TaxConnections


 

Archive for Tax Reform

New Tax Laws: New Deduction For Pass-Through Entities

Haik Chilingaryan-

Under the new tax laws (“TCJA”), there is a new deduction available to owners of pass-through entities. Section 199A of the Internal Revenue Code allows owners of pass-through entities to deduct up to 20% of their business income from their income taxes. The first portion of this article provides an overview on the various types of pass-through entities that are included under Section 199A. The second portion of the article provides an analysis on the conditions that the owners of pass-through entities must satisfy in order to qualify for the 199A deduction.

PASS-THROUGH ENTITIES

For purposes of Section 199A, the following entities are entitled to the deduction: sole proprietorships, partnerships, limited liability companies, S corporations, trusts, and estates. The most distinguishing characteristic of pass-through entities is that the entities themselves generally do not pay tax. Instead, all of the earnings and expenses are passed through to the owners who pay the taxes on their individual tax returns. The sections below provide an overview on the general characteristics of each type of pass-through entity.

Read more

Tax Reform: Big Changes To 529 College Savings Plans

Charles Woodson - Tax Reform And Changes To College Savings Plans

Tax reform added some new taxpayer-advantageous changes to college savings plans. These plans are also known as qualified tuition programs (QTPs) or Sec. 529 plans, named after the part of the Internal Revenue Code that established them.

Background: Sec. 529 plans allow taxpayers to put away larger amounts of money than other tax-advantaged education savings plans do, limited only by the contributor’s gift tax concerns and the contribution limits of the intended plan. There are no limits on the number of contributors, and there are no income or age limitations. The maximum amount that can be contributed per beneficiary (the intended student) is based on the projected cost of college education and will vary between the states’ plans. Some states base their maximum on the projected costs of an in-state four-year education, but others use the cost of the most expensive schools in the U.S., including graduate studies. Most have limits in excess of $200,000, with some topping $370,000. Generally, additional contributions cannot be made once an account reaches the state’s maximum level, but that doesn’t prevent the account from continuing to grow.

Read more

The Fair 55 Tax Reform Plan (Part 9)

Michael Caryl Fair 55 Tax Reform

The Fiscal Scorecard illustration provided for the “Fair 55 Tax Reform Plan”© is designed to simply demonstrate, that, on a static basis, when certain assumed tax rates are applied to a newly defined broad base of a few simple primarily consumption taxes, unencumbered by a myriad of exceptions and preferences which characterize today’s structure, a revenue-generating capacity, at least comparable, and ultimately superior, to the existing system, will result. Of course, as discussed in section B. supra, to achieve the optimum level of government funding, based on the policy debate of that question, it is prudent, and probably practically necessary, to first establish the substance of a fair and efficient structure through which the ultimate public expenditure policy is implemented. Read more

The Fair 55 Tax Reform Plan – Part 9

Michael Caryl - The Fair 55 Tax Reform Plan ( Part 9)

ENHANCED FISCAL FLEXIBILITY AND VOTER CONTROL THROUGH EXPANDED LOCAL GOVERNMENT REVENUE-GENERATING POWER AND SPENDING RESPONSIBILITIES.

To achieve optimum efficiency and transparency in the use of tax revenues, a major decentralization of state government fiscal control and a restructuring of local government, including the long-term possibility of significant consolidation, will be necessary. However much that a full treatment of that endeavor remains well beyond the scope of this proposal, there are reforms of the state and local tax structure which can play a major role in facilitating achievement of those even broader reforms. Read more

The Fair 55 Tax Reform Plan (Part 8)

Michael Caryl Fair 55 Tax Reform

TEMPORARY DEFERRED AND PASSIVE INCOME TAX (DPIT).

Largely to assure revenue neutrality, by initially using the least objectionable, narrow aspect of a general individual income tax, it is proposed that a low-rate (3%) flat rate tax be temporarily imposed on income that was deferred (and not taxed) before repeal of the current PIT and on interest and dividends. Thus, the deferred income, to be taxed (for the first and only time), would only consist of distributions from tax-deferred private qualified plans such as IRAs 401Ks, etc. Read more

The Fair 55 Tax Reform Plan (Part 7)

Michael Caryl Fair 55 Tax Reform

ENTERPRISE CONSUMPTION TAX (ECT)

In what, to some, may be the boldest aspect of the Fair 55 Tax Reform Plan©, it is proposed that, in an orderly and fiscally responsible manner, both the current Personal Income Tax (PIT) on individuals’ currently earned income, and the Corporation Net Income Tax (CNIT) on C corporations’ profits, would be repealed and replaced by the addition-method Enterprise Consumption Tax (ECT), imposed at the illustrated rate of 5.5%. The proposal does provide for the temporary imposition of a limited Deferred and Passive Income Tax (DPIT), to be applied only to non-social security/non-public employee retirement benefits such as deferred income, interest and dividends, received by higher-income individuals, but at the flat rate of 3%, which is the rate for the lowest bracket of the current state personal income tax. Read more

The Fair 55 Tax Reform Plan (Part 6)

Michael Caryl Fair 55 Tax Reform Part 6

GENERAL CONSUMPTION TAX 

It is proposed that West Virginia significantly expand its reliance on consumption taxes by enacting a very broad-based consumer purchase excise tax entitled the General Consumption Tax (GCT). The GCT (illustrated in the Fiscal Scorecard with a 5.5% rate) would replace the current 6% consumers sales and service and use taxes by adopting those taxes’ current base and administration, and then by greatly expanding that base through the elimination of the majority of the presently mushrooming array of narrow, special interest exemptions. The long history of broad-based sales taxes in West Virginia is most instructive in considering this proposal. Read more

The Fair 55 Tax Reform Plan (Part 5)

Michael Caryl, Fair 55 Tax Reform, West Virginia,

THE PLAN PROVIDES A MORE COMPETITIVE PROPERTY TAX AND RE-ALLOCATED PUBLIC SCHOOL FUNDING AND MANAGEMENT REFORM.

The Fair 55 Tax Reform Plan’s© proposed repeal of the property tax on motor vehicles, and the multi-year phase-out of the tax on all other types of tangible personal property (TPP), will greatly improve West Virginia’s economic competitiveness by removing its unusually heavy tax burden on job-creating capital investment. At the same time, because local governments (counties particularly) heavily depend on property tax revenues for funding their operations, it is essential that those entities (counties and municipalities) be given the entire regular levying authority over real estate (RE) and public utility (PU) property to make up for the loss of the TPP tax revenues. Read more

TAS Research Shows That Education Improves EITC Compliance

Nina Olson, IRS, Taxpayer Advocate Service, EITC

Recently, the IRS provided its response to my Most Serious Problem addressing EITC issues in the 2017 Annual Report to Congress. I want to reiterate my recommendation that the IRS should provide a dedicated toll-free Extra Help telephone line for EITC taxpayers.I’ve made similar recommendations here, here, and here. The IRS has not agreed to implement my recommendation. Instead, the IRS responded to my latest recommendation by saying, in part: Read more

The Fair 55 Tax Reform Plan (Part 4)

Michael Caryl, Fair 55 Tax Reform, West Virginia, Michael Caryl

THE PLAN’S TAX REVENUE NEUTRALITY ILLUSTRATES ITS CAPACITY TO ACHIEVE ULTIMATE FISCAL RESPONSIBILITY

Precisely because the concept of “tax reform” often means little else than either lower tax rates and revenues to some, or higher tax revenues to support even more government spending to others, prudence suggests that any serious and objective effort at comprehensive structural tax reform must present its fundamental concepts in a revenue-neutral setting. Thus, this proposal seeks to avoid the distorting influence of the bigger government vs. smaller government philosophical debate. Indeed, it is only once a fair and efficient tax structure is in place that the deck is cleared for a principled discussion about both the proper general level, and the legitimate objects, of government spending. Thus, the final disposition of those issues can then best be implemented through such a reformed tax structure. Read more

The Fair 55 Tax Reform Plan (Part 3)

Fair 55 Tax Reform, West Virginia, Michael Caryl

The nation’s most respected state public finance policy experts unanimously concur that an ideal state tax structure is one that is: characterized by a broad base and low rates, simple to comply with and to administer, stable as to revenue yield, transparent and predictable in its application to taxpayer and administrator alike, neutral as to economic resource allocation, adequate to generate sufficient revenues to fund necessary government operations and fair to all.8 That latter principle, in turn, embodies fairness among taxpayers (i.e. neutrality, ability to pay), fairness to the taxpayer community as a whole (i.e. simplicity, transparency, predictability) and fairness to the government acting as the people’s instrument to provide necessary public goods (e.g. infrastructure, education, community health, physical safety of persons and property) and to have the capacity to achieve a just and orderly society (e.g. the rule of law, social safety net, etc.). This proposal has been designed to fully honor and advance each of those guiding principles. Read more

The Fair 55 Tax Reform Plan (Part 2)

Fair 55 Tax Reform, West Virginia, Michael Caryl

(Click here to read the Introduction to the Fair Tax Reform Plan.)

FAIR 55 TAX REFORM PLAN FOR WEST VIRGINIA © [TIESA 2017]

FISCAL SCORE CARD ILLUSTRATION

Proposal: (1) Repeal property tax on all vehicles and newly-acquired tangible personal property EXCEPT chattels real (TPP) and centrally assessed public utility (PU) property, and phase-out tax on existing TPP [=$453 million in 2017]; (2) Phase-out income taxes [=$2 billion in FY 2018], keeping only severance (1/2 rate), B&O, property transfer, insurance, beer, liquor profits and tobacco excise taxes, plus two replacement consumption taxes and a temporary, lower rate tax on passive and deferred income of individuals with AGI over $25,000; Read more

Meet Tax Experts At TaxConnections...