Tag: Tax Planning
Tax Planning Services By Sanjiv Gupta CPA Firm
Sanjiv Gupta CPA - 4 months ago
Sanjiv Gupta CPA Firm is a full service provider of tax services and offers solutions to clients in the Corporate, Estate and Trust, Individual, Limited Liability Company, Not for Profit, Tax Exempt, Partnership, and S Corporation income tax areas.The primary objective of our tax services group is to minimize a client’s overall tax burden whenever and wherever possible. In order to achieve this, our tax services are directed primarily toward constructive tax planning beginning early in the year and maintaining close contact with our clients throughout the year.The tax services we offer include not only the preparation and review of income tax returns, but also advance planning to minimize future taxes, advice on tax effects of proposed transactions, corporate reorganizations, assistance in such tax-oriented areas as executive compensation, pension plans, international tax reporting and planning, and other similar continuing services. We also have experience in providing assistance and advice in negotiations with taxing authorities. In addition, we provide the following services:Strategic Tax PlanningCorporate, Partnership & Trust Tax PreparationInternational Tax ServicesNon-Profit Organization ReturnsShareholder Tax IssuesStock Option PlanningPayroll and Sales Tax ConsultingESOP Structure AlternativesThrough our commitment to equality and client service, we have developed a large base of tax clients whose size and complexity rival that of firms many times our size. We believe our success is due in large part to an added emphasis on strategic tax planning.
Planning To Pay Tax Bill With Credit Card ?
Sanjiv Gupta CPA - 7 years ago
It is the time of the year to pay taxes, again. Have you planned for your tax payment? If you are thinking about the various options available to pay your taxes, you should certainly consider paying taxes using your credit card.Don’t panic!! After all, paying your tax using your credit card is not a bad idea at all.Let me explain how you can benefit by paying tax using your credit card.Credit cards are extremely dangerous if they are not used with due care. Caution should be exercised about the payment date and the amount. Nevertheless, if they are used wisely there is no better option than a credit card to manage your payments. By paying your tax through a credit card, you can buy time to repay the money. Though making payments through a credit card will lead to paying interest, the rate of interest charged by the credit card company is way lower than what the IRS would charge for defaulting on tax payment.Let us consider this classic example. Assuming that the last date for payment of tax is April 20th, IRS would start charging interest on any outstanding tax from the due date to the date the tax is paid in full. The current rate of interest is 3%, which is revised quarterly, and the additional interest rate for late payments is another 0.5% a month. If a taxpayer is late by one year, the total interest rate would work out to approximately 9%. On the other hand, for a credit card with an interest rate of 4% annually and another 2.4% interest rates as a one-time convenience fee, that a third-party service provider charges for using a credit card, the total interest rate still works out to around 6.5%. So, on a $20,000 bill, the savings would be approximately $500. For someone using a 0% credit card, the savings could still increase. But the point of concern here is the due date for the credit card bill payment. If the credit card dues are not cleared in time, all the savings accumulated here will go down the drain.For people, who are unable to avail of a credit line, this option may make no sense. Such people may approach the IRS and set up payment options with the department. Of late, IRS has unveiled schemes for taxpayers who need less than 4months to settle their tax amounts. Under this arrangement, tax filers can avail of a certain grace period where they can still pay their taxes, penalty-free. But the details of this arrangement need to be checked with the department as these rules and programs are not fixed and may vary from each tax year to the next.All said and done, it is very important to pay taxes on time. Considering that the penalty rate may go up to as high as 9%, it is very important for tax filers to figure out ways and means that are cheaper and affordable to them. For all those who hold a credit card, the above-mentioned option could prove beneficial and worthwhile to give it a try and pay taxes on time.
Tips to Maximize Tax Savings
Sanjiv Gupta CPA - 7 years ago
You may be working hard and earning big money but what is the use when you have not planned your taxes properly? Not planning for tax payments is as good as being unemployed because a lot of hard-earned dollars are wasted in paying taxes due to the lack of planning. So it is imperative to plan for tax payments, well in advance.Here are a few tips, from well-accomplished financial consultants, that may help you to maximize your tax savings and have more money in hand to spend for yourself.Working for a companySometimes it is good to work for someone than have your own business. Wondering why? Let me explain. By working for a company or by being on someone else’s payrolls, you may have to take a cut in your pay package. Nevertheless, you may still be left with more take-home money than what you had when you owned a business because you end up paying less in tax. For example, if you were working for a University as a professor, fringe benefits such as health insurance and worker’s compensation would take a big chunk of your salary thereby leading to lower tax payments.Combining vacations with Business TripsGoing on expensive vacations may burn a big hole in your pocket in terms of tax payments. But if these vacations are combined with business, there could be a lot of savings in terms of tax payments because hotel bills, meals, and car rentals are partly deductible from tax payments. But this is not a good practice to follow always as there could be a lot of questions from the IRS when this becomes a regular pattern. So, sometimes it is better to pay taxes fully for expensive vacations than claiming for deductions.Keeping a tab on Business related expensesNormally when on business trips we are lax and do not keep a tab on the expenses incurred during the trip. It is critical to keep track of all these expenses because, in the case of an IRS audit, it is this information that will come in handy to substantiate expenses incurred during a business trip. Also, it is a good practice to tag all business transactions to a single credit card. By using the same credit card for all business-related expenses, the expense statement from the credit card company can be used to back up claims made towards expenses incurred during a business trip.Employing your SpouseThough a little tricky, this option provides a lot of tax savings. Being your spouse’s employer you can claim for health reimbursements that cover out-of-pocket medical expenses such as spectacles, co-payments and dental costs with pretax dollars. But under these circumstances payroll tax payments are unavoidable. In order to claim for tax payments under this option, it is imperative to have an employment contract, signed by your wife and a perfect timesheet recording your wife’s working hours. It is very important to keep track of payroll tax payments because payroll mistakes can completely wipe away the tax savings.While these are just some of the many tax saving options available, it is always advisable to seek the guidance of a qualified CPA in order to maximize tax savings.
2013 Year End Tax Planning Ideas
Sanjiv Gupta CPA - 7 years ago
We are now accepting appointments for the year-end tax planning. October and November are great months to get your financial books in order and plan for the year-end tax. We would like to see you in our office to discuss your unique needs. While you set up that appointment consider some of these ideas:Charitable gifts of appreciated propertyThe tax advisers suggest the taxpayers that they can donate to charitable organizations through stocks, bonds, exchange-traded funds and mutual funds instead of donating through cash. Donating through these appreciating financial instruments can attract tax deductions.Tax-deferred vs. Taxable investmentsIt requires some prudence to classify the investments intelligently so as to save tax. High income-producing assets like stocks and other high dividend-paying financial instruments should be classified in the deferred tax accounts, so that tax can be paid only when income arises from it. If these are classified in the category of the taxable account, then taxes paid on these would have to be frequent. The intelligent classification of products can help to save reasonable amounts of taxes. It is the duty of the tax adviser to suggest these classifications to his client.Fund Roth IRAs for working teens and twenty-somethingsFund Roth IRAs are an excellent option for the younger generation and working teenagers. Usually the young are very interested to put in their hard-earned money in tax savings schemes so that they can save for college education, buying property or even to maximize retirement benefits. Roth IRAs are an option where the working younger generation invests after-tax funds.The young generation is eligible for a lower tax bracket and hence pays limited tax and invests in these accounts. When the fund reaches its maturity or when the individual attains full retirement age, the benefits of the Roth IRA can be withdrawn free of any income taxes.Loan money to kids for college or home purposesThe usual practice of the kids is to get a student loan for higher education if their parents’ income level is too high to qualify for financial aid. However, these do not qualify for any tax deductions. Instead, the other way to get a tax deduction is for the parent to give a family loan to the kid for higher education. To claim tax deductions on these family loans, the paperwork is very important. It should be in writing and the interest rates should be similar to what the bank rates are and upon good performance through grades, the parents can write off a part of the loan in the future.Converting IRA into a Roth IRASome of the employers give their employees an option to convert their Individual Retirement accounts into Roth Accounts as the latter helps to withdraw the retirement benefits at a future date without any tax charges. The Roth IRA is very helpful for the younger generation as they need to pay only a minimal amount of tax while investing in these accounts.
Evaluate the Repercussions of Non Disclosure and Make a Speedy Effort and Comply with The Tax Through SFOP
Sanjiv Gupta CPA - 6 years ago
Every individual or a small concern or a big company has to comply with the financial obligation of filing the tax due to the government. Any institution can hope to flourish only if they act in consonance with their duty as a responsible citizen of a country/state, which has allowed them to function on their soil, to do business with their people and earn well. Tax procedures have been updated as per the requirements of the times and now the new IRA has come into force there is more trouble for people who willfully default on tax payments.The government has introduced the streamlined domestic offshore procedure (SDOP) and the streamlined foreign offshore procedures (SFOP) to bring into the net of tax all those people who have not fulfilled the responsibility of tax payment for a period of time. The term ‘willfulness’ has assumed importance in that there is a chance of opting for SDOP or SFOP if the error in not filing is not due to willfulness in not reporting the asset or earnings through foreign assets. With the dictum ‘better late than never’ all citizens who have a stake in the country as citizens either with assets or earnings held within the country or outside, are duty-bound to pay all the taxes due for all the missed years even if it involves penalties of 5% as given. In fact, SDOP and SFOP have the procedures to soften the impact of the repercussions of negligence.FBAR is the reporting of the Foreign Bank Account Reporting. Many Americans are earning in different areas both within the country and outside, the result is they have accounts in banks wherever they run their business outside the country. The government has brought in the provision of FBAR to show that all citizens who have been earning through these in the form of bonds and assets and business earnings should report the same and comply with the tax as per value. In fact just by compliance with tax regulation whether with stakes within the country or outside it is possible to use our time for genuine business instead of watering down the progress through nondisclosures of earnings. The following are considered as foreign assets:Financial accounts in foreign institutionsFinancial accounts of a US institution in a foreign countryForeign stocks and securitiesForeign mutual fundsPrivate equity funds or hedge funds of foreign countriesDepending on which of these categories a person falls in he has to take the time to evaluate the repercussions of nondisclosure and make a speedy effort and comply with the tax through SFOP and for this make it a point to meet the tax consultant.
2014 Tax Brackets
Sanjiv Gupta CPA - 6 years ago
Are you ready to plan your 2014 Tax? In that case, you might want to start with the 2014 tax brackets. 2014 Tax Brackets(for taxes due April 15, 2015)Tax rateSingle filersMarried filing jointly or qualifying widow/widowerMarried filing separatelyHead of household10%Up to $9,075Up to $18,150Up to $9,075Up to $12,95015%$9,076 to $36,900$18,151 to $73,800$9,076 to $36,900$12,951 to $49,40025%$36,901 to $89,350$73,801 to $148,850$36,901 to $74,425$49,401 to $127,55028%$89,351 to $186,350$148,851 to $226,850$74,426 to $113,425$127,551 to $206,60033%$186,351 to $405,100$226,851 to $405,100$113,426 to $202,550$206,601 to $405,10035%$405,101 to $406,750$405,101 to $457,600$202,551 to $228,800$405,101 to $432,20039.6%$406,751 or more$457,601 or more$228,801 or more$432,201 or moreYou may also like to compare these numbers with 2013 tax brackets:2013 Tax Brackets (For taxes due April 15, 2014)Tax rateSingle filersMarried filing jointly or qualifying widow/widowerMarried filing separatelyHead of household10%Up to $8,925Up to $17,850Up to $8,925Up to $12,75015%$8,926 – $36,250$17,851 – $72,500$8,926- $36,250$12,751 – $48,60025%$36,251 – $87,850$72,501 – $146,400$36,251 – $73,200$48,601 – $125,45028%$87,851 – $183,250$146,401 – $223,050$73,201 – $111,525$125,451 – $203,15033%$183,251 – $398,350$223,051 – $398,350$111,526 – $199,175$203,151 – $398,35035%$398,351 – $400,000$398,351 – $450,000$199,176 – $225,000$398,351 – $425,00039.6%$400,001 or more$450,001 or more$225,001 or more$425,001 or more And lastly – you may also like to compare these numbers with 2012 tax brackets.2012 Tax Brackets (For taxes due this year)Tax rateSingle filersMarried filing jointly or qualifying widow/widowerMarried filing separatelyHead of household10%Up to $8,700Up to $17,400Up to $8,700Up to $12,40015%$8,701 – $35,350$17,401 – $70,700$8,701- $35,350$12,401 – $47,35025%$35,351 – $85,650$70,701 – $142,700$35,351 – $71,350$47,351 – $122,30028%$85,651 – $178,650$142,701 – $217,450$71,351 – $108,725$122,301 – $198,05033%$178,651 – $388,350$217,451 – $388,350$108,726 – $194,175$198,051 – $388,35035%$388,351 or more$388,351 or more$194,176 or more$388,351 or more
Alternative Minimum Tax | Tax Planning
Sanjiv Gupta CPA - 6 years ago
The purpose of the alternative minimum tax (AMT) is to help keep the wealthy from using tax loopholes in order to avoid having to pay taxes. It was designed to make the tax system fairer. Before the AMT was instituted, some high earners found a way to legally use tax deductions and other tax credits to pay no federal income taxes. Unfortunately, the tax did not adjust automatically for inflation causing more middle-class taxpayers to have to pay the AMT every year in addition to taxpayers with high incomes. In 2013, Congress passed a permanent patch to address this issue with the AMT. What Is The Alternative Minimum Tax? The alternative minimum tax is a tax system that operates parallel to the regular tax. It essentially expands the income amount that is taxed. It does not allow many of the deductions that are allowed in the regular tax system and it adds in many tax-free items. Alternative Minimum Tax Adjustments There are numerous adjustments made when calculating the AMT. There is some income added that is not subject to regular income tax. There are some deductions that are eliminated or adjusted down.Items that may cause an alternative minimum tax liability include: Itemized deductions for medical expenses, miscellaneous expenses or for local and state taxesMortgage interestProperty taxExercising incentive stock options (not selling)Accelerated depreciationLosses or passive incomeDeduction for net operating lossInvestment expensesForeign tax creditsTax-exempt interest from private activity bonds 2014 AMT Exemption Amounts$52,800 – Single or Head of Household$82,100 – Married Filing Jointly, Qualifying Widower or Widow$41,050 – Married Filing Separately 2013 AMT Exemption Amounts $51,900 – Single or Head of Household$78,750 – Married Filing Jointly, Qualifying Widower or Widow$39,375 – Married Filing SeparatelyThese exemption rates mean that this amount of income recalculated under AMT rules is not subject to the alternative minimum tax. Any income that is over the exemption amounts may be subject to the alternative minimum tax. Alternative Minimum Tax RatesThere are only two tax brackets for the AMT – 26% and 28%. The alternative minimum tax rate is only on the AMT income over the exempted amount.2014The 26% alternative minimum tax bracket ends, starting the 28% alternative minimum tax bracket at:Married Filing Separately: $91,250All other filing statuses: $182,5002013The 26% alternative minimum tax bracket ends, starting the 28% alternative minimum tax bracket at:Married Filing Separately: $89,750All other filing statuses: $179,500Do I Have To Pay The AMT?You can easily figure out if you have to pay the additional alternative minimum tax by filling out Form 6251. You will be required to pay the AMT if the calculated tax on Form 6251 is higher than the tax on your regular tax return. You will have to pay the difference as an alternative minimum tax. You will also have to pay the amount calculated on your regular tax return.If you have to pay the AMT, you can determine why you have to pay the additional tax by looking closely at your Form 6251. Look at your entries on lines 1 through 27. These entries adjust your taxable income for alternative minimum tax purposes.You can also use the AMT Assistant for Individuals calculator available at www.irs.gov. Additionally, most tax software will automatically calculate the alternative minimum tax.Alternative Minimum Tax Planning It can be difficult to devise a tax strategy for the AMT because it is often adjusted for many credits and deductions. Tax professionals generally recommend the following AMT planning tips. Get reimbursed from your employer for all business expenses. These business expenses are included in the miscellaneous itemized deductions that are added to your AMT income. When your employer pays you back for your business expenses, it is a tax-free event and it prevents an increased AMT adjustment.Make sure your state tax withholding is just enough so that you do not owe additional taxes at the end of the year but not too much causing you to overpay substantially. This will help you keep your state tax deduction low and keep your alternative minimum tax as low as possible.Pay property taxes on the due date. Do not prepay your next installment before the end of the tax year. This will help keep your deductions low.You should sell any exercised incentive stock options during the calendar year that you exercised them. Selling them the same year will make you subject to the regular tax but not the alternative minimum tax. If you exercise the options during the year but do not sell them, the value of the option will become income for the alternative minimum taxable income.
5 Important Tips For 2014 Tax Planning
Sanjiv Gupta CPA - 6 years ago
Your new goal for 2014 should be to gain a higher level of understanding about your income taxes, plan for your tax liability and get organized. This will make tax season much easier and could save you some of your hard-earned money.Below are some simple tips to help you achieve your new goal.Create a 2014 tax file. You can use a folder, bin or electronic file on your computer. Include all transactions and documents that might affect your 2014 tax return.If you use the electronic file, all you have to do is scan all your tax documents and move them into the folder on your computer. The great thing about using an electronic file is you can easily e-mail the folder to your tax preparer when it is time to file. An electronic file also takes up much less room and will not clutter your desk. It is important that you back up your electronic file so you will not lose your tax file if anything happens to your computer.Add important notes on your documents to help your tax preparer understand each transaction. You should include documents such as W2’s, K-1s, 1099s, property sale documents, escrow papers, property tax receipts, vehicle registration receipts, receipts for any tax-deductible purchases, and donation receipts.If your financial position will change this year, schedule a tax planning appointment halfway through the year. Financially altering events that occur in 2014 include marriage, divorce, having a baby, buying a home, selling a home or any other event that will affect your taxes. Do not try to set up an appointment in the middle of tax season. Waiting until the middle of 2014 will assure your tax professional will have enough time to spend with you help you adequately plan for your taxes.Fund your retirement plan. Check with your employer to see if you can contribute more to your retirement plan and confirm you are fully taking advantage of the employer match if you have a retirement plan with your employer.If you do not have a retirement plan, you need to open a ROTH IRA, IRA or other types of retirement plan. An investment house or bank can help you decide the best plan for your specific financial situation. This will help you plan for your future and will reduce your tax liability this year.Prepay your income tax liabilities. If you do not prepay your income tax liabilities timely, the IRS will penalize you. You should write down your estimated tax payments and the due dates on your calendar. For 2014, the installment due dates for individuals are April 15th, June 16th, September 15th, and January 15th, 2015.Keep up with current news relating to tax legislation. The tax laws are constantly changing. You might think you know the valuable credits and deductions but Congress might have obliterated them. Keeping up with the new tax law changes will help you take advantage of all the tax credits and deductions that are available to you.
2016 Tax Rates – Plan Ahead To Save
Sanjiv Gupta CPA - 4 years ago
Many of you are getting your paperwork ready to file your 2015 tax returns but you may also want to review the latest tax brackets and standard deductions amounts for the upcoming 2016 tax year. This can give you a head start for the 2016 tax planning. 2016 TAX BRACKETSINDIVIDUALS:OverBut Not OverTax Rate$0$9,27510%$9,276$37,65015%$37,651$91,15025%$91,151$190,15028%$190,151$413,35033%$413,351$415,05035%$415,051And over39.6% HEAD OF HOUSEHOLDOverBut Not OverTax Rate$0$13,25010%$13,251$50,40015%$50,401$130,15025%$130,151$210,80028%$210,801$413,35033%$413,351$441,00035%$441,001And over39.6% MARRIED FILING JOINTLYOverBut Not OverTax Rate$0$18,55010%$18,551$75,30015%$75,301$151,90025%$151,901$231,45028%$231,451$413,35033%$413,351$466,95035%$466,951And over39.6% MARRIED FILING SEPARATELYOverBut Not OverTax Rate$0$9,27510%$9,276$37,65015%$37,651$75,95025%$75,951$115,72528%$115,726$206,67533%$206,676$233,47535%$233,476And over39.6%The IRS has also released its standard deductions chart for 2015. Everyone who pays taxes will get a small increase in their standard deduction amount. STANDARD DEDUCTIONSFiling StatusStandard Deduction AmountSingle$6,300Married Filing Jointly$12,600Married Filing Separately$6,300Head of Household$9,300Surviving Spouse$12,600There are some important changes in the 2016 tax code!New Limit For Earned Income Credit = $6,269 for those who have 3 or more qualifying children in 2016 (Married Filing Jointly)Had a Foreign Income = The foreign earned income exclusion is $101,300 for 2016.Personal Exemption = $4,050 for this year. Alternative Minimum Tax (AMT) exemption amount is $83,300 (Married Filing Jointly) and $53,900 for singles.
Understanding Hillary Clinton’s Tax Plans
Sanjiv Gupta CPA - 4 years ago
Democratic presidential candidate Hillary Clinton has vowed that she will make sure the wealthy and the largest firms will be paying their fair share while providing tax relief to working families. According to her, the economy should work for everyone and not just at the top of the food chain. She has committed to restoring fairness in the US tax code, vowing to create more jobs in the US and make the economy more competitive in the long haul.Clinton has pledged to do the following:Restore fairness to the US tax code by implementing a ‘fair share surcharge’ on multi-millionaires and billionaires. He will also champion for measures such as the Buffett Rule in a bid to ensure that the richest citizens in the country won’t be paying a lower tax than middle-class families.She has also assured that her administration will close loopholes in the current tax code so that multi-million dollar estates will be paying their fair share of taxes.Put a stop to corporate and Wall Street tax loopholes such as inversions that reward firms for shifting profits and bringing in jobs overseas. She has stated her desire to charge companies that leave the US, levying an exit tax on those firms that get away with untaxed foreign earnings.She also said that she will be closing tax loopholes that allow Wall Street money managers to pay lower taxes than some middle-class households. And under the Clinton administration, businesses that bring in much-needed jobs in the US will be given lower taxes.Simplify taxation for small firms to encourage the growth of micro, small, and medium enterprises. In turn, these firms can grow and hire more people. In particular, she is setting sights on freeing small businesses with 1-5 employees that spend more than a thousand dollars on federal tax compliance. According to her, that is more than 20 times higher than the average for bigger companies.Provide tax relief to working families and shield them from the rising costs of day-to-day living. She has particularly offered tax relief for Americans who are facing excessive out-of-pocket health care expenses as well as those who are taking care of an elderly or ill family member.A Closer Look at Clinton’s Tax PlansHere are the major points of Clinton’s tax plans:Charging a 4% surtax on adjusted gross income or income earned over $5 million. This proposal would affect the so-called high-income taxpayers or roughly one in every 5000 taxpayers. In the long run, it is expected to raise around $150 billion in tax revenue for the federal government.However, the income tax rates for individuals, married taxpayers, and heads of households earning less than $5 million a year will not be affected or changed at all.The imposition of the so-called Buffett Rule that would call for a 30 percent minimum tax on taxpayers who have an adjusted gross income of more than $1 million.To the uninitiated, the Buffett rule was coined by outgoing US President Barrack Obama who had noted of billionaire Warren Buffett’s criticism of current tax policies. In 2011, Buffett wrote that he had paid lower tax rates than his secretary.According to Clinton, the imposition of the Buffett Rule would be one that would help the nation achieve greater fairness in its tax system.Raising capital gains taxes on high-income investors. High-income fliers, or those who are earning more than $400,000 make a lot of money from capital gains. In the current tax code, these high-income investors pay a 20 percent tax on realized gains from investments that were held more than a year. Clinton is amenable to preserving the rate but only for investments that were for a minimum of six years. She bats for investments that were held less than six years to be taxed on a sliding scale. This would encourage investors to think long term as they have a tax incentive to hold onto an investment.Raise tax rates on big estates. If Clinton gets elected, expect money and assets left to heirs to be tax heavily if these come from a big estate. She also wants to tax estates worth more than $3.5 million, and $7 million for married couples. These are far lower than today’s estate tax exemption level of $5.45 million for individuals and $10.9 million for couples.She also wants the estate tax rate to be slashed to 40 percent from 45 percent.For business taxes, Clinton wants the following:The standard deduction for small businessesRaise the limit for foreign ownership in inversion transactions to 50 percent of combined company shares from the current 20 percentImpose a corporate exit tax on unrepatriated corporate earningsTax high-frequency trading although the rate is still to be determinedProvide tax credits for investments in community development and infrastructureReform performance-based tax deductions for top-earning executives of public firmsEliminate tax incentives for fossil fuelsImpact of Higher Tax on High-Income EarnersThe nonpartisan Tax Policy Center estimates that taxpayers in the upper echelon would have to deal with an average tax increase of $4,527, representing a 1.7 percent reduction in after-tax income. Those who have incomes in the $295,000 and $732,000 range would have to pay $2,700 more in taxes. Those in the 0.1 percent with income greater than $3.8 million will also have their taxes increase to about $520,000.The four percent surcharge that Clinton is proposing stems from a report by the IRS that in 2013, the 400 top income payers paid an effective tax rate of 23 percent brought about by lower rates on capital gains and other tax loopholes.Not surprisingly, the bottom 95 percent of the taxpayers will not see any changes to their taxes. The Tax Policy Center says that if Clinton’s tax proposals are enacted, this would translate to an increase in revenue by about $1.1 trillion over the next decade.The Tax Policy Center also notes that almost 80 percent of tax increases in a Clinton administration would affect only 1 percent of the population in the first decade. One in the 1 percent would owe as much as $120,000 more while the poorest citizens would owe $6 more.But the Tax Foundation, a top independent tax policy research organization, sees Clinton’s plans as having a detrimental impact on the economy. In the long run, it could reduce the economy’s size by 1 percent according to the foundation’s Taxes and Growth Model. It is also projected to lead to nearly 1 percent lower wages and 311,000 fewer jobs as well as 2.8 percent smaller capital stock. The foundation states that these are a result of higher marginal tax rates on labor income and capital.The National Center for Policy Analysis’ Tax Analysis Center supports those claims of the Tax Foundation. In backing up the claims of the Tax Foundation, the NCPA says that the tax plan of Clinton will also hurt other taxpayers and not just the rich contrary to what her drumbeaters are saying.A study conducted by NCPA senior fellow Dr. David Tuerck shows that while federal tax revenues would increase if Clinton’s tax plans are implemented it can also affect the income of the general population.In the said study, the top 10 percent of income earners would lose almost 2 percent of their broadly measured income in 2017. Moreover, the poorest 10 percent of the population will be lost around 0.7 percent of their broadly measured income which is the largest loss among the bottom 90 percent of the population.The study points out that taxing high-income earners can slow down economic growth, which can hurt even the lowest income earners.Taxes on Small BusinessesClinton says she is proposing a scheme called “checkbook accounting” that will make filing taxes for small firms as simple and easy as keeping a checkbook or printing out a bank statement.The standard deduction for small businesses is designed to allow small businessmen to take a standard deduction instead of tracking expenses like rent, phone bills, and office supplies. There’s still no specific amount of percentage discussed, as this would be up to Mrs. Clinton’s treasury department to refine the idea.Many observers think that the idea will help businesses because it would be much simpler for them to file taxes. It is also seen to provide a net benefit to small firms as they can still choose to list all their deductions, and as such, any firm will be able to choose the option most favorable to them.However, others point out that the benefits of this tax proposal aren’t that big for small firms. Most firms today rely on technology such as apps to track their expenses. They also use those files for filing their taxes.Capital Gains Taxes Impact on investorsClinton’s tax proposals will also have an effect on investors in the country. As mentioned earlier, Clinton is batting for six capital gains taxes, with longer holding periods getting the lowest levy.Clinton believes that by encouraging shareholders to hold on to their assets for the long haul, companies will be able to engage in moves that create long-term value like investing more in employees and raising wages instead of buying back shares.The Tax Policy Center estimates that Clinton’s plan to increase capital gain taxes on investments held for shorter than six years would raise around $84 billion over a decade. This is assuming there will be little changes in investing patterns.But the Tax Foundation says those plans will reduce tax revenues as it would push investors to hold on to their holding a lot longer. The organization says that this proposal would likely result in a loss of around $375 billion on a static basis, as it can reduce the number of capital gains realizations.The mutual fund industry is expected to be hit by Clinton’s capital gains tax proposal. If Mrs. Clinton’s plan pushes through, the belief is that investing in ETFs will become more popular than actively managed funds which have a 2-3 year time horizon.Impact of Exit Tax on CompaniesAnother pillar of Clinton’s tax program is charging expatriating US firms an ext tax based on their offshore earnings. Clinton’s explanation is simple – “if they (companies) want to go, they have to pay to go.”Clinton wants firms that have their tax residency moving to a non-U.S. jurisdiction to immediately pay its corporate income tax on overseas income that it has deferred. The concept is basically asking for corporate exiters to pay before they escape.This proposal is seen to counter the move of many US firms to shift their tax jurisdiction out of the US, which has the highest corporate tax rate at 35 percent. If this proposal comes into being, firms will face penal provisions for shifting tax residency abroad to leverage tax advantages.Interestingly, this is an issue that is seen to protect the interests of US workers which Clinton’s rival Donald Trump has also championed by blasting trade deals like the North American Free Trade Agreement.ConclusionWhile Clinton’s tax plans appear to cater to the majority of US taxpayers, the consensus of many experts is that it would be detrimental to the economy in the long run. Although most of her policies except for the capital gains policy would likely raise tax revenue, organizations like the Tax Foundation believe that her plans will impose higher marginal tax rates on capital and labor income. This can then result in a slowdown in the US economy in the long run. This detrimental effect on the US economy will overshadow the revenue that Clinton’s tax policies could collect.Indeed, Clinton’s tax plans appeal to a larger part of the population but a closer examination of her tax program reveals that there is still a lot to be improved on.
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Sanjiv Gupta CPA - 4 months ago
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