Continuing with my list of reforms I think would help our tax system (see prior lists of 8/29/21 and 6/21/21), here are three more.
- 1. Consolidating education provisions further. Need to better identify purpose of these provisions and if their “cost” is appropriate and in line with direct spending such as Pell grants.
- 2. If higher education incentives are retained, be sure they also cover post-secondary trade schools and only for reasonable costs.
- 3. Make the IRC gender neutral – “his” is often used in the Code, sometimes even to describe a business (such as at §446(a)). Also, references to husband and wife should be changed to spouses.
- §213 – Medical, dental, etc., expenses. (a) Allowance of deduction. There shall be allowed as a deduction the expenses paid during the taxable year, not compensated for by insurance or otherwise, for medical care of the taxpayer, his spouse, or a dependent (as defined in section 152, determined without regard to subsections (b)(1), (b)(2), and (d)(1)(B) thereof), to the extent that such expenses exceed 7.5 percent of adjusted gross income.
- §446(a) – General Rule. Taxable income shall be computed under the method of accounting on the basis of which the taxpayer regularly computes his income in keeping his books.
- §7701(a)(17) defines “husband and wife”.
- §121(d)(1) – “If a husband and wife made a joint return for the taxable year of the sale or exchange of the property, ….”
This week the House Ways and Means Committee began marking up a tax reform bill to improve equity in our tax system, make modifications to have the system better comport with societal and environmental goals, and generate revenue to cover new spending particularly for infrastructure.
The list of changes under review includes several tax measures that were not included in President Biden’s Build Back Better Greenbook
. These differences include:
I often find it helpful to see how tax legislation changes existing Internal Revenue Code sections. So, I took a few and made the modifications called for in P.L. 115-97 (12/22/17) (the Tax Cuts and Jobs Act), and show how they change the relevant Code section using track changes. I also include the effective date information. For the changes to 448, I also include a caution about how the favorable methods changes don’t apply to “tax shelters” which could include some limited partnerships and LLCs even though they don’t act like a typical tax shelter.
Here are the ones I modified:
Section 1 – tax rates including kiddie tax change
Section 62 – changes to AGI
Section 163 – changes to mortgage interest and the new interest limitation for non-small entities (and tax shelters – see comment above)
The Tax Cuts and Jobs Act brought several improvements for small businesses, most notably, favorable accounting methods such as use of the cash method and not having to deal with the Unicap rules. The AICPA Tax Section recently posted a position paper noting 13 more changes that would further help modernize the Code to reflect how small businesses operate. Some of these would more completely simplify what Congress started with the TCJA.
For example, the TCJA increased the Section 179 expensing amount to $1 million, adjusted for inflation annually. But, despite the fact that intangibles are important to all sizes of businesses today (and for the past two decades), it only applies to tangible assets (and off-the-shelf software), not intangible assets, such as acquisition of a patent or domain name.
The Tax Cuts and Jobs Act (TCJA) included a few dozen tax law changes that affect businesses. Most of the changes in the new law took effect in 2018 and will impact tax returns filed in 2019.
This fact sheet summarizes some of the changes for businesses and gives resources to help business owners find more details.
Business Taxpayers Recalculate Estimated Tax Payments
The TCJA changed the way most taxpayers calculate tax, including those with income not subject to withholding, such as small business owners and self-employed individuals. The new law changed tax rates and brackets, revised business expense deductions, increased the standard deduction, removed personal exemptions, increased the Child Tax Credit and limited or discontinued certain deductions. As a result, many taxpayers may need to raise or lower the amount of estimated tax they pay each quarter.
A few times each year we are fortunate to have internationally recognized tax provision expert Nick Frank teach. Recently, we asked Nick about Tax Reform and its impact on the tax provision. What he shared was what the auditors are saying about the corporate tax provision and your corporations’ readiness.
If you are responsible for the tax provision, you will benefit from attending this COMPLIMENTARY SESSION.
COURSE: ASC 740 and 2018 Year End – A Debrief on the First Year of Tax Reform
DATE: Friday, March 8, 2019
TIME: 11:00AM EST/10:00AM CT/9:00AM MT/8:00AM PST
This course will discuss the challenges that companies faced as they grappled with their ASC 740 processes for the first year under the Tax Cuts and Jobs Act. We will take an in depth look at the best practices we are seeing in the market to make the tax provision/ASC 740 process as efficient and effective as possible.
Debrief On Tax Reform And The Tax Provision – March 8th 2019
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.
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.
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.
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
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
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
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