There are likely to be some major changes in the tax code after the upcoming election. Each presidential candidate has outlined his proposed tax policies. The changes would affect everything from individual to business income taxes, the estate tax and Social Security.
Smart Business learned more from Angela Dotson, CPA, senior tax manager at Tauber & Balser, P.C., about how the candidates’ proposals will impact you and your business.
What’s the bottom line for businesses and how will they be impacted?
Sen. Obama proposes to eliminate all capital gains taxes for small businesses and startups in America. His plan provides incentive for domestic business activity. He supports corporate reform and plans to close loopholes that reward corporations for operating overseas. Obama has promised to reward companies that support American workers. He proposes a new 50 percent health tax credit on employee health insurance premiums paid by employers of small businesses and also supports making the Research and Development Tax Credit permanent.
Sen. McCain proposes to reduce the maximum corporate tax rate from 35 percent to 25 percent. He believes it is essential to lower rates to keep American companies competitive. McCain supports banning taxes on Internet sales and cell phones. He wants to allow first year expensing for capital acquisitions. (The maximum amount allowed under Sec. 179 for 2008 is $250,000, which phases out at $800,000 in purchases. Bonus depreciation is back for 2008, which allows a deduction for 50 percent of the adjusted basis for qualifying property.) He supports making the Research and Development Tax Credit permanent with the credit equal to 10 percent of wages spent on research and development.
Where do they stand on individual taxes?
Sen. Obama’s tax plan is aimed at middle-class tax relief. He proposes a $1,000 ‘Making Work Pay’ tax credit for families with income from $8,000 to $75,000 ($500 for individuals). His plan maintains the current marginal tax rates for families that earn less than $250,000 (singles under $200,000). Obama’s plan also calls for the elimination of income taxes for seniors making less than $50,000. He endorses a universal mortgage interest credit and a $4,000 refundable education credit for qualified tuition expenses. He also proposes expanding the existing Savers Credit and making it fully refundable. The Savers Credit allows low to moderate income tax payers to receive a credit as an incentive to save for retirement. Married couples who earn up to $53,000 for 2008 ($25,500 for singles) who make voluntary contributions to an employer-sponsored retirement plan or to an individual retirement arrangement may be eligible for a tax credit up to $2,000 ($1,000 for singles). Obama will expand the earned income tax credit and increase the number of families eligible to receive the benefit. The Child and Dependent Care Credit would be made refundable and low-income families would receive up to a $3,000 credit. He proposes restoring the marginal income tax rates of 36 percent and 39.6 percent. He would also raise the capital gains and dividend tax rates from 15 percent to 20 percent for families with incomes of more than $250,000 ($200,000 for singles). Obama supports a simplified tax return for many filers and would extend and index the increase in AMT exemption amounts.
Sen. McCain would keep the top marginal rate at 35 percent and maintain the 15 percent rate on capital gains and dividends, making these rates permanent. He supports increasing the personal exemption to $7,000 and simplified tax returns for many filers. He would also extend and index the increased AMT exemption amounts and proposes using a simplified alternative tax system.
What about the estate tax and Social Security?
Sen. Obama proposes to freeze the estate tax at the 2009 levels: a 45 percent top tax rate and a $3.5 million exemption for individuals ($7 million for married couples). The maximum estate tax rate under the Obama plan is 10 percent less than the 2001 rate, which had a $1 million exemption.
Sen. McCain does not believe that the estate tax should be completely repealed or that it should revert back to the 2001 levels in 2011 as prescribed by President Bush’s plan. Sen. McCain supports preserving the estate tax with a 15 percent top tax rate and a $5 million exemption for individuals ($10 million for married couples).
Both candidates are in favor of indexing the estate tax to accommodate inflation.
Sen. Obama supports preserving the Social Security structure and imposing a payroll tax of 4 percent (2 percent each from employer and employee) on incomes more than $250,000 to help cover the growing deficit.
Sen. McCain has proposed adopting personal accounts to supplement the current Social Security system. The plan would allow younger employees to place a portion of Social Security dollars into an investment-type account.
How will the proposed $700 billion financial system bailout affect the proposed policies?
At the time this article was written, President Bush signed into law a bailout plan to buy bad mortgage debt and to help contain the financial crisis. At this time, the candidates have not disclosed how this plan will alter their tax policies and positions.
ANGELA DOTSON, CPA, is a senior tax manager at Tauber & Balser, P.C. Reach her at firstname.lastname@example.org or (404) 814-4981.