Last week the House Ways and Means Committee released a draft of Biden’s proposed tax legislation.  Acumen’s team is diligently staying focused as changes occur to advise our clients.  None of these changes have yet to become law, but we anticipate major changes on the horizon.  We would like to share a few key highlights from the potential legislation: 

Individual Tax

Retirement Planning

Business Tax

Estate Tax

The opinions expressed in this commentary should not be considered as fact. All opinions expressed are as of the published date and are subject to change. Information contained herein is not and should not be construed as an offer, solicitation, or recommendation to buy or sell securities. Investments in securities involves risk, would fluctuate in price, and may result in losses. The information has been obtained from sources we believe to be reliable; however, no guarantee is made or implied with respect to its accuracy, timeliness, or completeness.   It is suggested that you consult your financial professional, attorney, or tax advisor with regard to your individual situation.

Acumen Wealth Advisors, LLC® is a Registered Investment Adviser. Advisory services are only offered to clients or prospective clients where Acumen Wealth Advisors, LLC® and its representatives are properly licensed or exempt from licensure. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may be rendered by Acumen Wealth Advisors, LLC® unless a client service agreement is in place.

This checklist can help guide your conversations regarding the highlights of President Biden’s tax plan. Please take a look at this and the companion piece “As A High-Income Taxpayer, How Might President Biden’s Tax Plan Affect Me?” and consider how these resources may be of use to you. You may find this checklist on Acumen’s Resources page: How Might President Biden’s Tax Plan Affect Me?

If you’d like to discuss your personal situation and learn more about how Acumen can help you Invest Intentionally®, please contact us.

Schedule a Meeting

Our mission is to help you and your family Invest Intentionally®.
Contact us today to start your journey.

Start your journey

This report is provided as a courtesy for informational purposes only. The information has been obtained from sources we believe to be reliable; however, no guarantee is made or implied with respect to its accuracy, timeliness, or completeness. This information is hypothetical in nature as no tax plan has been finalized as of publication. The final tax plan could vary.

Report Not a Solicitation
Do not act or rely upon the information in this publication without seeking the services of competent and professional legal, tax, or account counsel.

Report Does Not Provide Legal, Tax, or Accounting Advice
This report does not provide legal, tax, or accounting advice. Before making decisions with legal, tax, or accounting ramifications, you should consult appropriate professionals for advice
specific to your situation.

For More Information
You should seek the services of your legal and/or tax advisors when making financial decisions. It is also recommended that you visit the IRS website at www.irs.gov for additional information.

Acumen Wealth Advisors, LLC® is a Registered Investment Advisor. Advisory service are only offered to clients or prospective clients where Acumen Wealth Advisors, LLC® and its representatives are properly licenses or exempt from licensure. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may
be rendered by Acumen Wealth Advisors, LLC® unless a client service agreement is in place.

President Biden’s administration has outlined a tax policy built upon the agenda introduced during his campaign. Biden’s tax plan focuses on raising taxes on corporations and affluent households, while increasing credits for moderate- to lower-income households. With Democratic control of Congress, changes outlined in President Biden’s tax plan have an increased possibility of becoming a reality. At what time, in what form, and to what extent remains to be seen; however, another round of tax law changes is likely on the horizon.

Having adapted to frequent, and sometimes major, legislative changes in recent years (namely the TCJA, the SECURE Act, the CARES Act, and most recently, the American Rescue Plan Act), you may be understandably concerned about what changes could be imminent. High-income households, in particular, have been targeted for tax increases under Biden’s tax plan.  By familiarizing yourself with President Biden’s tax plan now, you can be positioned to take action and seize planning opportunities when changes are implemented.

Take a look at this checklist to help guide you through conversations regarding the highlights of President Biden’s tax plan, along with the companion piece “How Might President Biden’s Tax Plan Affect Me?”.

You may find this flowchart on Acumen’s Resources page: As a High-Income Taxpayer, How Might President Biden’s Tax Plan Affect Me?

If you’d like to discuss your personal situation and learn more about how Acumen can help you Invest Intentionally®, please contact us.

Schedule a Meeting

Our mission is to help you and your family Invest Intentionally®.
Contact us today to start your journey.

Start your journey

This report is provided as a courtesy for informational purposes only. The information has been obtained from sources we believe to be reliable; however, no guarantee is made or implied with respect to its accuracy, timeliness, or completeness. This information is hypothetical in nature as no tax plan has been finalized as of publication. The final tax plan could vary.

Report Not a Solicitation
Do not act or rely upon the information in this publication without seeking the services of competent and professional legal, tax, or account counsel.

Report Does Not Provide Legal, Tax, or Accounting Advice
This report does not provide legal, tax, or accounting advice. Before making decisions with legal, tax, or accounting ramifications, you should consult appropriate professionals for advice specific to your situation.

For More Information
You should seek the services of your legal and/or tax advisors when making financial decisions. It is also recommended that you visit the IRS website at www.irs.gov for additional information.

Acumen Wealth Advisors, LLC® is a Registered Investment Advisor. Advisory service are only offered to clients or prospective clients where Acumen Wealth Advisors, LLC® and its representatives are properly licenses or exempt from licensure. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may be rendered by Acumen Wealth Advisors, LLC® unless a client service agreement is in place.

Income tax planning is critical to solid financial planning. Navigating our complicated federal pay-as-you go income tax system can be difficult. Adding further complexity, you must understand and adapt to changes in tax laws and in your personal circumstances. In each tax year, it is important to ensure you are properly paying your federal income tax liability in order to avoid penalties. Frequently, you may need to make estimated payments to avoid penalties for late payments and/or underpayments.

We have a flowchart to help you guide through an estimated payments analysis. The decision points identify factors that may trigger a need to make or increase estimated payments, including:

You may find this flowchart on Acumen’s Resources page: Do I Need to Start Making Estimated Federal Income Tax Payments for 2021?

If you’d like to discuss your personal situation and learn more about how Acumen can help you Invest Intentionally®, please contact us.

This report is provided as a courtesy for informational purposes only. The information has been obtained from sources we believe to be reliable; however, no guarantee is made or implied with respect to its accuracy, timeliness, or completeness.

Report Not a Solicitation
Do not act or rely upon the information in this publication without seeking the services of competent and professional legal, tax, or account counsel.

Report Does Not Provide Legal, Tax, or Accounting Advice
This report does not provide legal, tax, or accounting advice. Before making decisions with legal, tax, or accounting ramifications, you should consult appropriate professionals for advice specific to your situation.

For More Information
You should seek the services of your legal and/or tax advisors when making financial decisions. It is also recommended that you visit the IRS website at www.irs.gov for additional information.

Acumen Wealth Advisors, LLC® is a Registered Investment Advisor. Advisory service are only offered to clients or prospective clients where Acumen Wealth Advisors, LLC® and its representatives are properly licenses or exempt from licensure. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may be rendered by Acumen Wealth Advisors, LLC® unless a client service agreement is in place.

Schedule a Meeting

Our mission is to help you and your family Invest Intentionally®.
Contact us today to start your journey.

Start your journey

Retirement is a whole new phase of life. You’ll experience many new things, and you’ll leave others behind – but what you won’t avoid is taxes. If you’ve followed the advice of retirement plan consultants, you’re probably saving in tax-advantaged retirement accounts. These types of accounts defer taxes until withdrawal, and you’ll probably withdraw funds in retirement. Also, you may have to pay taxes on other types of income – Social Security, pension payments, or salary from a part-time job. With that in mind, it makes sense for you to develop a retirement income strategy.

Consider when to start taking Social Security. The longer you wait to begin your benefits (up to age 70), the greater your benefits will be. Remember, though, that currently up to 85 percent of your Social Security income is considered taxable if
your income is over $34,000 each year.

Be cognizant of what tax bracket you fall into. You may be in a lower tax bracket in retirement, so you’ll want to monitor your income levels (Social Security, pensions, annuity payments) and any withdrawals to make sure you don’t take out so much that you get bumped into a higher bracket.

Think about your withdrawal sequence. Generally speaking, you should take withdrawals in the following order:

These factors are complex, and you may want to consult a tax professional to help you apply these tips to your own financial situation. You can test different strategies and see which ones can help you minimize the taxes you’ll pay on your savings and benefits.

To learn more about how Acumen can help you Invest Intentionally®, please contact us.

ACR# 3493422 03/21


 
Acumen Wealth Advisors, LLC® is a Registered Investment Adviser. Advisory services are only offered to clients or prospective clients where Acumen Wealth Advisors, LLC® and its representatives are properly licensed or exempt from licensure. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may be rendered by Acumen Wealth Advisors, LLC® unless a client service agreement is in place. Acumen Wealth Advisors, LLC® is affiliated with RPAG and utilizes their robust retirement plan consulting tools and resources to deliver enhanced value to plan sponsor clients. RPAG™, a wholly owned subsidiary of NFP (NFP Corp.), provides retirement advisors premier technology, systems, training, and resources through its practice management platforms.

In light of Tax Day arriving in a couple days, we thought you might enjoy this article we found with some interesting facts about taxes through the years.

By   

INCOMING!

“Fun tax facts” may seem like an oxymoron, but sometimes taxes can be amusing. From a tax on beards in czarist Russia to an American astronaut who forgot to pay his taxes before heading into space, here are 50 unusual, funny, interesting — and sometimes practical — tax-related tidbits.

TAXES GO WAY BACK

Governments have imposed taxes for thousands of years. There are recordings of tax payments made in ancient Mesopotamia circa 2500 B.C. At the time, people who didn’t have money to pay taxes often had to pay with livestock, food, or labor.

WE TRIED A FLAT TAX

America’s tax laws have been in flux for generations and remain so to this day. The first income tax in the United States came about with the Revenue Act of 1861. A flat 3 percent tax on income above $800 was used to fund the Civil War and repealed 11 years later. In 1894, a new flat federal income tax was ruled unconstitutional by the U.S. Supreme Court. It was not until the 16th Amendment was ratified in 1913 that the federal income tax finally stuck for good.

TAX DAY USED TO BE IN MARCH

Federal tax returns were not always due April 15. In 1913, March 1 was the big day; in 1918 it was moved to March 15; and finally in 1954 the current Tax Day was established.

WITHHOLDING STARTED BECAUSE OF A CASH CRUNCH

In the 1940s, the government needed a steady flow of cash to fund the war effort. It passed the Current Tax Payment Act of 1943, which required that companies withhold income taxes from employees’ paychecks and make ongoing payments on employees’ behalf. Before this (from 1916 to 1943), Americans paid income taxes quarterly or annually.

FEW PEOPLE OWED AT FIRST

Before World War II, few individuals or families owed income taxes. Due to a high personal exemption, only 1.1 percent of working-age people filed a return, according to the Tax Foundation, and about 17 percent of those filers did not have to pay income taxes.

MANY PEOPLE PAY NO TAX NOW

According to the Tax Policy Center think tank, 43.4 percent of tax filers owed no individual income tax or had negative taxable income in 2018

THE AVERAGE REFUND IS WORTH THOUSANDS

As of Feb. 22, the average income tax refund was $3,143, according to the Internal Revenue Service. With 47.7 million individual returns processed, the IRS has paid out more than 38.5 million refunds.

1040EZ IS GONE

Because of the 2017 Tax Cuts and Jobs Act, the simple 1040EZ form is now gone, along with the 1040A and the standard 1040, which have all been replaced by a redesigned 1040 form.

EVEN EINSTEIN DIDN’T LIKE PAYING TAXES

Even Albert Einstein found taxes inscrutable. He once said, “The hardest thing in the world to understand is the income tax” (that is, according Leo Mattersdorf, the math genius’ tax preparer).

TAX PREP TIME ADDS UP

According to the IRS, the average time it used to take to complete a Form 1040 was 16 hours; a 1040A took seven hours; and a 1040EZ took five hours. Overall, the average was 13 hours. In 2019, the IRS processed more than 154 million individual tax returns, equivalent to about 83.4 million days’ worth of prep time.

THERE’S ONLY ONE WAY OUT

Aside from the nation of Eritrea in Africa, the United States is the only country that requires citizens to pay taxes on their income if they work and live outside the country. Some wealthy individuals have renounced their citizenship and moved to another country to avoid paying taxes.

THERE’S ANOTHER TAX DAY ON THE CALENDAR

Americans collectively had to work until April 19 last year — 109 days — to pay the country’s tax burden, according to the Tax Foundation, which has declared that date Tax Freedom Day. On a state-by-state basis, New York residents had to work the longest, until May 14. Residents of Alaska and Louisiana had the earliest Tax Freedom Day, April 4.

AMERICANS’ TAX BILL TOPS $5 TRILLION

Collectively Americans paid $5.1 trillion in federal, state, and local taxes last year — more than the combined cost of food, clothing, and housing, according to the Tax Foundation.

SEVEN STATES HAVE NO INCOME TAX

While there’s no dodging a federal bill, seven states do not have an income tax: Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming. New Hampshire and Tennessee tax only dividends and interest income.

STATES MAKE RESIDENTS PAY IN OTHER WAYS

States that don’t have an income tax get their revenue from other sources, such as sales or property taxes. In some cases, this actually places a higher tax burden on lower- and middle-income families. They could wind up paying a larger portion of their income to the state than high-income families.

TAXPAYERS GET $12,000 IN TAX-FREE EARNINGS

Even though the personal exemption ($4,050) has been eliminated under the 2017 tax reform law, the standard deduction has nearly doubled to $12,000, so single filers don’t pay federal tax on the first $12,000 they earned in 2018. For married taxpayers, the deduction is $24,000.

THERE’S NO PENALTY FOR REACHING A HIGHER BRACKET

Some people believe that moving into a higher tax bracket will net them less money in the end. But the United States uses marginal tax brackets, meaning the higher rate applies only to the earnings that fall within the higher bracket. If only a single dollar bumps a taxpayer into a higher bracket, only that one dollar is taxed at the marginal rate for that bracket.

TAXPAYERS DON’T ACTUALLY PAY THE TAX RATE FOR THEIR BRACKET

To illustrate the difference between the marginal tax rate for people in a particular bracket vs. their effective tax rate — the average rate they actually pay — the Center on Budget and Policy Priorities once estimated the tax burden for a family of four with income of $110,000. Although the family fell into the 25 percent bracket, after accounting for standard deductions and credits and the progressive tax system in the U.S., their effective income tax rate was only 6.2 percent.

TOP EARNERS PAY OVER 40 PERCENT OF ALL INCOME TAXES

According to the Tax Policy Center, the top 1 percent of earners in the United States paid 42.4 percent of all federal income taxes in 2018, up from 38 percent in 2017. The top 0.1 percent paid 21.9 percent, up from 18.9 percent in 2017.

LOTTERY WINNERS TAKE HOME MORE IN CERTAIN STATES

All winners of more than $5,000 in a lottery are subject to a 25 percent federal withholding tax, but state withholding taxes vary. In some states, such as California and Delaware, the withholding rate is zero. In Maryland, the withholding rate is 8.75 percent for residents and 7.5 percent for non-residents. And that’s just what the states take immediately; the winner may be required to pay additional taxes when filing a return.

THE HIGHEST TAX BRACKET HAS BEEN MUCH HIGHER

Today, the highest marginal income tax bracket is 37 percent, but it has been much higher. The Individual Income Tax Act of 1944 raised tax rates to the point where the highest bracket was 94 percent.

THERE COULD HAVE BEEN A 100 PERCENT INCOME TAX

A few months after the attack on Pearl Harbor, President Franklin D. Roosevelt proposed a 100 percent income tax. In a letter to Congress, he wrote that in this time of “grave national danger … no American citizen ought to have a net income, after he has paid his taxes, of more than $25,000 a year” (equivalent to about $419,370 today).

HOUSTON, WE HAVE A PROBLEM

Astronaut Jack Swigert, the command module pilot for Apollo 13, got the assignment at the last minute because of health concerns surrounding another astronaut. In the rush, Swigert neglected to file his taxes. According to the transcript of the moment he realized his mistake, the crew on the ground thought he was joking, but Swigert was seriously asking how to file an extension.

TAXPAYERS FIND LOTS OF WAYS TO FOOL THEMSELVES

While some people claim unintentional mishap when the IRS audits them, others have made it a point not to pay taxes. Common arguments or tactics include claiming that the 16th Amendment was not properly ratified, that filing violates Fifth Amendment rights, or that the taxpayer has taken a religious vow of poverty. Others believe they can form a trust to hide taxable income. The IRS says it will help taxpayers who were misled to believe such myths.

CELEBRITIES ARE JUST LIKE (SOME OF) US

Even celebrities and business tycoons run into problems when they don’t pay their taxes. Pamela Anderson once had a $1.7 million lien against her for unpaid taxes. Duane Chapman, also known as Dog the Bounty Hunter, has owed up to $2 million in unpaid taxes at a time. Perhaps the best-known celebrity tax dodger is Wesley Snipes, who spent three years in prison and continued to battle the IRS afterward.

THERE’S MONEY IN WHISTLEBLOWING

The IRS pays people to provide information on someone who did not pay taxes. The whistleblower can get up to 30 percent of what the IRS collects in back taxes, penalties, and interest.

DO THE CRIME, PAY THE TAX

Even money earned illegally is subject to tax. Some states require drug dealers to pay taxes on the drugs they sell. The tax may be due as soon as the drug is in their possession, meaning someone caught with drugs may have to pay a fine for unpaid taxes on top of punishment for their other crimes. To pay the tax anonymously, dealers can buy tax stamps and affix them to containers of controlled substances.

THERE CAN BE PRETTY KILLER COSTS FOR TAX EVASION

Violent Chicago mobster Al Capone famously got caught on tax evasion charges. Other mobsters, including Al’s brother Ralph “Bottles” Capone, Frank Nitti, and Jake “Greasy Thumb” Guzik, were also charged. Among his debts to society, Al Capone had to pay $215,000 plus interest in back taxes.

A NEW TAX LAW MADE CHILDREN ‘DISAPPEAR’

An IRS rule change in 1987 required taxpayers to list dependents’ Social Security numbers for the first time. As a result, about 7 million children — a tenth of all dependent children in the country at the time — “disappeared.”

TAXES HAVE MADE DELAWARE THE CORPORATE CAPITAL OF THE U.S.

Delaware has a low 8.7 percent flat tax on corporations, likely the reason about half of all publicly traded companies in the country consider it home. A single address in Wilmington, 1209 North Orange St., is the legal address of more than 300,000 companies.

THE U.S. USED TO HAVE ONE OF THE HIGHEST CORPORATE TAX RATES

The top marginal corporate tax rate in the United States (38.92 percent) was previously the fourth-highest in the world, exceeded by Puerto Rico (39 percent), Comoros (50 percent), and the United Arab Emirates (55 percent). But that has changed. The recent Tax Cuts and Jobs Act slashed the corporate tax rate to 21 percent, a little below the worldwide average of nearly 23 percent.

PROFITABLE CORPORATIONS SOMETIMES PAY NO TAXES

In spite of their size and the corporate tax rate, some large corporations have an effective federal income tax rate of zero, or even negative. In the past several years, non-payers have included General Motors, telecom provider Level 3 Communications, and the airline United Continental.

EVEN ANCIENT GREEKS HAD TAX GRIPES

Observations and complaints about unfair tax payments go back to at least the ancient Greeks. Plato once said, “Where there is an income tax, the just man will pay more and the unjust less on the same amount of income.”

MADISON SQUARE GARDEN GETS A PROPERTY TAX BREAK

Madison Square Garden, the iconic New York sports, music, and entertainment venue, has not had to pay property taxes since 1982. The arrangement was supposed to end after 10 years, according to then-mayor Edward Koch, but due to the disputed wording of the agreement, it remains in perpetuity. The break cost New York City over $48 million in 2016 alone.

SOME HOLIDAYS ARE MEANT TO BE COMMERCIAL

Several states, primarily in the southeastern part of the country, have annual sales tax holidays. Depending on the state and date, clothing, footwear, guns, school supplies, energy-efficient appliances, and other select items are exempt from sales tax for two to three days a year.

TAXES MAKE WITCHES BURNING MAD

Fortunetellers, astrologers, and witches were added to Romania’s labor code in 2011, meaning they have to pay income tax and contribute to the country’s social programs. Some witches cast curses on the government in response — although others felt it legitimized their work.

ARTISTS MAY WANT TO CONSIDER BECOMING IRISH

Ireland exempts up to 50,000 euros in profits from the sale of qualified artistic work from income taxes. Grants, awards, and prizes may also be tax exempt if they are related to the artist’s work.

STATES OFFER SOME ODD DEDUCTIONS

Some states offer residents very odd or specific tax credits or deductions. In Alaska, eligible whaling captains can deduct up to $10,000 for whaling-related expenses. In Hawaii, property owners may be able to deduct up to $3,000 in expenses related to maintaining a tree with historic or cultural value.

CANDY CAN BE COMPLICATED

What is the real difference between a Kit Kat and a 3 Musketeers? The former contains flour in its wafers, an ingredient that leads some states to label the Kit Kat a grocery item rather than candy. As a result, retailers may have to charge different taxes on the bars.

THERE’S A DIAPER DOUBLE STANDARD

Some states apply sales tax to children’s diapers because they are considered clothing. The same tax does not apply to adult diapers.

TAMPONS ARE OFTEN TAXED AS THOUGH THEY’RE OPTIONAL

Feminine hygiene products are a necessity for many women, yet most states impose a sales tax on their sale while exempting other necessities, including groceries and medication. There are growing international and domestic movements to end the tax.

SLICING A BAGEL CAN COST YOU

In New York, cutting a bagel turns it into prepared food, which means the store must add an 8.875 percent sales tax to the price.

SIN (AKA FUN) TAKES A TOLL ON A TAX BILL

Taxes on products or services that are considered harmful are referred to as sin taxes. Some examples include taxes on alcohol, tobacco, gambling, and even fast food. One example of a sin tax is Utah’s 10 percent tax on businesses that have nude or partially nude workers — in other words, strip clubs. The extra tax extends to drinks and food sold on the premises.

ENJOY THAT FREE BEARD

Beards are back in vogue, but there were times when having a beard was costly. During the 16th century, King Henry VIII imposed a tax on beards that increased with the wearer’s social status. Eventually the tax was dropped, but his daughter, Queen Elizabeth I, reintroduced a beard tax on anyone with more than two weeks’ worth of growth. In Russia, Peter the Great wanted to Westernize the country and required every man, except peasants and clergy, to buy a “beard token” to prove they had paid up. The tax lasted from 1698 to 1772.

LET THE SUN SHINE IN

Talk about taxes’ ability to darken a day — in 1696, a window tax was introduced in England and Wales. It was assessed as a flat property tax plus a tax based on the number of windows a home had. As a result, some people bricked up their windows and new buildings sometimes were designed with fewer windows. Scotland and France imposed similar taxes in the 1700s.

THE ROMANS TAXED URINE

In Roman times, urine and the ammonia within it were collected for uses such as tanning and laundering. Emperor Vespasian imposed a tax on the buyers of urine from public urinals. Today words for “urinal” in French, Italian, and Romanian are derived from the emperor’s name.

WHAT WAS THE CAP ON THE HAT TAX?

From 1784 to 1811, the British government taxed hats based on price. A stamp was pasted inside the hat, and anyone caught with a stamp-less hat had to pay a fine. At least one stamp forger was sentenced to the harshest penalty: death.

ENGLAND MAKES A CASE FOR THE BLACK-AND-WHITE TV

In England, residents must pay a license (or, ahem, licence) fee for each TV in their homes. The money from this annual fee goes toward funding the BBC. The cost is 150.50 pounds for a color TV and 50.50 pounds for a black-and-white TV. The blind pay half as much.

IN DENMARK, THE TAX COSTS MORE THAN THE CAR

U.S. car buyers pay sales tax, and there are fees for registering a vehicle, but they don’t come close to what Danish car buyers pay. Depending on the price of the car, the registration tax has been as high as 150 percent of the sale price.

IT’S NOT CERTAIN BEN FRANKLIN WAS FIRST WITH THAT FAMOUS QUOTE

As Benjamin Franklin said, “In this world nothing can be said to be certain, except death and taxes.” Although he’s often credited with the idea, that line comes from a 1789 letter, and similar quotes date to 1716 and 1724.

Cheapism.com participates in affiliate marketing programs, which means we may earn a commission if you choose to purchase a product through a link on our site. This helps support our work and does not influence editorial content.

Acumen Wealth Advisors believes educating our clients is a priority.  Our team works together with our clients’ CPAs to implement tax efficiencies and deploy unified financial plans.  We recently met with CPAs Kyle Butler and Matt Hisey of Mauldin & Jenkins and a few of our clients to walk through the new changes to the tax code – and we have made this information available to you as well.  Some of the many changes affect individual taxes, rates, and the health care mandate; personal deductions, exclusions and credits; estates and gifts and trust rates; and provisions for pass-through entities. To learn more about recent changes to the tax code watch our highlights video HERE and read our highlights brochure HERE.

 

 

 

This is for general information only and is not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney, or tax advisor with regard to your individual situation. This information has been prepared from sources believed reliable but the accuracy and completeness of the information cannot be guaranteed.

This original post was written by Martha C. White for Time.

Are you taking all the tax breaks you’re entitled to? Experts say you might be able to reduce your tax bill by taking advantage of the many exemptions, deductions, and credits built into the tax code.

Tax exemptions, deductions, and credits are all mechanisms that can reduce how much you ultimately pay in taxes.

This is the last year you can claim many of these breaks. The tax changes passed into law late last year won’t affect your filing this year. So you’ll definitely want to take this one last chance to claim all the tax relief for which you’re eligible.

Tax exemptions

“Exemptions are above-the-line deductions that allow you to reduce your overall income,” said Mark Jaeger, director of tax development at TaxAct. The most common of these, he said, are personal tax exemptions that let you write off a certain amount per eligible person in your household.

Currently, taxpayers are allowed to claim a personal tax exemption of $4,050 apiece for themselves, their spouse (if married filing jointly), and dependent kids. While the standard deduction is being doubled for tax year 2018, personal exemptions are being eliminated.

Tax deductions: Above- vs. below-the-Line

Tax exemptions and deductions both reduce your amount of taxable income, said Gil Charney, director at The Tax Institute at H&R Block. “It’s not a reduction of your tax liability, but it does reduce your taxable income,” he said.

If the amount of your tax deductions is high enough, you could lower your income enough to drop into a lower tax bracket, said Lisa Greene-Lewis, tax expert at TurboTax.

Tax deductions are referred to as either above- or below-the-line. “Above-the-line versus below-the-line refers to deductions claimed before calculation of adjusted gross income and deductions claimed after calculation of adjusted gross income,” Jaeger said. Some examples of above-the-line deductions include IRA contributions and moving expenses.

If you itemize your taxes rather than taking the standard deduction (which about 30% of taxpayers do), you can take additional below-the-line deductions against expenses like your state and local income tax, mortgage interest, and charitable donations. They are all below-the-line deductions, Jaeger said.

Tax credits: Nonrefundable vs. refundable

Unlike exemptions and deductions, tax credits work a little differently. “A credit reduces the taxes you owe, dollar for dollar,” Greene-Lewis said. You can be eligible for credits even if you don’t itemize and just take the standard deduction.

Tax pros say people miss deductions and credits often because they don’t realize all of the tax breaks available to them. Greene-Lewis said that the Earned Income Tax Credit, for instance, often goes unclaimed. “There are people that don’t file taxes that are definitely eligible for the EITC because it’s for lower to middle income, a lot of people may think they’re under the income filing threshold, but they could be be eligible for that credit and eligible for a refund for federal taxes taken out of their paycheck.”

That’s because the EITC is what’s known as a refundable credit. Nonrefundable credits can knock your tax bill all the way down to zero, but refundable credits, as the name implies, can essentially have the government paying you.

The deadline when taxes are due in 2018 is Tuesday, April 17.

House and Senate Republicans have released a final plan to resolve the differences between their tax overhaul bills. The legislation would cut taxes for corporations. American taxpayers, in large part, would also get cuts, though most of the changes affecting taxpayers would expire after 2025.

Income taxes Current Law G.O.P. Bill
The bill would lower individual tax rates overall. But to comply with Senate budget rules, the individual tax cuts would expire after 2025.
Tax brackets Seven Seven, lower overall
Top rate 39.6% 37%
starts at: $426,700 / $480,050
(singles/couples)
$500,000 / $600,000 (singles/couples)
Alternative Minimum Tax Alternative income tax calculation for high-income taxpayers Keeps, but increases exemption so fewer will pay it
Standard deduction and exemptions
The standard deduction would nearly double, so many more people would end up taking it.
Standard deduction $6,500 / $13,000
(singles/couples)
$12,000 / $24,000 (singles/couples)
Personal exemptions $4,150 per taxpayer and dependent Eliminates
Family tax credits
The child tax credit would double, and it has a larger refundable portion that would allow more lower-income families to benefit.
Child tax credit $1,000 $2,000
Refundable portion: 15% of earnings over $3,000 Up to $1,400
Credit for other dependents None $500
Family tax credits phase out starting at: $75,000 / $110,000
(singles/couples)
$200,000 / $400,000
(singles/couples)
Inflation
The biggest long-term change for taxpayers in the bill, it would result in a tax increase over the long run, long after the tax cuts expire.
Inflation measure used for certain income thresholds Consumer Price Index (CPI) Chained CPI (C-CPI), a less generous measure

Education

Current Law

G.O.P. Bill

Education credits American Opportunity Tax Credit, Lifetime Learning Credit and Hope Scholarship Credit No change
Student loan interest deduction Can deduct up to $2,500 No change
Graduate student tuition waivers Tuition waivers are not treated as taxable income No change
A big victory for families that send their children to private school.
Education savings plans None Expands use of 529 college savings accounts to include K-12 private school tuition
Deduction for classroom expenses $250 deduction No change
Itemized deductions
Some Republican representatives in high-tax districts have said they will vote “no” because of the scaling back of the “SALT” deduction.
State and local tax deduction Income or sales and property taxes are deductible All state and local tax deductions limited to $10,000
Mortgage interest deduction Can deduct interest payments on up to $1 million of debt Limited to payments on $750,000 of debt
Moving expenses Can deduct personal expenses Eliminates, except for members of the military
Employer-provided expense reimbursements are excluded Eliminates, except for members of the military
This deduction, which would have been eliminated by the House bill, is most important to low-income taxpayers with high out-of-pocket health care costs.
Medical expenses deduction Can deduct out-of-pocket expenses in excess of 10% of adjusted gross income Expands by reducing threshold to 7.5% of income Applies to 2017 and 2018
Overall limit on itemized deductions Phase out beginning at $266,700 / $320,000
(singles/couples)
Repeals
Other individual taxes
This provision, estimated to save over $300 billion, would severely weaken the Affordable Care Act.
Individual mandate Penalty for not having health insurance Eliminates Starts in 2019
Estate tax Top rate of 40% on estates above $5.6 million Increases threshold to estates above $11.2 million
Pass-through income Taxed at individual rates 20% deduction, phasing out starting at $315,000 of income for couples
Capital gains Top rate of 23.8% (including net investment income tax) No change
Corporate taxes Current Law G.O.P. Bill
The largest tax cut in the bill would be permanent, as would other corporate tax changes.
Top corporate tax rate 35% 21%
Business interest deduction Generally fully deductible Caps deduction at 30% of income (excluding depreciation)
The Senate’s decision to keep the corporate A.M.T. was reversed after blowback from several industries.
Alternative Minimum Tax Alternative income tax calculation for businesses Eliminates
New investment purchases Complex rules for deducting over many years Five years of full expensing, then phased out over five more years
Section 179 expensing Small business expensing limited to $500,000 Increases limit to $1 million
The bill raised money by speeding up the effective dates for these last two provisions, which were included in the Senate bill.
Net operating losses Can deduct net operating losses from income in other years Limits the deduction to 80% of taxable income
Research and development expenditures Can be immediately deducted Would need to be written off gradually
Business credits and other
Orphan drug tax credit Credit for 50% of qualifed testing expenses Reduces credit rate to 25%
Renewable electricity tax credit Credit for wind power production, phasing out by 2020 No change
Private activity bonds Tax-exempt bonds used to fund low-income housing and other projects No change
International
The bill would move from the current worldwide tax system, in which income earned abroad is taxed in the United States, to a territorial system in which only domestic profits would be taxed.
Taxation of multinational companies Worldwide system with deferral and credit for taxes paid abroad Modified territorial system with new anti-abuse tax
One-time repatriation tax 8% (15.5% for cash)

 

This original article appeared in the New York Times and was written by

On December 20, the House passed the reconciled tax reform bill, commonly called the “Tax Cuts and Jobs Act of 2017” (TCJA), which the Senate had passed the previous day. It’s the most sweeping tax legislation since the Tax Reform Act of 1986.

The bill makes small reductions to income tax rates for most individual tax brackets, significantly reduces the income tax rate for corporations and eliminates the corporate alternative minimum tax (AMT). It also provides a large new tax deduction for owners of pass-through entities and significantly increases individual AMT and estate tax exemptions. And it makes major changes related to the taxation of foreign income.

It’s not all good news for taxpayers, however. The TCJA also eliminates or limits many tax breaks, and much of the tax relief is only temporary.

Here is a quick rundown of some of the key changes affecting individual and business taxpayers. Except where noted, these changes are effective for tax years beginning after December 31, 2017.

Key changes affecting individuals

Key changes affecting businesses

Year-end planning opportunities still available

We’ve only briefly covered some of the most significant TCJA provisions here. There are additional rules and limits that apply, and the law includes many additional provisions.

Also keep in mind that, as a result of the TCJA, you may have some last-minute year-end 2017 tax planning opportunities — but quick action (before January 1, 2018) will be needed. If you have questions about what you can do before year end to maximize your savings, or you’d like to learn more about how these and other tax law changes will affect you in 2018 and beyond, please contact us.

 

This original article can be found here: http://www.extendedarticle.com/TAA/247496_Mauldin_Jenkins/2017/ETRA17_fullarticle_MJ.html