TAX REFORM UPDATE

Will there be tax reform legislation passed in 2017 (the actual question is, with the current nut job loser in the White House, will there be any legislation successfully passed in 2017)?  You betcha, according to Paul Ryan.

 

Speaking to the National Association of Manufacturers the other day Ryan said, “I’m here to tell you – we are going to get this done in 2017.”  According to Ryan the end of calendar year 2017 would be a realistic timeline, but he hoped to get it done sooner.

 

Ryan did not provide any real details (similar to the scribblings on a cocktail napkin idiot Trump released as his “tax plan”), but he did call for eliminating the dreaded Alternative Minimum Tax (AMT), the federal Estate Tax and “special interest carveouts and deductions”, doubling the Standard Deduction, lower and fewer tax rates, and making any reforms permanent – all good things.

 

My only concern with eliminating the federal Estate Tax has always been how this will affect the current step-up in basis of inherited assets.  Taxpayers have a hard enough time remembering what they paid for stock purchased three years ago – knowing what their deceased parents paid for stock purchased in the 1960s will be impossible.

 

Ryan also continued to put forth the ridiculous idea that taxpayers could file a tax return the size of a postcard.  This would only be possible if the taxpayer was single, had only W-2 income, and could not itemize – similar to the current Form 1040EZ filer.  Providing a postcard option would discourage taxpayers from taking full advantage of available tax deductions and credits.

 

Tax reform legislation will probably not be introduced until the fall – so it is possible that it could be passed by the end of the year (assuming, of course, that idiot Trump, if he is still in office, does not fuck it up).  But even if reform is enacted by year-end, tax law changes would most probably not take effect until at least calendar year 2018.

 

I truly hope that real and substantive tax reform is enacted this year – but, to be honest, I am not holding my breath.

FYI, the CCH Headline News email newsletter tells us "IRS Supports Tax Reform that Simplifies Tax Code, Koskinen Says".

 

Click here to check out a compilation of my recommendations for tax reform.  Let me know what you think of my ideas.

 

A tax-related bill, supported by both Republicans and Democrats, has actually passed in the House - “The Mobile Workforce State Income Tax Simplification Act of 2017”. 

 

According to the bill’s summary -

 

“This bill prohibits the wages or other remuneration earned by an employee who performs employment duties in more than one state from being subject to income tax in any state other than: (1) the state of the employee's residence, and (2) the state within which the employee is present and performing employment duties for more than 30 days during the calendar year in which the wages or other remuneration is earned.”  

 

So if you lived and worked in New Jersey, but spent 23 days working at the branch office in Kansas and 15 days working at the branch office in New York, you would not have to pay state income tax to Kansas or New York on your wages for those days.  But if you spent 35 days in Kansas you would.

 

This law would not apply to professional athletes and headline entertainers.  They would still have to pay income tax to each state in which they appear during the year, regardless of the actual number of days physically in the state.

 

This involves the issue of “nexus”, which affects both individuals and businesses.

 

When it comes to both individual and business state income tax nexus it is my belief that it should be totally eliminated.  An individual should only be taxed by the state in which he or she lives or the non-resident state where his or her job or business is physically located (i.e. live in NJ and work in NYC).  And a corporation or other business should only pay state income tax on net income to the state in which it is organized and physically located.

 

State income tax nexus rules, and they differ from state to state, are truly a PITA and waste lots of time and money for employers and businesses.

 

Individual states benefit from nexus laws by receiving income from non-residents, but residents who must pay income tax to other states receive a credit on the resident state return for taxes paid to other states.  So I expect the actual net cash benefit to the states is really not substantial (to be fair, I have not actually investigated nexus tax statistics).  

 

TTFN