House Republicans Release Tax Reform Blueprint

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On June 24th, House Republicans released “A Better Way—Our Vision for a Confident America,” their blueprint for tax reform proposals.  The blueprint would “simplify, flatten, and lower tax rates for families and individuals.

Among the individual income tax proposals, the blueprint would:

  • Eliminate the alternative minimum tax (AMT), estate tax and generation-skipping transfer tax
  • Reduce the number of tax brackets from seven to three and lower the top marginal rate from 39.6% to 33%
  • Ensure that taxpayers currently in the 10-percent bracket will always pay less tax than under current law
  • allow for a 50% deduction of net capital gains, interest and dividend income leading to an effective tax rate of 6%, 12.5% or 16.5%, depending on the tax bracket
  • simplify tax filing to a fourteen line, “postcard” sized form

Among the business income tax proposals, the blueprint would:

  • limit the tax rate for small business and pass-through entities to 25%
  • reduce the corporate tax rate to a flat 20%
  • provide for the immediate expensing of the cost of business investments
  • allow net operating losses (NOLs) to be carried forward indefinitely and increased by an interest factor while eliminating NOL carrybacks
  • simplify the international tax rules and eliminate most of the Subpart F rules

Additional details regarding the tax reform proposals can be read here (PDF).

Tax Refunds May Be Delayed in 2017 Due to Increased Identity Theft

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Millions of taxpayers will have a longer wait for tax refunds next year due to the increasing tax refund fraud. Identity thieves are finding ways to file fraudulent tax returns using another person’s name and Social Security number in order to claim a tax refund before the actual taxpayer files their own tax return. To give perspective, the IRS estimates that it paid $3.1 billion to identity thieves in tax year 2014. During that same time, the IRS prevented an additional $22.5 billion in fraudulent refunds from being paid to identity thieves.

Congress and the IRS have worked together to develop a plan in the hopes of hindering the fraud. Their goal is to be a step ahead of the scammers. The only problem is that millions of taxpayers may have to wait longer to receive their refund next year.

The “Protecting Americans from Tax Hikes” Act was signed into law on December 18, 2015. One of the tax provisions included states that the IRS must wait until February 15 to issue refunds to taxpayers who claimed the earned-income tax credit (EITC) or the child tax credit (CTC). Since the EITC is a refundable credit, it has been an easy target for identity thieves. In 2013, an astonishing 24% of the EITC payments were paid erroneously.

In 2016, the IRS asserted it was delivering 90% of refunds in less than three weeks. In 2017, that number is expected to fall dramatically due to the Congress-instructed postponement. Tax firms are beginning to notify their clients who claim the EITC and CTC so that they may plan ahead for the delay.

 

 

Where Your 2015 Income Tax Dollars Went

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The National Priorities Project (NPP) completed a study to uncover what the American taxpayer dollars went towards in 2015. According to the analysis, the $4.2 trillion dollar federal budget in 2015 was allocated to a variety of different areas such as defense, housing, and education. The NPP prepared their study by allocating how much was spent in each category and applying those percentages to the average American’s federal tax bill of $13,000.

Of the $13,000 average, the federal government spent:

  1. $3,728.92 on health programs (28.7%)
  2. $3,299.13 on the Pentagon and the military (25.4%)
  3. $1,776.06 on interest on the debt (13.7%)
  4. $1,040.93 on unemployment and labor programs (8%)
  5. $771.26 on veteran’s benefits (5%)
  6. $598.74 on food and agriculture programs (4.6%)
  7. $461.59 on education programs (3.6%)
  8. $377.50 on government expenses (2.9%)
  9. $250.03 on housing and community programs (1.9%)
  10. $207.68 on energy and environmental programs (1.6%)
  11. 194.29 on international affairs programs (1.5%)
  12. $150.68 on transportation funding (1.2%)
  13. $143.20 on science funding (1.1%)

For those who want more detailed information about their personal federal taxes paid, NPP has created a feature that allows taxpayers to see exactly how much of their own bill went to the areas shown above (broken out into more detail) by plugging their federal taxes paid amount into the NPP’s federal tax receipt calculator here: federal tax receipt calculator.

2016 Ohio Sales Tax Holiday

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On Wednesday, April 27, the Ohio House of Representatives joined the Ohio Senate in approving the back-to-school Sales Tax Holiday for the second year in a row. This Year’s Sales Tax Holiday will fall during the days of August 5th through August 7th. The bill, known as Senate Bill 264, now just needs Governor John Kasich’s signature to be official.

According to a study by the University of Cincinnati Economics Center, last year’s Ohio Sales Tax Holiday generated $4.7 million in sales tax revenues statewide and saved taxpayers $3.3 million on $46.75 million of back-to-school related purchases. The study also showed a measureable increase in sales of Ohio counties that border other states. These counties experienced a 15.48 percent increase in their sales tax collections, compared to an increase of 4.56 percent in non-border counties. This large number of “cross-border” sales is due to Ohio being the only state in the Midwest to offer a sales tax holiday on back-to-school items.

The bill uses nearly the exact same language as last year’s Sales Tax Holiday, letting shoppers purchase clothing priced at $75 or less, school supplies priced at $20 or less, and school instructional materials priced at $20 or less without paying state or local sales tax. Also similar to last year, this event will be open to everyone shopping at Ohio stores, not just families with children attending school.

Keep in mind there are a few stipulations to this holiday. Most notably, any item used in a trade or business is not eligible for the tax exemption. For example, school supplies such as binders and notebooks to be used in a business are ineligible. Additionally, clothing accessories including jewelry and handbags do not qualify as clothing and are therefore not exempt from sales tax.

Items sold by mail, phone, or the Internet will qualify for the tax holiday if the consumer orders and pays for the item and the retailer accepts the order during the holiday period.  Shipping and handling charges shall also be exempt from sales tax if all items in the order qualify for the exemption. If some of the items in the order are ineligible, sales tax will be charged on the shipping and handling costs of those specific items.