President-elect Barack Obama has pledged to cut taxes for the middle class, increase taxes on higher-income taxpayers, and lower corporate tax rates. Certainly, Obama’s proposals make tax planning for 2008 and 2009 challenging because of the uncertainty of which tax changes will actually pass into law and what the effective date of those changes will be. History indicates that major tax legislation passed in the year following a presidential election is often retroactive to January 1! Consult C&G when considering the implementation of tax strategies, some of which this newsletter addresses, before the end of 2008.
INDIVIDUAL PROPOSALS
Tax Rates- Obama promised that families making less than $250,000 would not see their taxes increase. Obama may not change the lower income tax rates, but he proposes to increase the top rates (currently at 33% and 35%) to 36% and 39.6%. Obama also proposes to eliminate all income taxes for senior citizens making less than $50,000 per year.
Capital Gain and Dividend Tax Rates- The favorable maximum 15% tax rate on long-term capital gains and qualifying dividends will continue, but for those families with income over $250,000, the tax rate may increase to 20% or higher.
Payroll Taxes- Obama supports an increase in payroll taxes. For 2009, employees and self-employed individuals will pay FICA taxes on the first $106,800 of earnings, but Obama proposes a 4% FICA surtax on all wages and earnings in excess of $250,000.
Alternative Minimum- Tax (AMT) It appears that AMT will not go away, as the current
proposal is to continue the increased AMT “patch,” which provides a higher exemption
when computing AMT.
Retirement- Because many taxpayers have seen their personal wealth decrease (especially
in their retirement plans), Obama has proposed to temporarily suspend the provision that individuals over the age of 70½ must take required minimum distributions from their retirement accounts in 2008. Obama is also proposing that up to $10,000 of early distributions could be made in 2008 and 2009 without penalty, although these distributions will still be subject to income taxes.
BUSINESS PROPOSALS
Tax Rates- Obama endorses lowering the corporate tax rate, as long as certain tax “loopholes” are closed. While Obama has not identified all of these loopholes, limiting the deductibility of executive compensation has been discussed, as well as limiting tax incentives for businesses moving jobs out of the U.S.
New Employee Credit For 2009 and 2010- Obama proposes a $3,000 tax credit for each
new full-time employee added to the workforce by existing businesses.
Section 179 Expensing- Obama proposes to extend to 2009 the increased first-year
expensing limitation of $250,000 for qualifying fixed asset purchases.
ESTATE TAX PROPOSAL
Exclusion- For 2008, the exclusion for estate taxes is $2 million, with a scheduled increase to $3.5 million in 2009. Current law repeals the estate tax completely for the year 2010 but reinstates the tax in 2011 with a $1 million exclusion and a top tax rate of 55%. Obama’s plan will set the exclusion at $3.5 million per person with a top tax rate of 45%.
Call C&G today to discuss how these possible changes impact your situation, 262-522-8227.
CIRCULAR 230 DISCLAIMER -
To ensure compliance with Treasury Regulations governing written tax advice, please be advised that any tax advice included in this communication, including any attachments, is not intended, and cannot be used, for the purpose of (i) avoiding any federal tax penalty or (ii) promoting, marketing or recommending any transaction or matter to another person.