How do the new tax laws impact me?

Anytime there are huge pieces of legislation, you can expect a 'technical corrections act' to come back and fix things.

The IRS will have its hands full just deciding which provisions require new regulations first.  They will need to get guidance out to practitioners, such as Accountability Services, as well as businesses very soon. 

We expect them to issue some guidance in the form of Q&As rather than full-blown regs, at least at the beginning. The transition provisions and effective dates will add tremendous complexity.

Frankly, our firm doesn't expect to have granular clarity until late spring, in many cases, after many of our clients' 2017 tax returns have been filed.

That being said, below is a revised checklist of things we suggest clients do by year-end.

• Push business income to 2018 (rates go down in 2018, plus deduction).
• Buy and place in service an electric car (tax credit expires at end of 2017).
• Recognize any possible business losses (they will be limited in 2018).
• Prepay investment expenses and tax prep fees in 2017 (nondeductible in 2018).
• Pay any moving expenses related to a job in 2017 (the deduction is eliminated in 2018).
• Sell any business processes or patents before the end of the year (this will be treated as ordinary income in 2018, and is capital gains in 2017).
• Wait to buy a business vehicle until 2018 (depreciation on luxury autos goes up substantially in 2018).
• Prepay 2017 state income taxes.
• Accelerate any of your children’s unearned income into 2017 (rates go up in 2018).

The decisions you make regarding your taxes impact your cash flow and bottom line - and the new tax laws are complicated.
​
If you need tax consulting services over and above tax preparation, contact us to set your consultation appointment now and we'll get you on our calendar for late spring.

Individuals
 

1. Retirement Contributions.  The 2017 maximum 401(k) / 403(b) contributions are $18,000 and $24,000 if you’re over 50.  Pre-taxed contributions will lower your 2017 taxable income.  In contrast, Roth contributions won’t lower your taxable income, but will grow tax free!
2. Flexible Spending Account.  Keep in mind that these are “use it or lose it” benefits.  If you put funds aside tax-free, be sure to submit your paperwork by year-end.
3. Health Savings Account.  Self-only HSA accounts can be funded up to $3,400 and $4,400 if you’re over 50.  Family plans can put aside $6,750 / $7,750 for 2017.
4. Estate Planning.  If your estate is projected to be at risk of paying estate taxes, consider gifting by year-end.  For instance, the State of Washington's taxable estate starts at $2.129 million.  Be sure to discuss this with your attorney and/or CPA.
5. Charitable Donations – Tax free transfers for IRA owners over 70.  While IRA distributions are generally taxable, you can authorize a qualified charitable distribution (QCD) up to $100,000 be paid from your IRA tax free!
6. Charitable Donations – Stock.  The stock market has soared this year.  If your stock has appreciated, and you've owned it for longer than 12 months, you will get a bigger itemized deduction by donating the stock than by selling it and giving the cash.  Another benefit:  you will avoid paying capital gains tax on the sale.
7. Pay Estimated Tax.  The US tax system is a "pay-as-you-go" system. This means that you are required to pay income tax as you receive the money.  If you had a taxable windfall this year, to minimize interest and penalties, pay the tax in now.  If you’re not sure how much to pay, engage your accountant to perform a tax analysis.
8. Rebalance.  The stock market has gone gangbusters.  This is a good time to rebalance your investments.  Consider increasing future foreign investments and reducing US investments or vice versa.  Stock vs. bonds or CD is another consideration.  Whatever your risk tolerance, now is a good time to adjust for 2018.

 
Corporations
 

1. Reimbursements.  If you still have unreimbursed business expenses, submit an expense report so your company can get the tax deduction in 2017 (and you will get credited in 2017) for the expenses!
2. Healthcare Coverage.  If your company pays shareholder and/or employee healthcare premiums, be sure it’s recorded properly on your W-2.  If in doubt, address this matter with your payroll company before December 22.
3. Independent Contractors.  Your company is responsible for sending 1099s to certain vendors for whom your business paid $600+.  (This applies to owners of rental real estate.)  Form 1099 must be sent in January.  Now is a great time to check your file folder of vendor W-9s to ensure you have required information.
4. Equipment Purchases.  If your company needs a new server, truck, freezer, etc., consider buying the equipment before year-end.  These purchases could reduce your company’s taxable income!
5. Take Inventory.  If you sell products, conduct an inventory assessment and compare the results to your last inventory report.  Make any necessary adjustments to ensure you have an accurate account of how much capital you have wrapped-up in your current inventory.
6. Review Financial Statements.  Review your Profit & Loss Statement for accuracy.  Make sure Gross Revenue equals the same number(s) you reported to your state(s).  Review your 2016-2017 Balance Sheet accounts and question all negative numbers.  Question any numbers that did not change from 2016.  Invoice all customers for work performed and products shipped.  Review your AR and AP Aging and make efforts to collect what’s due and pay what’s owed.
7. Build / Finalize 2018 Budget.  Now that you’ve reviewed your 2017 financial statements, finalize your 2018 budget.

 
If you need assistance with your year-end activities, contact us!  Our TaxTeam provides federal, state and international tax advice -- from start-ups to multinational corporations at all stages of their life cycle. We carefully guide clients through complex tax rules and regulations and provide thoughtful and comprehensive solutions that help clients achieve their objectives.

​Imagine coming to work at your business on a Monday morning and finding that the plumbing has been leaking over the weekend. While insurance will cover the water damage, it will not pay for the new plumbing work. Fortunately, one of your clients is a plumber. So, you call A&P Plumbing and tell them your problem. The two of you agree that the work will cost an amount equivalent to six months' of your work. A&P does his work for you, you do your work for A&P, and no money changes hands.

Is there a tax liability associated with this barter transaction? YES!

State and City - Both you and A&P have a tax liability to report on State and applicable City tax returns. A&P will report a retail sale of plumbing services under both the retail sales tax and retailing (business and occupation) B&O tax lines. The amount they will report is the value of six months of your services. You will report the value of the plumbing services under the service and other activities B&O tax classification (and/or retail sales tax if applicable for your business type) for the services you will provide A&P. The transaction is subject to tax because the value proceeding or accruing to a business includes money, credits, or rights expressed in terms of money - (RCW 82.04.090)

IRS - You and A&P must also include in gross income in the year of receipt the fair market value of goods or services received from bartering.
Persons who don't contract with a barter exchange or who don't barter through a barter exchange but who trade services may be required to file Form 1099-MISC to report Miscellaneous Income for those for whom they perform bartered services.
​
Barter Exchanges - A barter exchange is an organization that serves as a third party to coordinate barter transactions between members of the organization, and as a bank to keep track of the value of barter transactions and the value of each member's account. Locally, BizX is an example of such a barter exchange.
One big advantage to a barter exchange is your ability to barter with several other businesses or individuals in a kind of round-robin system and you don't have to worry about keeping track of who owes what to whom. 

Barter exchanges serve both tax reporting and bookkeeping functions:
Barter exchanges are required to file Form 1099-B.  If you exchange property or services through a barter exchange, you (and those with whom you barter) should receive a Form 1099-B. Ultimately, the declaration and reporting of all applicable local, municipal, state/provincial and federal taxes, including but not limited to appropriate sales and excise taxes, resulting from your exchange transactions rests solely with you.

Accounting for barter activities - If you use a barter exchange such as BizX, the account is set up in your bookkeeping system as a bank - much like you would for your PayPal, Stripe, and Square accounts. This simplifies both revenue and expense recognition, through the use of invoices for services you provide, and bills for those services you use (and Exchange fees).

If you need an assessment or a consultation to ensure your business is compliant with your bartering agreements, feel free to contact us.

​Our phones have been ringing off the hook!  YES -- Seattle’s newly enacted Income Tax on high earners was signed into law this week by the mayor and, depending on taxpayer income, will add to some Seattle residents’ tax burdens.
 
A broad overview of the basics is that the City of Seattle has authorized a 2.25% tax on the total income of single residents that exceeds $250,000 or $500,000 of those filing married filing jointly (certain trusts are also liable for the tax). The language of the ordinance defines total income as “the amount reported as income before any adjustments, deductions, or credits on a resident taxpayer’s United States individual income tax return for the tax year”. If you have a copy of your 1040 tax return https://www.irs.gov/pub/irs-pdf/f1040.pdf, you’ll find this amount on line 22 of the 1040, and includes wages, interest, dividends, alimony, net business and rental income, capital gains/losses, taxable IRA distributions, pensions, Social Security benefits, and any other income deemed taxable by the IRS – before any exemptions or deductions.
 
The first year taxable year begins on January 1, 2018 and income is to be reported by the taxpayer by April 15th of the following year (2019). At this time, there is no provision for payment of the tax through deductions from wages, and a six month extension will be allowed, by filing a copy of the IRS extension (form 4868) with the City.
 
A court challenge to this new tax has already been filed, and is welcomed by the proponents of the tax – mainly because supporters believe a new ruling on the taxability of gross income could set a new precedent in Washington and eventually lead to a state-wide income tax (which many believe to be a more fair and equitable taxation standard than reliance on sales and property taxes).
 
State GOP leaders have even encouraged civil disobedience and recommending non-payment of the tax. Failure to file and pay the tax could lead to the following interest and penalties:

• Willful failure to file penalty - $1,000
• Late, incomplete, or incorrect filing - $250
• 4% Interest - based on the underpayment rate under the Internal Revenue Code
• Failure to pay penalty – In addition to interest - 1% per month up to 25% of unpaid tax

 
The ordinance has cited several factors leading to the tax: Washington State’s regressive tax system; increased demand for city services – housing, education, and transit; homelessness; the loss of Federal proposals to cut funding directly to city and indirectly through the state; and the City’s goal of zero net greenhouse gas emissions by 2050, stating additional resources are needed for this initiative.
 
The ordinance has also provided that all receipts from the tax shall be restricted in use and shall be used only for the following purposes:

1. Lowering the property tax burden and the impact of other regressive taxes, including the business and occupation tax rate;
2. Addressing the homelessness crisis;
3. Providing affordable housing, education, and transit;
4. Replacing federal funding potentially lost through federal budget cuts, including funding for mental health and public health services, or responding to changes in federal policy;
5. Creating green jobs and meeting carbon reduction goals; and
6. Administering and implementing the tax levied by this Chapter 5.65.

 
Stay tuned.  We will update this post as more information becomes available!

Are you contemplating making an investment in solar panels?  If so, there are some terrific tax breaks!
 
Federal Income Tax Credit
You may take a credit on your Federal taxes of up to 30% for solar equipment.  The phase outs start in 2020 as follows (2020-26%, 2021-22%, after 2021-no tax credit).
​
You may include any labor costs properly allocable to the onsite preparation, assembly, or original installation of the residential energy efficient property and for piping or wiring to interconnect property to the home.
 
The credit is limited to your tax liability but you can carry forward the remainder to subsequent years.
 
You must reduce the basis of your home by the amount of any credit allowed.  This means that when the day comes that you sell your home, the credit would effectively be added to your gain.
 
Washington Sales Tax Exemption
The Sales Tax exemption in WA State Expires June 30, 2018 – The sales tax exemption is taken at the point of sale, and you must provide a completed Buyer's Retail Sales Tax Exemption Certificate to the seller and/or installer.
 
Renewable Energy Advantage Program (REAP)
Washington State also has  a Production Incentive program called Renewable Energy Advantage Program (REAP) that extends through June 2020. It is an annual payment made to reward property owners for installing made-in-Washington solar systems to incentivize renewable energy manufacturing in our state. – this credit incentive makes payments to the customer based on energy (per kw hour) produced and is available through your electricity provider.
http://www.seattle.gov/light/solarenergy/production-incentive-payment/
 
For additional information, this is a good summary:
http://www.solarwa.org/solar_incentives
 

If you owe a balance to the IRS and do not want to physically send a check, we recommend paying online.  To do that, go to https://www.irs.gov/payments/direct-pay.
 
*Make sure to have your most recent tax return on hand.  You will be asked to enter tax return verification information.
 
Choose  “Make a Payment”
 
Select the dropdown for Reason
 
To pay your balance for 20xx:

• Key words:    1040  >  Tax Return  >  20xx

 
To pay your estimated quarterly payment for 20xx:

• Key words:     1040ES  >  Estimated Tax  >  20xx

 
 You will be asked to verify your information:
                Year of most recent tax return filed
                Filing Status
                First name
                Last name
                SSN
                Date of birth
                Full address as it appeared on your tax return
               
 For more information, go to:  https://www.irs.gov/payments/direct-pay-help

Figuring the tax gain or loss on gifted property can be tricky.

First, one must determine its basis.
 
If you received property as a gift, having paid neither money nor other property for it, your cost basis would not be $0.  Instead, you would use what is referred to as a substituted basis of the property.
 
The general rule is that the basis for determining gain on property received by gift is the same as the basis in the hands of the donor (subject to an adjustment for gift tax paid on the gift, if applicable).
 
If the donor also received the property by gift, then the basis is the same as that in the hands of the last preceding owner who did not acquire it by gift.
 
Below are two examples to help understand the basis of property acquired by gift:
 
EXAMPLE 1
In 2014, Arnold gave shares of stock worth $400 to Mitch.  The stock had cost Arnold $600. This year, Mitch sells the stock for $750.  Because the sale resulted in a gain, the basis is $600 (the same as in the hands of the donor).  Mitch realizes a recognized gain of $150.
 
EXAMPLE 2
In 2004, Lamar purchased securities for $2,000.  In 2005, when the securities had a fair market value of $3,000, he gave them to his brother, Bob.  In 2009, when the stock had a fair market value of $5,500, Bob gave them to his son, Charles.  Charles sold them in 2016 for $7,000.
 
Because Bob acquired the securities by gift, Charles’s basis would be $2,000, the same as in the hands of Lamar, and Charles will have to report a gain of $5,000.
 
 
Loss on Property Acquired by Gift
 
The basis for determining loss on gifts is either the same as it was in the hands of the donor (or of the last preceding owner who did not acquire it by gift) or the fair market value of the property at the time of the gift, whichever is lower.
 
EXAMPLE 3
In 2013, Aaron gave shares of stock, which cost him $550, to Ben.  At the time of the gift they were worth $400.  Ben sold the shares in 2016 for $300.  Because the sale resulted in a loss, the basis would be $400 (the fair market value on the date of the gift).  Of course, this amount is less than the basis in the hands of the donor ($550).  Ben will incur a recognized loss of $100.
 
EXAMPLE 4
In 2013, Aaron gave securities that had cost him $100,000 to Ben. At the time of the gift the fair market value was $90,000. Ben sold the securities in 2016 for $95,000. In such case, there is no gain or loss. Because the basis for determining loss is $90,000 and, because the basis for determining gain is $100,000 there is no loss or gain.
 
The purpose of this special provision is to prevent taxpayers from gaining a tax benefit by transferring property to persons who can take advantage of tax losses.

In summary…
 
The Basis Determining Gain:  Donor’s basis (plus gift tax paid) but not more than market value at the time of gift.
 
The Basis Determining Loss:  Limited to lesser of donor's basis (plus gift tax paid) or fair market value at time of gift.

If your company DOES NOT pay for officers’ health insurance, there is no need to read further. 

If your company DOES pay for officers’ health insurance, please read on…

ISSUE / CONCERN:
If your corporation pays for your officers’ health insurance premiums, and those officers own 2% or more stock in the company, and you want to deduct those premiums as business expenses, they must be paid by your corporation.  Furthermore, they must be included on the officers’ W-2s.  The total company-paid annual premiums need to be reported in Boxes 1 and 14.  (This includes medical, dental, long term care, and Medicare insurance premiums, where applicable.  It also includes family coverage, if the company pays those premiums.)
 
QUESTION
Where on the W-2?               
 
ANSWER
In Box 1 Gross Wages, and in Box 14
 
QUESTION
Is it taxable?
 
ANSWER
The net tax is zero.  While it is reported as taxable wages on the W-2 for federal income tax purposes, the officer will also receive an adjustment for that same amount on their individual personal 1040 tax return.  In other words, it’s a wash.  However, it is required to be reported if the corporation takes the deduction.
 
It is not taxable for Social Security or Medicare.
 
QUESTION
Does this apply to my employees?               
 
ANSWER
No.  This only applies to the officers (who many times are the owners).
 
QUESTION
I use QuickBooks payroll.  How do I fix this?
 
ANSWER
QuickBooks Desktop Software

1. Create New Payroll Item
2. Select EZ Setup – click Next
3. Select Insurance Benefits – click Next
4. In Payroll Setup under ‘Other Insurance’ select “S Corp Medical”
5. Set up Payment Schedule and amount

 
Intuit Online Payroll

1. Go to Employees tab
2. Click an employee's (officer’s) name.
3. On the employee's overview page, look for the Pay section and click Edit.
4. Scroll down to the ‘What additional ways do you pay?’ section and click to select the ‘S-Corp Owner's Health Insurance’ checkbox.
5. Optional: Enter a default amount to be paid each paycheck. You can always change the amount when you create the paycheck.
6. Click OK.

 
QuickBooks Online Payroll

1. Go to Employees Screen
2. Click an employee's (officer’s) name to edit
3. On the employee's overview page, look for the Pay section and click on the pen icon to edit
4. Under ‘How much do you pay name’ click on the pen icon to edit
5. Select ‘S-Corp Owners Health Insurance’ and amount per pay period.

 
QUESTION
I use a payroll company.  How do I get this reported properly?
 
ANSWER
Each payroll company is different.  It is best to speak with one of their payroll specialists and let them know that you need to report these premiums as “2% Shareholder Medical fringe benefits.” 
 
QUESTION
What is the definition of “officer”? 
 
ANSWER
For purposes of the S-Corporation, the IRS defines an officer as anyone running the day-to-day operations of the company and who also own 2% or more of the stock in the company.  They may be people acting in the capacity of the President, Secretary, Vice President, Treasurer, Assistant Treasurer, Controller, Assistant Secretary, Chief Operating Officer, Chief Technology Officer and Chief Administrative Officer, etc. – but also who would receive a K-1 at year-end.  This may apply if your company is an LLC where the owners are legally referred to as “members” or “managers.”
 
 
Thank you for your attention to this critical tax issue.  If you have any questions, please let us know.  We wish you a happy holiday season and we look forward to working with you after the New Year!

As part of a compensation package, employees may receive stock options. The tax treatment depends on the type of options received.
 
Incentive Stock Options (ISOs)
 
An employee is not taxed on the receipt of these options. When the option is exercised, the difference between the option price and the fair market value of the shares (called the “spread”) is not subject to income tax. But when the option is exercised, the spread is an adjustment for alternative minimum tax purposes.
 
If the shares acquired pursuant to the option are sold more than one year after the option was exercised and more than two years after date of grant, the gain (the difference between the option price and the stock’s selling price) is long-term capital gain. 
 
If both holding periods are not met, the difference between the option price and the fair market value at date of exercise is ordinary income. The remaining gain is long-term or short-term depending on holding period.
 
Planning Pointer
 
Long-term capital gains tax rates are much lower than short-term gains and ordinary income tax rates!
 
  
Nonqualified Stock Options
 
The tax treatment depends on whether the employee works for a publicly held or closely held corporation:
 

• If an option is actively traded or has a readily ascertainable value, then the employee recognizes ordinary income on the receipt of the option. There is no further taxation on the exercise of the option. When shares acquired pursuant to the option are sold, capital gain may result.

 

• If the option is not traded on an established market, then the grant of the option is not taxed to the employee. Instead, the employee becomes taxable when the option is exercised. The amount of compensation is the difference between the stock’s fair market value and the exercise price.

 
Planning Pointer
 
The income resulting from the exercise of nonqualified stock options is treated as taxable compensation equal to the excess of the fair market value of the stock received over the purchase price of the stock and is reported as such on Form W-2.  Compensation reported on a W-2 is taxed as ordinary income.

Americans go to the polls November 8, 2016, to elect the 45th President of the United States. The next President will play a key role in shaping tax policy and possibly reforming the entire Tax Code. This special briefing describes the tax policies of the candidates of the two major parties: Hillary Clinton, the Democratic candidate for President and Donald Trump, the Republican candidate for President.

NOTE. Between the date of publication of this briefing and Election Day, the positions of the candidates may change. This briefing is based on what is considered accurate, nonpartisan and unbiased information. The candidates are presented in alphabetical order.

TAX REFORM  
"Tax reform" has been a label placed upon a variety of proposals recently, both in scope and scale. Both candidates characterize their proposed changes to the Tax Code as "tax reform." More frequently in the spotlight, however, have been changes to the tax rates and tax benefits aligned with the candidates' overall positions.

Tax reform, whether part of a "grand bargain" of sweeping scope or part of a patchwork of improvements to the existing system, will turn on a number of variables. Will the new President characterize victory in the polls as a mandate? Will the Democrats win control of the Senate? And will the new President be willing to expend his or her political capital to move a sweeping tax law forward in 2017. Or will the new President's early capital be used in other areas, such as immigration or trade, even though tax changes are high on both Trump and Clinton's to-do list.

INDIVIDUAL TAXATION
Both candidates have proposals related to individual tax rates, credits and deductions.

Income Tax Rates
Under current law, individual income tax rates are 10, 15, 25, 28, 33, 35, and 39.6 percent.

Clinton
Clinton has proposed a four percent "Fair Share Surcharge" on the "top 0.02 percent of taxpayers on their incomes over $5 million per year." Clinton also has endorsed the so-called "Buffett Rule," to ensure that "no millionaire would pay a lower effective rate than their secretary."

Trump
Trump has proposed three individual tax rates: 12, 25 and 33 percent.

Comment
Trump has indicated he would partially fund these tax decreases through limiting the value of deductions, especially among higher-income taxpayers. Trump has said that those in the highest bracket "will keep fewer deductions." Two deductions, however, will apparently remain available at full value and to all income levels: the charitable deduction and the mortgage interest deduction, based on Trump's campaign materials.

Comment
The 12, 25 and 33 percent rates proposed by Trump are the same as rates proposed by House Republicans.

Capital Gains/Dividends
Under current law, qualified capital gains and dividends are taxed at zero percent for taxpayers in the 10 and 15 percent income tax brackets, 15 percent for taxpayers in the 25, 28, 33, and 35 percent brackets, and 20 percent for taxpayers in the 39.6 percent bracket.

Clinton
Clinton has proposed "raising capital gains rates for short-term trading in order to encourage long-term investment." Clinton also said that she would "explore additional measures to prevent high-income taxpayers from misclassifying income as capital gains."

Trump
Trump's campaign materials do not describe any specific changes to the capital gains and dividends tax rates.

Alternative Minimum Tax (AMT)
For federal tax purposes, a parallel tax structure the AMT exists to ensure that individuals, corporations, estates, and trusts with substantial income do not avoid tax liability.

Clinton
Clinton's campaign materials do not describe any changes to the AMT.

Trump
Trump has proposed to eliminate the AMT.

Comment
Loophole closing and deduction limits proposed by both candidates effectively weaken the case for continuing an AMT that is viewed as overly complex and a trap for certain taxpayers within income ranges that the original AMT did not envision. One of the more practical reasons for keeping the AMT has been an inability to replace it as a significant revenue source. Major tax reform may provide enough net revenues otherwise available to offset the cost of eliminating the AMT.

Net Investment Income (NII) Tax
The Affordable Care Act (ACA) imposes a 3.8 percent tax on net investment income (NII tax) of qualified taxpayers with income above certain threshold amounts.

Clinton
Clinton has expressed her support for the ACA, and presumably this includes the NII tax.

​Trump
Trump has proposed to repeal the ACA, and has not mentioned any specific carryover of the NII tax.

Comment
Some taxpayers have commented that the NII tax has become complex beyond what Congress had intended to be a relatively simple tax.

Additional Medicare Tax
The ACA imposes an Additional Medicare Tax on qualified taxpayers with income above certain threshold amounts.

Clinton
Clinton has expressed her support for the ACA, and presumably this includes the Additional Medicare Tax.

Trump
Trump has proposed to repeal the ACA, and presumably this includes the Additional Medicare Tax.

Federal Estate Tax
For estates of decedents dying after December 31, 2012, the maximum federal estate tax rate is 40 percent with inflation-adjusted $5 million exclusion (inflation-adjusted to $5.45 million in 2016).

Clinton
Clinton has proposed to restore the federal estate tax to the parameters in effect in 2009 (a maximum estate tax rate of 45 percent with a $3.5 million exclusion).

Trump
Trump has proposed to repeal the federal estate tax.
INDIVIDUAL TAX INCENTIVESBoth candidates have proposed measures addressing certain individual tax deductions and credits.

Child Tax Incentives
Both candidates have proposed tax incentives for taxpayers with children.

Clinton
Clinton has proposed up to a $1,200 tax credit for caregiver expenses. The Democratic Party platform has proposed that the "child tax credit should be expanded, for example, by making more of it refundable, or indexed to inflation."

Trump
Trump has proposed to "help reduce the cost of childcare by allowing parents to fully deduct the average cost of childcare spending from their taxes."

Education
Education incentives include the American Opportunity Tax Credit (AOTC), the Lifetime Learning credit, the tuition and fees deduction, the deduction for student loan interest and, among others.

Clinton
Clinton's campaign materials do not describe any specific changes to the AOTC or other education incentives. However, Clinton has called for tax relief from college costs for middle-income families.

Trump
Trump's campaign materials do not specifically discuss the AOTC or other education incentives over and above capping deductions and credits based upon tax bracket.

Charitable Giving
A deduction is available to individuals for their qualified charitable contributions, subject to certain rules and limitations.

Clinton
Clinton has proposed no changes to the charitable giving deduction.

Trump
Trump has proposed no changes to the charitable giving deduction.

Comment
Both parties have cited the need to preserve the unique "American way" of supporting charities primarily through private donations, in contrast to many governments that fund the arts, community programs, and even some religious organizations directly.

Comment
Trump's campaign has indicated that the candidate would support repeal of the prohibition on churches endorsing candidates for public office and engaging in certain political activities. Clinton's campaign has not addressed this.

Mortgage Interest Deduction
Qualified mortgage interest may be deductible if it is paid or accrued during the tax year on acquisition and/or home equity indebtedness secured by the taxpayer's principal or second residence, subject to certain limitations.

Clinton
Clinton has proposed no changes to the current mortgage interest deduction.

Trump
Trump has proposed no changes to the current mortgage interest deduction.

Comment
In considering tax reform proposals in the past, elimination of the mortgage interest deduction has been off-limits for most politicians. Nevertheless, Congress has been successful in limiting the size of the mortgage interest deduction by both a $1.1 million mortgage cap and including it in the Pease limitation on overall itemized deductions. Further reduction of the value of the mortgage interest deduction for higher-income taxpayers might be expected in the future.

Pease Limitation/Personal Exemption Phaseout
The Pease limitation reduces the total amount of a higher-income taxpayer's otherwise allowable itemized deductions, subject to certain limitations. The Personal Exemption Phaseout (PEP) reduces the total amount of exemptions that may be claimed by higher-income taxpayers.

Clinton
Clinton has proposed to limit the value of itemized deductions to 28 percent for higher-bracket taxpayers.

Trump
Trump has proposed to "steepen the curve of the Personal Exemption Phaseout and the Pease Limitation on itemized deductions."

Carried Interest
Both candidates have proposals related to carried interest.

Clinton
Clinton has proposed to "close the carried interest loophole that allows taxpayers to avoid paying ordinary income tax rates on what is essentially remuneration for services."

Trump
Trump has proposed to "eliminate the carried interest deduction."

BUSINESS TAXATION
Both candidates have a number of proposals related to business taxation.

Corporate Tax Rates
The maximum corporate tax rate currently tops out at 35 percent.

Clinton
Clinton's campaign materials do not describe any specific change to the corporate tax rate. Clinton has called for unspecified measures to "broaden the tax base" in order to lower the rate as a necessary component to being more competitive in the global economy.

Trump
Trump has proposed to reduce the maximum corporate tax rate to 15 percent. Trump would also tax all business income at the 15 percent rate, including income passed through from S corporations and partnerships, or earned by freelancers.

Comment
Trump's campaign materials do not discuss how to coordinate any difference between the 15 percent rate for freelancers and the projected top rate for individual wage earners.

Small Businesses
Both candidates have tax proposals for small businesses.

Clinton
Clinton has stated that she will release new plans to "simplify tax filings for millions of small businesses." Clinton would also promote immediate expensing for small businesses.

Trump
Trump has proposed a new "business income tax rate within the personal income tax code that matches the 15 percent corporate tax rate."

Comment
This equivalent treatment for corporations and other types of taxable business entities raises the issue of double taxation for corporations, once at the corporate level and again to shareholders as dividends or capital gains distributions. Neither candidate has gone into detail on this issue.

BUSINESS TAX INCENTIVES
Both candidates have proposed reforms to some business tax incentives as well as proposing new incentives.

Clinton
Clinton has proposed a tax credit for businesses that hire apprentices at $1,500 per apprentice and a "bonus on that tax credit to businesses providing opportunities specifically for young people." Clinton also has proposed a "Manufacturing Renaissance Tax Credit."

Trump
Trump has proposed "reducing or eliminating some corporate loopholes that cater to special interests, as well as deductions made unnecessary by the new lower tax rate on corporations and business income." Additionally, Trump has proposed "to allow businesses to immediately expense new business investments."

ENERGY
Various tax incentives promote energy production, efficiency and conservation.

Clinton
Clinton has proposed to extend and expand the New Markets Tax Credit (NMTC) program "to all communities suffering from a decline in coal production or a coal plant closure." Additionally, Clinton has proposed "closing tax loopholes for oil and gas companies" to pay for a clean-energy plan.

Trump
Trump's campaign materials do not discuss specific tax proposals related to energy.

INTERNATIONAL
The candidates address international tax in several ways.

Repatriation
The American Jobs Creation Act of 2004 (AJCA) temporarily allowed U.S. companies to repatriate earnings from their foreign subsidiaries at a reduced tax rate, subject to certain limitations.

Clinton
Clinton's campaign materials do not discuss any specific repatriation tax proposals.

​Trump
Trump has proposed a one-time deemed repatriation of "corporate cash held overseas at a discounted 10 percent tax rate." Additionally, Trump has proposed to end the deferral of taxes on corporate income earned abroad. The foreign tax credit, however, would remain, according to Trump's campaign materials.

Insourcing
Both candidates have broadly discussed "in-sourcing" jobs.

Clinton
Clinton has proposed "to provide support for companies that move jobs and production back to the U.S. from abroad."

Trump
Trump's campaign materials do not specifically discuss "insourcing" from the tax perspective although a major campaign theme is to "bring jobs back to the United States."

TAXES AND HEALTH CARE
Since passage of the ACA, taxes and health care have become more intertwined than in previous years. The ACA created a number of new taxes and fees.

Clinton
Clinton would retain the ACA but change certain parts. Clinton would, among other things, support Medicare buy-ins for people over 55 years old; lower copays and reduce the cost of prescription drugs; incentivize states to expand Medicaid; and repeal the excise tax on high-dollar health plans (so-called "Cadillac plan" tax).

Trump
Trump would repeal the ACA, although also saying that he would keep "the good parts." Trump has also indicated that he would address the rising cost of prescription drugs.

SOME TAX REFORM BILLS AWAITING ACTION IN CONGRESS
Before recessing for an extended summer break, the House and Senate, and their respective tax writing committees, took up a number of tax bills, including:

▪ Restoring Access to Medication and Improving Health Savings Bill of 2016 (HR 1270) – to repeal the prohibition on using health FSA dollars to pay for over-the-counter medication – approved by House, awaiting vote in Senate.
▪ Small Business Health Care Relief Bill (HR 5447) – to allow small employers to continue using pre-tax dollars to give employees a defined contribution for healthcare expenses – approved by House, awaiting Senate action.
▪ Stolen Identity Refund Fraud Prevention Bill (Sen 3157) – to provide guidelines for the IRS in handling stolen identity refund fraud cases and increase the criminal penalty for tax-related identity theft - before the Senate Finance Committee.
▪ First-Time Homebuyer Credit Bill (Sen 3175) – to create a permanent first-time homebuyer tax credit – before the Senate Finance Committee.
▪ Olympians and Paralympians Bill (Sen 2650) – to exempt Olympic medals and prizes from income tax – approved by the Senate, awaiting House action.
▪ Clyde-Hirsch-Sowers RESPECT Bill (HR 5523) – to limit the IRS's civil asset forfeiture authority – awaiting House vote.
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