Month: September 2020

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News

2020 ELECTION TAX WATCH: COMPARING CANDIDATES’ POTENTIAL TAX POLICIES

The U.S. presidential election is just over a month away, yet neither candidate has released a formal, detailed plan addressing his vision for the tax code. We can, however, gain a sense of how their approaches differ through casual mentions of some aspects of tax policy on the campaign trail.

Tax policy underpins business decisions and consumer behavior, so an understanding of the candidates’ more detailed vision for tax policy will be intrinsic to successfully navigating the economic downturn triggered by the pandemic. Savvy businesses and individuals should pay close attention to how any proposed policy may ultimately alter their total tax liability.

It’s also important to keep in mind the fundamental role of Congress in passing tax legislation.  Depending on the makeup of the White House, Senate, and House of Representatives, passing tax legislation may be challenging.  For example, if both the Senate and House are of the same party as the successful presidential candidate, any changes in tax law may still have to be passed through the budget reconciliation process, because 60 votes in the Senate generally would be needed to avoid using the reconciliation process (and it is very doubtful that there would be 60 members of the Senate of the same party). Both in 2017 and 2001, passing tax legislation through reconciliation meant that most of the changes were not permanent; that is, they expired within the 10-year budget window. If any of the White House, Senate, or House are of a majority party different than the others, the chances of passing and enacting any agreed-to tax legislation becomes more doubtful.

The following table contains side-by-side snapshots of current and potential future tax policies of the presidential candidates as of September 22, 2020, from what has been mentioned informally on the campaign trail.

 

Current Tax Law
(TCJA–present)
Biden’s stated goals
Trump’s stated goals
Corporate tax rates
and AMT
Corporations have a flat 21% tax rate and no corporate alternative minimum tax (AMT), which were both changed by the TCJA.
These do not expire.
Biden would raise the flat rate to the pre-TCJA level of 28% and reinstate the corporate AMT on profits of $100 million or more.
Trump has not announced changes and has no plans to reinstate a corporate AMT.
Capital gains and dividends
The top tax rate is 20% for income over $441,450 for individuals and $496,600 for married filing jointly. There is an additional 3.8% net investment income tax.
Biden would eliminate breaks for capital gains and dividends for income above $1 million. Instead, these would be taxed at ordinary rates.
Trump would reduce the capital gains tax rates, index capital gains for inflation and create a capital gains tax holiday that would eliminate capital gains taxes for a period of time TBD.
Payroll taxes
The 12.4% payroll tax is divided evenly between employers and employees and applies to the first $137,700 of an individual’s income.
Biden would maintain the 12.4% tax split between employers and employees and keep the $137,700 cap but would institute
the tax on earned income above $400,000. The gap between the two wage levels would gradually close with annual inflationary increases.
Trump issued an executive order to temporarily postpone social security tax for employees from Sept. 1 through Dec. 31, 2020.
He has indicated he would make this temporary reprieve permanent.
Estate taxes
The estate tax exemption for 2020is $11,580,000.  Transfers of appreciated property at death get a step-up in basis.
The exemption is scheduled to revert to pre-TCJA levels, or $5,800,000, in 2025.
Biden would maintain the 2025 reversion and eliminate the current step-up in basis on inherited assets.
Trump would push to extend the exemption and would not change the transfer of appreciated property step-up in basis.
Individual tax rates
The top marginal rate is 37% for income over $518,400 for individuals and $622,050 for married filing jointly. This was lowered from 39.6% pre-TCJA.
Biden would restore the 39.6% rate for taxable income above $400,000. This represents only the top rate.
Trump would keep the current status quo of 37%. In addition, he would enact a 10% rate cut for middle-class taxpayers, which would lower the 22% rate to 15%.
For 2020, the 22% rate applies to income over $40,125 for individuals and $80,250 for married filing jointly.
Individual tax credits
Currently, individuals can claim a maximum of $2,000 Child Tax Credit (CTC)plus a $500 dependent credit.
Individuals may claim a maximum dependent care credit of $600 ($1,200 for two or more children).
The CTC is scheduled to revert to pre-TCJA levels ($1,000) after 2025.
Biden would increase the CTC to $8,000 ($16,000
for two or more children).
Trump would extend the $2,000 CTC past 2025, however, he would also require social security numbers to be eligible to take any of these credits.
Education
Forgiven student loan debt is included in taxable income.
There is no tax credit for contributions to state-authorized organizations that sponsor scholarships.
Biden would exclude forgiven student loan
debt from taxable income.
Trump would provide a tax credit for individual and corporate donations to state-authorized organizations that sponsor scholarships.
Itemized deductions
For 2020, the standard deduction is $12,400 for single/married filing separately and $24,800 for married filing jointly.
After 2025, the standard deduction is scheduled to revert to pre-TCJA amounts, or $6,350 for single /married filing separately and $12,700 for married filing jointly.
The TCJA suspended the personal exemption and most individual deductions through 2025.
It also capped the SALT deduction at $10,000, which will remain in place until 2025, unless repealed.
Biden would enact a provision that would cap the tax benefit of itemized deductions at 28%.
SALT cap: Senate minority leader Charles Schumer has pledged to repeal the cap should Biden win in November (the House of Representatives has already passed legislation to repeal to the SALT cap).
Trump would extend beyond 2025 and make permanent the deductions established by the TCJA.

While the candidates’ tax policy plans are not yet publicly formalized, more details may be released as we approach election day. We will be updating election tax policy content as it becomes available.

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Helpful Articles

Key points about bonus depreciation

You’re probably aware of the 100% bonus depreciation tax break that’s available for a wide variety of qualifying property. There are some important points to be aware of when it comes to this powerful tax-saving tool. For example, bonus depreciation is available for new and most used property. And it’s scheduled to phase out. Under current law, 100% bonus depreciation will generally be phased out in steps. An 80% rate will apply to property placed in service in 2023, 60% in 2024, 40% in 2025, and 20% in 2026, and a 0% rate will apply in 2027 and later years. Asset depreciation can be a complex area of tax law. Contact us with questions about your situation.    

Categories
Tax

Tax implications of working from home and collecting unemployment

COVID-19 has changed our lives in many ways, and some of the changes have tax implications. Here is basic information about two common situations.

  1. Working from home – Many employees have been told not to come into their workplaces due to the pandemic. If you’re an employee who “telecommutes” — that is, you work at home, and communicate with your employer mainly by telephone, videoconferencing, email, etc. — you should know about the strict rules that govern whether you can deduct your home office expenses. Unfortunately, employee home office expenses aren’t currently deductible, even if your employer requires you to work from home. Employee business expense deductions (including the expenses an employee incurs to maintain a home office) are miscellaneous itemized deductions and are disallowed from 2018 through 2025 under the Tax Cuts and Jobs Act. However, if you’re self-employed and work out of an office in your home, you can be eligible to claim home office deductions for your related expenses if you satisfy the strict rules.
  2. Collecting unemployment – Millions of Americans have lost their jobs due to COVID-19 and are collecting unemployment benefits. Some of these people don’t know that these benefits are taxable and must be reported on their federal income tax returns for the tax year they were received. Taxable benefits include the special unemployment compensation authorized under the Coronavirus Aid, Relief and Economic Security (CARES) Act.

In order to avoid a surprise tax bill when filing a 2020 income tax return next year, unemployment recipients can have taxes withheld from their benefits now. Under federal law, recipients can opt to have 10% withheld from their benefits to cover part or all their tax liability. To do this, complete Form W4-V, Voluntary Withholding Request, and give it to the agency paying benefits. (Don’t send it to the IRS.)

We can help

We can assist you with advice about whether you qualify for home office deductions, and how much of these expenses you can deduct. Contact your ATA representative to also answer any questions you have about the taxation of unemployment benefits as well as any other tax issues that you encounter as a result of COVID-19. © 2020

Categories
Memphis, TN Nashville, TN Press Releases

ATA Welcomes New Partner for National Advisory Practice

Rick Schreiber

Jackson, TN – September 1, 2020 Alexander Thompson Arnold PLLC (ATA) is excited to announce the addition of Rick Schreiber as a partner to the firm. Rick comes to ATA with over 25 years of public accounting & advisory experience in helping companies increase the value of their businesses.

Schreiber was the National Leader of BDO’s Manufacturing & Distribution Practice, and the Southeast Regional Leader of BDO’s Retail & Consumer Business Practice.  He was also the National Co-Leader of BDO’s Industry 4.0 (Digital Transformation) Advisory Group and the managing partner of the Memphis BDO office. Rick holds numerous designations such as CPA, CVGA, CGMA, M&AP, and MBA, which enables him to work with IPO’s, secondary debt offerings, mergers & acquisitions, and value-growth advisory services. He has extensive experience in working with middle market and private equity backed companies.

“My background in both domestic and international companies in the manufacturing, distribution, retail, technology, and healthcare industries, has prepared me for this new role at ATA,” states Schreiber. “I’m looking forward to his new opportunity to help clients and their businesses on a national advisory level.”

“As a BDO alliance member, we have worked with Rick for many years and are very excited to welcome him to ATA,” said John Whybrew, Managing Partner. “As ATA expands its national advisory practice, Rick will be invaluable in providing the development and support our clients need.”

Most recently, Rick spent the last 13 years at BDO, where he was the Managing Partner for Assurance & Advisory Services at BDO Memphis. Prior to joining BDO, he worked at PricewaterhouseCoopers for 10 years in a number of their practice offices. Before joining PricewaterhouseCoopers, he worked for a local accounting firm providing assurance, tax, and broad-based business advisory services.

As National Advisory Practice Leader, Rick will expand the firm’s consulting practices and spread awareness of ATA’s Family of Firms, which are ancillary companies that provide business support to clients. He will oversee all advisory services for the firm, providing strategic direction for the consulting department, while building relationships and building our client base. He will come in as a Member/Partner, so he will also work cross-functionally with the partner/leadership group for the overall objectives of the firm.

Schreiber holds a Bachelor of Science degree in Accounting from Indiana University (IU) and has a Master’s in Business Administration degree concentrated in finance from IU as well.

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About Alexander Thompson Arnold PLLC (ATA)

ATA is a long-term business advisor to its clients and provides other services that are not traditionally associated with accounting.  For example, Revolution Partners, ATA’s wealth management entity provides financial planning expertise; ATA Technologies provides trustworthy IT solutions; Sodium Halogen focuses on growth through the design and development of marketing and digital products; Adelsberger Marketing offers video, social media, and digital content for small businesses; and Center Point Business Solutions is a comprehensive human resource management agency.

ATA has 14 office locations in Tennessee, Kentucky and Mississippi. Recognized as an IPA Top 200 regional accounting firm, it provides a wide array of accounting, auditing, tax and consulting services for clients ranging from small family-owned businesses to publicly traded companies and international corporations.  ATA is also an alliance member of BDO USA LLP, a top five global accounting firm, which provides additional resources and expertise for clients.

Categories
Helpful Articles Tax

Guidance on Payroll Tax Deferral

Background

On August 8, 2020 the President of the United States issued a Presidential Memorandum directing the Secretary of the Treasury to use his authority to defer the withholding, deposit and payment of certain payroll obligations.  Accordingly, the Secretary of the Treasury determined that employers that are required to withhold and pay the employee share of social security tax (FICA – 6.2%) or the railroad retirement tax equivalent could defer the withholding of that tax on payroll payments from September 1, 2020 to December 31, 2020 and collect from the employee (withhold) during the period January 1, 2021 to April 30, 2021.

Late on Friday, the IRS issued minimal guidance on the payroll tax deferral regarding the employee portion of social security taxes.

Implementing the payroll tax deferral

Under the guidance issued, this program is optional to the employer and is not an employee elected deferral. Employers can defer the withholding, deposit, and payment of certain payroll taxes on wages paid from Sept. 1 through Dec. 31, 2020. The deferral applies to the employee portion of the old-age, survivors, and disability insurance (OASDI) tax under Sec. 3101(a) and Railroad Retirement Act Tier 1 tax under Sec. 3201 (FICA – 6.2%). The due date for withholding and payment of these taxes is postponed until the period beginning Jan. 1, 2021, and ending April 30, 2021.

The deferral applies to any employee whose pretax wages or compensation during any biweekly pay period generally is less than $4,000 (approximately $104,000 annually). The notice defines applicable wages, for these purposes, as wages as defined in [Sec.] 3121(a) or compensation as defined in [Sec.] 3231(e) paid to an employee on a pay date during the period beginning on September 1, 2020, and ending on December 31, 2020, but only if the amount of such wages or compensation paid for a bi-weekly pay period is less than the threshold amount of $4,000, or the equivalent threshold amount with respect to other pay periods.

The amounts to be deferred are ONLY the employee portion of the FICA / Railroad Retirement Act.  THERE IS NO DEFERRAL OF THE PAYMENT OF THE EMPLOYER’S PORTION OF TAXES OR THE EMPLOYEE’S WITHHELD FEDERAL INCOME TAX AND MEDICARE TAX.

Under the notice, the determination of applicable wages is to be made on a pay-period-by-pay-period basis — meaning that if the amount of compensation payable to an employee for a particular pay period is less than the threshold amount ($4,000 for biweekly pay periods), then the payroll tax deferral applies to that compensation, irrespective of the amount paid to that employee in other pay periods.

The notice requires affected employers to withhold and pay the deferred taxes from wages and compensation paid during the period between Jan. 1, 2021, and April 30, 2021. Interest, penalties, and additions to tax will begin to accrue on unpaid taxes starting May 1, 2021. The notice says, that, if it is necessary, employers can “make arrangements to otherwise collect the total Applicable Taxes from the employee” but does not provide details on that requirement. This would ultimately appear to place the liability on the employer.

Optional to the employer

Employers, if you defer your payroll taxes from your employees and your employee leaves for any reason and is not employed during the period beginning Jan. 1, 2021, and ending April 30, 2021, then employers would take the responsibility of paying the deferred taxes and not the employee. While the employer would have the right to attempt to collect these amounts from their former employee, it could be a difficult and time-consuming task.  This may lead many employers to choose not to defer the taxes. The decision is left up to the employers to decide if they want to implement the deferral.

We strongly recommend that you as an employer consider the consequences of deferring the withholding of the employee payroll tax. For further questions, contact your CPA at https://www.ata.net/our-leadership/.

Listen to a podcast from the Journal of Accountancy on implementing the payroll tax deferral.