Well, I’m scratching my head and wondering if we voters will ever realize “tax reform” Congress trots out every two years is usually just a smoke screen.
Have you ever heard any congressional candidates say something like ... “Vote for me and I’ll go back to Washington and make the tax law more fair!” “Vote for me and I’ll fight to fix and simplify the tax law!” Have you ever wondered why, after being elected, those people don’t seem to be able to come through with their promises often?
So here we are again. We, the voters, elected Donald Trump to fix the tax law. Good luck to him! Getting Congress to pass any reasonable tax reform is like herding cats. Darn near impossible!
What are some of the details currently being discussed in Washington?
Lower business tax rates to make U.S. businesses competitive worldwide and stop the flow of businesses leaving the U.S. to be domiciled in a lower tax rate country. Sounds easy, but businesses are currently taxed in four different ways. Corporations (Form 1120, taxed at corporate level, then dividends again taxed on individual returns ... the famous “double tax on income”); Sub-S Corporations (Form 1120-S, taxed on the individual shareholder’s tax return); Partnerships (Form 1065, taxed on the individual partner’s tax return); Self-Employed (Schedule C, tax on the individual owner’s tax return). As you can see, three of four types of businesses are directly taxed as part of the owner’s individual tax return. So if Congress just lowers the corporate rate, then 3/4 of businesses would still be taxed at unfair higher rates, now making competition even within the U.S. unfair. Thus, there will have to be some mechanism to tax the business income on individual returns at the same rate the corporations will be taxed at.
Raise the Standard Deduction to eliminate most folks needing to itemize their deductions. Currently, a married couple has a standard deduction of $12,600. The new amount being discussed would be somewhere around $25,000. This would actually simplify a lot of tax returns for folks. No more need to keep receipts of charity gifts, miscellaneous employee business expenses, etc. Usually, this standard amount would be higher, so just take it without the hassle of itemizing.
Reduce the number of tax rates from the current seven down to three. This would make earning more income much easier to compute the tax impact and be fairer. Combined with the higher standard deduction, it might actually result in lower total tax for a number of folks.
There are more, but these are the big three. Chances of them being passed by late 2017 are actually good. Let’s keep the pressure up on Congress to pass real tax reform.
Did you hear? Proverbs 14:11 says: “The house of the wicked will be overthrown, but the tent of the upright will flourish.”
Kelly Bullis is a Certified Public Accountant in Carson City. Contact him at 775-882-4459. He’s on the web at BullisAndCo.com and also on Facebook.