A REVIEW OF RECENT TAX DEVELOPMENTS

The week-day daily “Checkpoint Newsstand” from Thomson Reuters recently provided a good summary of some important tax developments that have occurred in the past three months that affect taxpayers, their investments, and their livelihood. 

 

I have provided some of TR’s summary below, with my own wording replacing theirs in several places, and including some of my own personal comments.

 

(1) The Donald T Rump Administration and select members of Congress have released a "unified framework" for tax reform. The official framework document leaves many specifics to be worked out by the tax-writing committees (i.e., the House Ways and Means Committee and the Senate Finance Committee).

 

The “framework” –

 

* Increase the standard deduction to $24,000 for married taxpayers filing jointly, and $12,000 for single filers;

 

* Eliminate the personal exemption and the additional standard deductions for older/blind taxpayers;

 

* Reduce the number of tax brackets from seven to three: 12%, 25%, and 35%;

Increase the child tax credit;

 

* Repeal the individual alternative minimum tax;

 

* Largely eliminate itemized deductions, but retain the home mortgage interest and charitable contribution deductions;

 

* Repeal both the estate tax and the generation-skipping transfer tax;

 

* Provide a maximum 25% tax rate for "small" and family-owned businesses conducted as sole proprietorships, partnerships and S corporations;

 

* Reduce the corporate tax rate to 20% (down from the current top rate of 35%);

 

* Provide full expensing for five years;

 

* Partially limit the deduction for net interest expense incurred by C corporations;

 

* Repeal most deductions and credits, but retain the research and low-income housing credits;

 

* Modernize special tax rules that apply to certain industries and sectors;

 

* Provide a 100% exemption for dividends from foreign subsidiaries; and

 

* To protect the U.S. tax base, tax the foreign profits of U.S. multinational corporations at a reduced rate and on a global basis.

 

As mentioned above, the actual details on these proposals have still not yet been determined.  As it is so late in the year it is, in my opinion, doubtful that substantive tax reform legislation will be passed before year-end.  In any case, I do not expect any legislation to affect the 2017 Form 1040.

 

(2) On September 29, the "Disaster Tax Relief and Airport and Airway Extension Act of 2017" (P.L. 115-63) was signed into law. The Act provides temporary tax relief to victims of Hurricanes Harvey, Irma, and Maria.

 

Relief for individuals includes, among other things, loosened restrictions for claiming personal casualty losses, tax-favored withdrawals from retirement plans, and the option of using current or prior year's income for purposes of claiming the earned income and child tax credits.

 

Businesses that qualify for relief may claim a new "employee retention tax credit" of 40% of up to $6,000 of "qualified wages" paid by employers affected by Hurricanes Harvey, Irma, and Maria (for a maximum credit of $2,400 per employee).

 

In addition to the new law, IRS has granted specific administrative hurricane relief, for example, extending various deadlines, encouraging leave-based donation programs for hurricane victims, and allowing retirement plans to make hardship distributions.

 

(3) On July 28, the Treasury Department announced that it would begin winding down the myRA (my Retirement Account) program—a type of government-administered Roth IRA initially offered by Treasury beginning in 2014. Noting that demand for and investment in the myRA program had been extremely low, Treasury stated that it would phase out the program over the following months.

 

The myRA program will no longer accept new enrollments, but existing accounts will to remain open and accessible, so that individuals could continue to manage their accounts until further notice. Individuals can make deposits, and their accounts would continue to earn interest. Funds in myRA accounts remained in an investment issued by the Treasury Department.  I was personally sorry to see this program go.

 

(4) The government announced a simplified per-diem increase for post-Sept. 30, 2017 travel. An employer may pay a per-diem amount to an employee on business-travel status instead of reimbursing actual substantiated expenses for away-from-home lodging, meal and incidental expenses (M&E). If the rate paid doesn't exceed the IRS-approved maximums, and the employee provides simplified substantiation, the reimbursement isn't subject to income- or payroll-tax withholding and isn't reported on the employee's Form W-2. Instead of using actual per-diems, employers may use a simplified "high-low" per-diem, under which there is one uniform per-diem rate for all "high-cost" areas within the continental U.S. (CONUS), and another per-diem rate for all other areas within CONUS.

 

The IRS released the "high-low" simplified per-diem rates for post-Sept. 30, 2017, travel. Under the optional high-low method for post-Sept. 30, 2017 travel, the high-cost-area per diem is $284 (up from $282), consisting of $216 for lodging and $68 for M&IE. The per-diem for all other localities is $191 (up from $189), consisting of $134 for lodging and $57 for M&IE.

 

(5) Apparently an honest mistake is no excuse for incorrectly claimed advance premium tax credit.  The Tax Court ruled that taxpayers who didn't qualify for the premium tax credit under the Affordable Care Act (Obamacare) because their modified adjusted gross income exceeded 400% of the federal poverty level had to repay all the advance premium tax credit paid on their behalf to their insurer.

 

A sympathetic Tax Court noted that while their state health insurance Marketplace may have incorrectly informed the taxpayers that they were eligible for the credit for 2014, the Court's hands were tied by the Code and regulations. The simple fact was that the taxpayers' income exceeded eligible levels and that they had to repay the advance premium tax credit payments.

 

If you have any questions on how the above developments will affect you I suggest you consult your, or a, tax professional.  You can begin your search for a tax professional at my website FIND ATAX PROFESSIONAL. 

 

TTFN