Monthly Archives: December 2015

Rich taxpayers tend to be rewarded

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By Bankrate

taxes-blog-rich-taxpayers-rewarded

Here’s a news flash that’s not news: The richest Americans have shaped the U.S. tax code so that it saves them potentially billions.

The reason the rich essentially have what the New York Times calls their own private tax system is simple. They can afford to hire the best and brightest tax attorneys and accountants.

Those tax experts, according to the newspaper’s special report, employ a “dizzying array of tax maneuvers” to help the very wealthy shield their fortunes. “Operating largely out of public view – in tax court, through arcane legislative provisions and in private negotiations with the Internal Revenue Service – the wealthy have used their influence to steadily whittle away at the government’s ability to tax them,” write reporters Patricia Cohen and Noam Scheiber.

And those same wealthy tax break beneficiaries are, according to the New York Times’ story, “providing much of the early cash for the 2016 presidential campaign.”

So how are those political contributions working out?

GOP tax plans favor the wealthy

Donald Trump, the leader in many polls for the Republican nomination, talks a good tax game. He is, after all, a salesman. And he’s slammed the millions that hedge fund managers make by, in his words, pushing paper.

But he also wants to end the estate tax, which applies only to a statistically tiny group of rich U.S. taxpayers.

An analysis of Trump’s tax plan by the Washington, D.C.-based Tax Policy Center, or TPC, shows that its greatest benefits will go to The Donald’s peers, the wealthiest Americans. TPC’s analysts say Trump’s proposal would grant the top 0.1% a tax cut of almost 19%, while providing the lowest income bracket a tax break of only about 1%.

The same can be said about another Republican White House hopeful, Jeb Bush, who also favors repeal of the estate tax. The TPC says that under the former Florida governor’s tax plan, the top 0.1% of U.S. taxpayers would get about a 12% tax break, while the lowest income bracket would see a 1.4% tax break.

Sen. Marco Rubio, R-Florida, who’s moving up in the polls, wants to condense the current 7 tax rates to just 3. Tax Foundation analysts say that would provide the largest benefits to the lowest-income Americans, who would see their after-tax incomes rise by more than 44%. But the next largest group of beneficiaries under Rubio is the country’s highest-income earners, who would see their after-tax incomes grow by 11.5%.

Democrats less helpful to wealthy’s tax concerns

The rich don’t fare as well under proposals by the 2016 Democratic presidential hopefuls.

Front-runner Hillary Clinton is calling for, among other things, enactment of the Buffett Rule. This proposal, named after the financier Warren Buffett, would require that the rich pay at least a minimum ordinary income tax rate instead of primarily lower capital gains tax rates.

Bernie Sanders, Clinton’s nearest competitor, would like to see a new top tax rate of at least 50%. Income falling into the current top income bracket is taxed at 39.6%.

Flat, but not that fair tax

Then there are the flat taxers. Proposals to do away with the current progressive tax system and enact 1 tax rate to be paid by all are touted by several Republican candidates: retired neurosurgeon Ben Carson (a 15% rate), Texas Sen. Ted Cruz (10%), Kentucky Sen. Rand Paul (14.5%) and former Pennsylvania Sen. Rick Santorum (20%).

While one rate for all sounds like a fair plan, our current progressive tax rates are more beneficial for lower-income taxpayers.

And, as the New York Times reports, the wealthy have become quite adept at dealing with our 7 tax brackets and assorted other tax laws so that they don’t suffer as much at the hands of the IRS.

So basically, the bottom line is that the rich rule when it comes to taxes. And not to be a nay-saying cynic, but changing that is going to take much more than one election cycle.

Still, we have to start somewhere and voting is a great beginning. We average Joe and Jane taxpayers who are very far from rich must make all public office candidates address our tax issues and hold them accountable for our concerns.

We can’t afford to be swayed by swagger and snippets of tax proposals that, on the surface, sound appealing, but that in reality don’t do us much tax good at all.

Paul S. Herman CPA, a tax expert for individuals and businesses, is the founder of Herman & Company, CPA’s PC in White Plains, New York.  He provides guidance and strategies to improve clients’ financial well-being.

US 2016 Tax Season To Open On January 19

Westchester NY accountant Paul Herman of Herman & Company CPA’s is here for all your financial needs. Please contact us if you have questions, and to receive your free personal finance consultation!

By Tax-News

Following a review of the recently passed tax extenders legislation, the Internal Revenue Service (IRS) has announced that the US tax season for individual tax returns will begin as scheduled on January 19, 2016.

The IRS will begin accepting e-filed returns that day. The IRS expects to receive more than 150m individual returns in 2016, with more than four out of five being prepared and e-filed using tax return preparation software.

The IRS will begin processing paper tax returns at the same time. The IRS pointed out that while many tax software companies will begin accepting tax returns earlier in January and submit them to the IRS when processing systems open, there is no advantage for taxpayers filing paper tax returns in early January, instead of waiting for e-file to begin.

“We look forward to opening the 2016 tax season on time,” IRS Commissioner John Koskinen said. He noted that the new legislation makes permanent many provisions and extends many others for several years. “This provides certainty for planning purposes, which will help taxpayers and the tax community, as well as the IRS,” he said.

“We encourage taxpayers to take full advantage of the expanding array of tools and information on the IRS website to make their tax preparation easier,” he added.

The IRS also confirmed that, as part of the Security Summit initiative, it has been working closely with the tax industry and state revenue departments to provide stronger protections against identity theft for taxpayers during the coming filing season.

The filing deadline to submit 2015 tax returns will be April 18, 2016.

Paul S. Herman CPA, a tax expert for individuals and businesses, is the founder of Herman & Company, CPA’s PC in White Plains, New York.  He provides guidance and strategies to improve clients’ financial well-being.

Some tax breaks made permanent

Westchester NY accountant Paul Herman of Herman & Company CPA’s is here for all your financial needs. Please contact us if you have questions, and to receive your free personal finance consultation!

taxes-blog-some-tax-breaks-made-permanent

By Bankrate

It’s not quite a done deal yet, but it appears that taxpayers soon will have some finality when it comes to popular tax breaks.

The list of tax extenders, the 50-plus tax provisions that technically are renewed, or extended, every year or so could be shorter thanks to the Protecting Americans from Tax Hikes, or PATH, Act of 2015.

This tax bill, announced late Dec. 15, makes permanent a variety of individual and business tax incentives. If passed by the House and Senate and signed by President Obama, PATH will mean the end of periodic worrying about the availability of some popular tax breaks.

The full bill runs 233 pages, but here are some of the individual taxpayer highlights.

Popular tax breaks made permanent

Teachers will get to write off some of their out-of-pocket classroom expenses every year. This is an above-the-line deduction, meaning it’s available directly on 1040 and 1040A forms and doesn’t require the filer to itemize deductions. Even better, the $250 tax break now will be indexed for inflation.

State and local sales taxes will be a fixture on Schedule A as a permanent choice for taxpayers who itemize, along with the deduction for state and local income taxes. You still have to pick just one set of taxes to deduct, but folks with no or low income taxes won’t have to worry about whether they get the option.

Traditional IRA owners age 70 ½ can continue to directly donate up to $100,000 a year from those retirement accounts to their favorite charities. They won’t get a tax deduction, but the money won’t count as taxable income when contributed this way.

Commuters who take mass transit rather than drive also get permanent relief when it comes to employer fringe benefits. The amount covered for rail and bus travel will remain roughly on par with parking benefits paid to workers who drive to the office.

Family benefits now tax code fixtures

Another group of tax breaks created to help families also will now be a permanent part of the Internal Revenue Code. Most of these provisions were set to expire at the end of 2017.

The child tax credit, which previously was made a permanent part of the tax code, gets another boost. A temporary enhancement that allows more parents to claim an additional refundable child tax credit — that’s money back from Uncle Sam even if you don’t owe any taxes — now is permanent, too.

Obama’s signature education tax break, the American opportunity tax credit, also is now in the tax code for good. This tax break, which increased and replaced the Hope credit, provides a $2,500 credit, a portion of it refundable, for costs associated with 4 years of college costs.

The enhanced Earned Income Tax Credit, which provides tax assistance to low- and middle-income workers, stays put, too. The provisions that offer added help for larger families are now permanent.

One-year extension only

A few folks, however, will have to continue to play a waiting game again next year. Some extenders were renewed retroactively for the 2015 tax year, but extended only through 2016.

The above-the-line deduction for qualified college tuition and fees is good for the 2015 and 2016 tax years only. It remains capped at $4,000 for filers who meet the adjusted gross income thresholds.

Homeowners who are able to get their mortgage terms modified or who face foreclosure also get only temporary tax help. The provision that excludes forgiven home loan debt from taxation applies to qualifying deals made in 2016.

Similarly, the option to count private mortgage insurance, or PMI, premiums as tax-deductible loan interest on Schedule A also is available only through the next tax year.

Some opposition remains

While this generally is good news, the bill must be approved by Congress and then signed by the president.

There is some talk from some lawmakers in both parties about voting against PATH because of its nearly $800 billion cost.

I suspect, however, that PATH opponents will make their points about fiscal responsibility during the floor votes, and the overall bill will still clear both chambers.

The timing of the vote is still a bit up in the air. It must be coordinated with a separate funding bill to keep the federal government, including the IRS, operating through September 2016. But votes on both the tax and spending bills are expected soon.

Did your favorite tax break make it permanently into the tax code? Do you agree with PATH choices? Or do you agree that the cost is too steep?

Paul S. Herman CPA, a tax expert for individuals and businesses, is the founder of Herman & Company, CPA’s PC in White Plains, New York.  He provides guidance and strategies to improve clients’ financial well-being.

Any U.S. tax advice contained in the body of this website is not intended or written to be used, and cannot be used, by the recipient for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions.