May 2017 Blog Posts
May 17, 2017
Just because tax season is over, doesn’t mean that you’re done with nasty taxes for good (though even we wish this were the case!). Do yourself a favor and avoid the toxic anxiety tax season welcomes by taking just a few easy steps to stay organized for next year.
1. Look over your withholdings – no one wants to have more money taken away from them than necessary obviously. So it always shocks us when people who have employers that withhold money from their paycheck automatically don’t take the time to make sure the correct amount is getting taken out!
2. Evaluate your retirement plan – be honest; are you really saving enough for retirement? Most Americans have no idea, as a Bank of America Merrily Lynch survey found that 81% of Americans don’t know how much money they will need for retirement! So it’s very important to be aware that IRS limits on tax-deductible IRA contributions can change from year to year.
3. Make an income forecast and estimate possible taxes – all businesses regularly project how much revenue they expect to gain over the year in order to gauge expenses. Treat yourself and your family like your own business and do some serious thinking about how much money you’ll think you’ll have over the year, including possible major expenses (especially unexpected ones), and what you might have to pay in taxes.
Taxes aren’t fun, but that doesn’t mean they have to be torture. Do your future self a big favor and ease the stress by taking some easy proactive steps. Your future self will want to hug you for your efforts!
May 3, 2017
Tax and Health-Care Reform Back in the Spotlight
Republican efforts to repeal and replace the Affordable Care Act (ACA) failed in late March. In the immediate aftermath, it appeared that health-care reform efforts would be set aside in favor of advancing a tax reform agenda.1 Then, in a one-two punch that surprised many, the White House called for a vote on a revised repeal-and-replace health-care plan and announced the broad outline of a new tax reform plan.2 It would be a mistake to consider the two completely separate efforts, because in some ways they are actually closely connected.
White House announces new tax proposals in broad terms
The tax reform plan announced by the White House includes reducing the current seven tax brackets to just three: 10%, 25%, and 35%. It proposes doubling the standard deduction amount and eliminating both the alternative minimum tax (AMT) and the federal estate tax. The plan would preserve existing deductions for home mortgage interest and charitable donations, but would eliminate most other deductions, including the ability to deduct state and local taxes.3 Essentially, this was a "stake in the sand" to establish a starting point for negotiations with Congress. Details must be determined, and changes are likely as discussions progress.
Tax provisions also a part of health-care reform
The ACA contains significant tax provisions, including the 3.8% net investment income tax and the 0.9% Medicare payroll surtax, which both target high-income individuals. The initial repeal-and-replacement effort would have eliminated or modified many ACA tax provisions — that's almost certain to be true for a revised plan as well. And any health-care reform package is likely to balance lost tax revenue with reductions or limits to subsidies and Medicaid outlays. If the ACA tax provisions are not addressed in a health-care reform package, they're likely to be included as part of the tax reform discussion, increasing the scope and complexity of the tax debate. In fact, the White House tax reform announcement specifically called for repeal of the 3.8% net investment income tax.4
Further complicating the issue, Republican legislators — who lack 60 votes in the Senate to overcome a Democratic filibuster — plan to use a process called budget reconciliation to pass both health and tax reform legislation with a simple majority vote. Under budget reconciliation rules, any reform measure must not increase the federal deficit beyond a 10-year period. This restriction means that unless tax cuts are offset by revenue savings elsewhere (e.g., spending cuts or reduced deductions), they must expire after 10 years.
1) See for example Nick Timiraos and Richard Rubin, "GOP Shifts Focus to Next Target: Tax Code Revamp," Wall Street Journal, March 25, 2017
2) John T. Bennett, "White House: Final Health Care Deal Unlikely This Week," Roll Call, April 26, 2017, and Briefing by Steven Mnuchin, Secretary of Commerce, and Gary Cohn, Director of the National Economic Council, April 26, 2017, whitehouse.gov
3,4) Briefing by Steven Mnuchin, Secretary of Commerce, and Gary Cohn, Director of the National Economic Council, April 26, 2017, whitehouse.gov