Making the Most of Corporate Tax Reform

Although nothing major has happened yet, rest assured that corporate tax reform is on the way. The Trump administration has made big promises and at some point they are coming. So far, the president has proposed reducing the corporate tax rate from 35 percent to 15 percent, while republican leaders in Congress have proposed a slightly more modest reduction to 20 percent.

Either way, the cut would represent a significant reduction form the current rate of 35 percent and corporations would see a huge boost. For example, if the effective tax rate dropped to 8.4 percent, then S&P companies would see the amount of pretax income they keep jump to about 85 percent from the current amount of about 76 percent.

The president has also proposed a repatriation rate of only 10 percent. In other words all the corporate income that companies are currently holding overseas in order to avoid the 35 percent U.S. corporate tax rate would only be charged a 10 percent rate if it were brought home to the U.S. There could also be a removal of the interest-deductibility, which could actually hurt earnings, but the tax breaks would far outweigh the losses.

Therefore, if you add it all up you get a lower corporate tax rate that would boost earnings by about 11 percent combined with a repatriation rate that would boost earnings another 2 percent. Removing the interest-deductibility would lower earnings by 2 percent, therefore leaving a net boost of 11 percent to S&P 500 earnings.

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Tax Policy Center Claims Trump Child Care Plan Favors the Rich

Although most of President Trump’s policies have greatly divided the country, one policy that everyone can agree upon is lowering the cost of childcare. However, what they don’t agree on is how to make that happen. So far, his proposals have been well received by the right and not so much by the left. Shocking, right?

Trump made reducing the cost of childcare one of his campaign promises and even included it on his contract with America. His Daughter Ivanka Trump played a big role in creating the plan, which would provide more paid family leave for new parents and help increase the tax benefits to parents who have to pay for childcare, and even to some who don’t.

However, the problem is, according to the non-partisan Tax Policy Center, the president’s new plan will really only help the wealthy. The Tax Policy Center claims that 70 percent of the proposed benefits would directly help families that make at least $100,000. Meanwhile, more than 25 percent would go to anyone who earns $200,000 or more.

The plan also calls for a refundable tax credit for lower income families with parents that don’t end up owing any federal income tax. The most they could receive would be $1,200, but most families would end up with much less. Plus, parents who stay home wouldn’t be eligible for the tax credit, but wealthier parents that don’t work could still take advantage of the tax deduction.

 

http://money.cnn.com/2017/02/28/news/economy/donald-trump-child-care/

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These Tax Breaks Are a Big Boost to the Wealthy

Even though the new presidential administration has already made several tax cut promises that would greatly benefit the wealthy, the fact is, high net worth individuals already benefit from several tax breaks that favor the rich. In fact, there are numerous ways that the wealthy can, and are already saving on their tax bill.

Let’s take a look at three of the most tax-friendly laws for high net worth earners currently in the tax code. The Social Security earnings cap is one way the wealthy save on taxes. Because the government caps this tax at $127,200, those who earn $128,000 and those who earn 12 million will pay the same Social Security tax rate. That is a huge savings for the nation’s highest earners, which amounts to $62,000 in savings on every million dollars earned above the cap.

Next up is the capital gains tax rate, which favors the country’s highest earners as well. Because this rate is much lower than the personal income tax rate and most middle-income workers don’t earn their money through capital gains the middle class often pay a higher tax rate than high net worth individuals that earn all their money through capital gains.

Lastly, the mortgage interest deduction also helps the wealthy save on their taxes. Although this tax break clearly helps anyone that carries a mortgage, the wealthy usually receive a much greater benefit because the amount they pay in mortgage interest is typically much higher. Therefore, they receive a much higher deduction amount. Plus, if you don’t have enough itemized deductions to exceed the standard deduction amount you won’t get to claim the mortgage deduction anyways.

 

 https://www.fool.com/retirement/2017/02/25/3-tax-breaks-that-hugely-benefit-the-rich.aspx

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Huge Decisions Loom for Lawmakers on Obamacare Taxes

One of the biggest calling cards of the Republican Party for the last several years, including President Donald Trump, has been to repeal the Affordable Care Act, also known as Obamacare. Although Obamacare has faced much opposition throughout its existence, recent polls suggest that most Americans don’t want it repealed, especially if there is nothing to replace it.

Still, republican lawmakers are undeterred in their efforts to scrap it. However, there are several significant taxes issues that must resolved, namely which taxes should they repeal. Make no mistake, republicans hate the Obamacare taxes, but some feel that they should keep them to help pay for their replacement plan. The taxes in question include:

  • Net Investment Income Tax – this would automatically eliminate the 3.8 percent tax on capital gains.
  • Health Insurance Tax – Health insurance providers are forced to pay this annual fee based on their market share.
  • Medicare Surtax – This tax on the wealthy created an extra $7.3 billion for the government, so eliminating it would help anyone earning more than $200,000 (single filer) or $250,000 (joint filer) a year.
  • Cadillac Tax – this is set to begin in 2020, but many lawmakers from bot sides oppose it, as it would be a huge tax on those with high-cost health plans, including many democratic-backed unions.
  • Prescription Drug Tax – repealing this would help businesses that make or import branded prescription drugs and have to pay huge fees for doing so.
  • Tanning Tax – this contributed to many tanning salons going out of business
  • Medical Expenses Deduction Cap – this raised the threshold for deducting medical expenses from 7.5 percent to 10 percent.
  • Flexible Spending & Health Savings Accounts – these placed lower limits on the amounts people can add to them and raised the penalties for using the money on anything other than medical expenses.
  • Mandate Penalties – these are the penalties that people must pay if they choose not to have health insurance.

Each of these taxes could en up on the chopping block, but it remains to be seen which ones will be officially repealed and which ones will survive.

http://thehill.com/policy/finance/317880-gop-faces-big-decision-on-obamacare-taxes

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How to Avoid Capital Gains Taxes

For many of the nation’s high net worth individuals, much of their wealth comes from capital gains. Capital gains are better than income because they are taxed at a much lower percentage than other income. While capital gains taxes could be going down under the Trump administration, it still pays to know every trick in the book to avoid paying more taxes on them than you have to.

With that mind, let’s look at some of the important tips you should know in order to keep your capital gains taxes low. One smart move is to use a tax-advantaged retirement account when you invest. When you use a retirement account to invest, your money is allowed to grow tax-deferred, instead of paying a tax on the gains like a normal investment. Plus, if you use a Roth IRA, even your withdrawals are tax-free.

Additionally, the longer you hold your investments the less you will pay in taxes. If you hold an investment for a year or less then you will pay a percentage rate equal to your ordinary income. If you hold them longer than a year your rates decrease substantially.

Always look for opportunities to sell your underperforming stocks in order to offset the gains from your successful stocks. This will lower your tax bill. Lastly, keep track of your home improvements so when it comes time to sell your home you can use those expenses as deductions from any gains you make on the sale price of your home.

https://www.fool.com/retirement/2017/02/07/4-tips-for-avoiding-capital-gains-tax.aspx

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Taxes: DIY or Hire a Professional?

Are you struggling with that ever-so-common question at this time of year: When will the sun come out again so I can play golf? Not that question. This one: Should I do my taxes myself or hire a professional? This is a very important question because the consequences of your choice can be significant.

DIY-ers are into everything. Of course, there is nothing wrong with trying to tackle things on your own, but when it comes to taxes, especially for high-net-worth individuals, it almost always pays to hire a professional. In fact, the majority of taxpayers do use some kind of professional tax assistance. Last year, 86 percent of all returns were filed with some kind of tax software, but most of those were actually filled out by tax professionals: 79 million returns.

If you’re still undecided, then here are some questions you can ask yourself to help clear the picture:

  • How much would you spend on a tax professional?
  • How much time do you have to spend on your taxes?
  • How unique or complicated is your personal tax situation?
  • Are you prepared to deal with the IRS should something go wrong?

Each of these questions is important to consider. If you don’t want to spend a lot of time on taxes, your situation is overly complicated, or you wouldn’t want to deal with the IRS, then paying to have a professional do your taxes is well worth the expense.

http://www.usatoday.com/story/money/personalfinance/2017/02/06/should-you-do-your-taxes-yourself-hire-tax-preparer/97198816/

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When Should You Receive Your Tax Refund?

The top question on everyone’s mind at tax season is when will get my refund? After all, that’s the only incentive people really have to do their taxes. The problem is the answer is never set in stone. Despite claims from the IRS that just about everyone should receive their refund within 21 days of filing their return (if it’s filed electronically), that doesn’t always happen.

The nation’s top tax agency even offers a helpful “Where’s My Refund” page for taxpayers to track the progress, but when your refund is delayed there are times when this page doesn’t offer much help. The problem is there are several things that can delay your refund and sometimes you won’t know what’s going on until several weeks later when a letter from the IRS arrives in the mail explaining the situation.

So what can cause your refund to be delayed? This year, any one claiming the earned income credit and/or the Additional Child tax Credit will have to wait longer for their refunds, which won’t start being issued until Feb. 15, but likely won’t arrive till Feb. 27.

If your return has any errors, like math mistakes, or it is incomplete, like a missing signature or form, then your refund will likely be delayed until the IRS determines the issue and you get it resolved. In addition, if the IRS thinks you are trying to defraud the government your refund will certainly be delayed.

On the other hand, if you or your CPA has filed your return correctly, and electronically, then in almost all cases you won’t have to wait longer than the expected three weeks.

https://www.fool.com/retirement/2017/02/07/when-will-i-get-my-tax-refund.aspx

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Consider These Small Business Tips for 2017

Tax time can be stressful for any taxpayer, but if you’re a small business owner, then it can really be a huge burden. However, there are some excellent tips and ideas that can help reduce your stress levels and put you at ease.

First off, you should strongly consider hiring a tax professional. Of course, you can try to do your taxes yourself, or use one of the may online programs, but in reality small business owners face so many unique and challenging tax situations that hiring a professional is usually the best way to go. You’ll avoid costly mistakes and you can rest assured that you’ll get the most out of your return.

Next, you need to make sure that you get every deduction that you qualify for. That’s just one more reason to hire a tax professional who won’t overlook any possibility. That also requires that you keep track of all your expenses and receipts throughout the entire year and have them organized and in a safe place.

Here’s another important thing to remember if you own a small business. Create and use separate accounts for your business only. Do not use your private funds for business, or vise versa. Any crossover could cause headaches when it comes time to file your return.

Although, everyone hopes to get a refund, not everyone does, so always do your best to anticipate how much you will owe and have that amount in reserve in case you have to pay it. That will save you from owing a huge bill without having the funds to pay it, which could end up costing you even more.

If you need more tax assistance, then please contact us at GROCO.com.

 

https://www.nav.com/blog/expert-tax-tips-for-small-business-16303/

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More Reasons to Be the Early Bird When it Comes to Taxes

Tax season has already been in full swing for a couple of weeks now, but if you’re still on the fence trying to decide if you should file early or late, then perhaps some of these items will encourage you to get started as soon as possible. There are a lot of good reasons to file your tax refund early, including getting your refund sooner, but there are several others, as well.

If you fall into the category of those who owe taxes, by filing them early you will have more time to make arrangements to pay them off. That’s because you still get the full time until the deadline to reconcile with the IRS.

Although this doesn’t apply to everyone, anyone buying home will want their taxes done early, because lenders want to see several years of your tax returns in order to determine of you will be able to make your payments. Having your most-recent taxes done could help speed up the approval process.

If you give yourself more time by starting early then you are more likely to catch mistakes or errors that you might miss later on because you are in a rush to get them done before the deadline. Plus, you won’t have to file for an extension.

By getting a head start on your taxes early you can beat the would be tax scammers that are out there trying to steal your refund and your identity. The quicker you file your return, the less time a scammer has to take your money. After you file, they can’t get your refund, so file as early as you can.

Lastly, the earlier you get your taxes done, the less time you’ll have to spend worrying about them. That’s a good enough reason for most people in and of itself.
http://moneyning.com/tax/5-good-reasons-to-file-your-tax-return-earlier-rather-than-later/

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How Will Tax Code Changes Affect High-Net-Worth Investors?

Taxes were a huge part of President Trump’s campaign but so far the Trump administration hasn’t announced any new legislation. However, even though no big tax changes have been made to our country’s tax system they are almost certainly on the way. Depending on your financial status, the expected changes could have a huge impact on you going forward.

Particularly, high net worth individuals are expected to benefit greatly from President Trump’s new tax code. However, when it comes to investing there is a lot of uncertainty as to how any possible tax changes will affect the portfolios of high net worth investors.

Trump has promised to lower taxes on both individuals and corporations. Part of his strategy is to lower capital gains, which would be good news for all investors. However, in order for top investors to stay on top they will have to buy into the right investments to maximize their tax savings.

Many wealth managers are already gearing up for the expected changes and several agree that private placement life insurance is a good bet. According to one wealth-planning manager, PPLIs “provide cash value appreciation based on a segregated investment account and a life insurance investment.”

PPLIs have long been a popular choice for the extremely affluent since the early 1990s, but they are now available to an even larger group of wealthy investors, and they are a great way to accumulate wealth and achieve large tax benefits. Therefore, it’s very likely that many high-net-worth individuals will be adding PPLIs to their portfolios as tax changes take place.

http://www.forbes.com/sites/russalanprince/2017/02/07/changes-in-tax-code-will-lead-to-changes-in-high-net-worth-investment-portfolios/#ce634f681e99

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