed by each house a final bill will need to be agreed upon by a conference committee before being sent to the President. The prevailing view of many commentators is that Congress will pass and the President will sign an healthcare bill in to law. This is a significant effort, but many expect it will be completed around the Christmas holiday. I am not sure if businesses will see the new legislation as a "gift".
The size and scope of the final law will likely have a signficant impact on numerous businesses. Many bill versions include provisions that would require employers (other than small employers with maybe fewer than 10 or 20 employees) to contribute signficiant percentages of the cost of an employee's annual healthcare premiums or pay additional taxes. Some bill versions require that employers who opt out of providing coverage will be subject to excise taxes on payroll paid to employees not covered by health plans. Most businesses will need to quickly develop estimates and models of the potential cost of providing healthcare coverage under the final law. Many were questioning in the summer if we would have new law. Those feelings have now changed to "when we have a new law" and anticipation of what the law will look like. Proactive businesses will be ready the adapt and change to accomodate the new laws.
Income tax changes related to a healthcare bill and other law changes will be likely be significant. Part of paying for the a new healthcare bill may include an adjusted gross income surcharge (actually a tax by another name) that could range from 1% to 5.4% of taxpayers' adjusted gross income. Some estimates suggest that a healthcare bill alone could cost in excess of $200 billion annually.
Many commentators expect that the Bush income tax cuts will be allowed to expire. This could mean that the highest marginal income tax rate could increase to 39.6% on ordinary income and 20% on long term capital gains and qualifying dividends after 2010. In addition, many believe that an estate tax patch could be passed by Congress and signed by the President before the end of 2009. The patch would merely extend the estate tax rules as they exist for 2009 into 2010. This is in place of the elimination of the estate tax that was previously enacted into law. No one expects the estate tax to go away as previously enacted into law.
I have merely scratched the surface of changes ahead. Tax and business planning to understand how current law and law changes will impact your business and personal finances is critical to your continued success. TeamDKB Tax can help. Let us know how.
Any tax advice contained in this blog was not intended or written to be used and cannot be used, by the reader, for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local law provisions.
Conference topics tend to reflect the times. That was definitely true this year. Some of the more expansive topics addressed this year include law changes from the Emergency Economic Stabilization Act and the American Recovery and Reinvestment Act related to:
- First time homebuyer tax credits (and maybe an extension)
- Tuition tax credits
- Changes in retirement plan required distributions
- Deductions for sales tax paid on new automobile purchases
- Extension of accelerated depreciation provisions related to certain leasehold improvements
- Extension of the research and experimentation credit
- Expanded deferral of income recognition on debt forgiveness
- Extension of 50% bonus depreciation
- Expanded net operating loss carrybacks for small businesses
The take away from these recent law changes is that tax planning for individual and business taxpayers will be more important than ever. Taxpayers need to understand how they can benefit from these and other law changes in reducing their overall tax liabilities for 2009 and future years. Tax planning right now will be critical once you understand what the Congress and President may be planning for future tax rate increases and new taxes.
Topics at the conference also address expectations by speakers about potential legislative changes. The hottest topic was healthcare. I think the healthcare debate is a mystery to most individuals and business owners. There are a number of bills in the House and Senate that will needed to be merged by both houses. Once a bill is passed by each house a final bill will need to be agreed upon by a conference committee before being sent to the President. The prevailing view of many commentators is that Congress will pass and the President will sign an healthcare bill in to law. This is a significant effort, but many expect it will be completed around the Christmas holiday. I am not sure if businesses will see the new legislation as a "gift".
The size and scope of the final law will likely have a signficant impact on numerous businesses. Many bill versions include provisions that would require employers (other than small employers with maybe fewer than 10 or 20 employees) to contribute signficiant percentages of the cost of an employee's annual healthcare premiums or pay additional taxes. Some bill versions require that employers who opt out of providing coverage will be subject to excise taxes on payroll paid to employees not covered by health plans. Most businesses will need to quickly develop estimates and models of the potential cost of providing healthcare coverage under the final law. Many were questioning in the summer if we would have new law. Those feelings have now changed to "when we have a new law" and anticipation of what the law will look like. Proactive businesses will be ready the adapt and change to accomodate the new laws.
Income tax changes related to a healthcare bill and other law changes will be likely be significant. Part of paying for the a new healthcare bill may include an adjusted gross income surcharge (actually a tax by another name) that could range from 1% to 5.4% of taxpayers' adjusted gross income. Some estimates suggest that a healthcare bill alone could cost in excess of $200 billion annually.
Many commentators expect that the Bush income tax cuts will be allowed to expire. This could mean that the highest marginal income tax rate could increase to 39.6% on ordinary income and 20% on long term capital gains and qualifying dividends after 2010. In addition, many believe that an estate tax patch could be passed by Congress and signed by the President before the end of 2009. The patch would merely extend the estate tax rules as they exist for 2009 into 2010. This is in place of the elimination of the estate tax that was previously enacted into law. No one expects the estate tax to go away as previously enacted into law.
I have merely scratched the surface of changes ahead. Tax and business planning to understand how current law and law changes will impact your business and personal finances is critical to your continued success. TeamDKB Tax can help. Let us know how.
Any tax advice contained in this blog was not intended or written to be used and cannot be used, by the reader, for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local law provisions.
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