The Trump Tax Reform Plan – What Is and What May Be

Tax and Financial News

The Trump Tax Reform Plan – What Is and What May Be

Major tax reform enactment is a rare event, with the last occurring back in 1986 under President Ronald Reagan. As a result, current discussions could pan out to be much ado about nothing; however, with the solid majorities that Trump and the Republicans hold in both houses of Congress, there is real potential for tax reform to pass.

Timing and Certainty

The Trump administration’s goal is to get the tax changes passed and signed into law by the end of 2017. So, what should you expect from a tax bill that will likely be more than 1,000 pages long by the time it’s all over? Let’s take a look at some of the most notable changes widely impacting taxpayers and see. Note that these provisions are currently under debate and are subject to change between the writing of this article and the time the bill passes.

Prospective Provisions

  • Simplify the tax bracket structure by replacing the current seven individual tax brackets (10 percent, 15 percent, 25 percent, 28 percent, 33 percent, 35 percent and 39.6 percent) with three brackets featuring rates at 12 percent, 25 percent and 35 percent
  • Lower the corporate tax rate by about half from the current 39.1 percent to 20 percent
  • Create a 25 percent business tax rate for certain pass-through entities’ (S Corporations, LLCs, etc.) business income in lieu of this income being taxed as ordinary income at the individual tax payer level
  • Create a territorial tax system for companies conducting business internationally, along with enacting a one-time mandatory repatriation tax
  • Estate tax repeal
  • Eliminate most itemized deductions and personal exemptions
  • Repeal the alternative minimum tax (commonly referred to as the AMT)

401(k) Tax Deductibility Changes

In addition to these proposals, there is one particularly contentious change on the docket that impacts the tax deduction related to 401(k) plans, being referred to as Rothification. Rothification essentially turns your current 401(k) into a Roth 401(k) by limiting pre-tax contributions to $2,400 versus the current limits of $18,000 ($24,000 if you are 50 and older). Plan participants are still allowed to save on an after tax basis up to the old limits.

Looking at the numbers, say you currently contribute $10,000 per year into your 401(k) plan and are in the 25 percent federal and 5 percent state tax brackets. Assuming your entire contribution amount falls within these marginal tax rates, you save $3,000 per year in taxes. Under the new proposals, you would only save $720, or a difference of $2,280 (assuming your marginal tax rates are not impacted).

Trump recently tweeted that there will not be any changes to 401(k) deductions; however, it was originally in the plan and could come back into play. Employers are concerned that this will discourage savings and Wall Street is terrified because managing 401(k) assets is big business.

Conclusion

The sheer magnitude of the proposed tax overhaul along with the contentious political environment means that exactly what, if anything, comes out of the administration’s plan is uncertain. Major changes could happen, so you’ll want to work with your tax advisor to navigate any new rules.

 

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General Business News

Internship Considerations for Businesses

When it comes to businesses and organizations looking for talent, working with colleges and universities for future interns is a viable option. While projections for 2016 showed a 4.8 percent drop for internship opportunities, as the National Association of Colleges and Employers reported, the insurance, finance and real estate industries expected to increase their internship and co-op hiring by 8.4 percent in 2016 over 2015. Despite the variability, using internships can provide a great resource for finding and developing talent for the future.

There are many ways that businesses can help establish and maintain relationships with high schools and colleges for future interns. By volunteering to work with career development offices, businesses can go beyond submitting an advertisement looking for interns. A company representative might assist a university by looking over interns’ resumes, helping students build interviewing skills through mock interviews or assisting with university-led workshops.

In fact, an experienced employee who is also an alumnus may be more effective connecting with potential interns than a C-level executive. Someone who has been in college more recently can give interns a timely outlook on their own experience transition from post-secondary education to the work world. While an organization’s employee who is a recent college graduate may not be part of the human resources team, he or she could add a fresh perspective by answering student questions about the company’s mission, culture and expectations of interns.

When it comes to giving an intern responsibilities, the type of tasks will vary depending on the internship’s length of time in the industry. One responsibility an intern may be involved with is contributing to existing social media management or helping create new social media. Recent graduates are typically more familiar with the latest social media platforms and what content works with the public, and therefore can add a fresh perspective on how to procure younger clients and grow demographics. Regardless of the task assigned to an intern, supervision is recommended. Interns may be the ones who create social media, but it should be reviewed by a manager who can catch social media gaffes.

The question of compensation is often subjective. The U.S. Department of Labor maintains that if the following six criteria are met for an internship by businesses, the organization might not be subject to the pay requirements in the Fair Labor Standards Act.

According to the DOL website, the first criteria is, “the internship, even though it includes actual operation of the facilities of the employer, is similar to training which would be given in an educational environment”. Second, the intern must receive value from his time with the employer. The intern should not take the role of an existing employee, but be appropriately monitored by the business’ regular employees. The business may not obtain a direct benefit from the intern, and may have the organization’s normal workflow periodically slowed by the intern’s experience. There also is no expectation of the intern being hired once the internship is completed. Finally, there is a clear expectation and agreement by the intern and employer that no wages will be paid.

While these are general guidelines, internships and the organizations that use them will vary. The overall benefit is that having interns at a business can provide a fresh perspective for both the intern and the employer.

 

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Tip of the Month

Weighing the Impact of the Equifax Breach

Call it ironic that on the very day Equifax went public with news of its massive data breach, Congress was holding hearings on reducing the regulations imposed on U.S. credit bureaus. Long before the recent breach that exposed confidential data affecting about 143 million Americans, Equifax had been lobbying aggressively on issues involving data security and breach notification, as well as proposals to limit exposure to lawsuits. These lobbying efforts have cost the credit reporting agency a reported half million dollars, as Equifax tried to drum up support from lawmakers in Congress. Democrats have been vocal in their opposition to legislation that limits credit agencies’ exposure to class-action lawsuits. Sen. Elizabeth Warren (D-MA), who introduced legislation aimed at cracking down on credit bureaus, and New York Gov. Andrew Cuomo, who wants to expand the state’s strict cybersecurity standards for the financial sector to include credit reporting bureaus, are two Democrats who have taken up the fight on behalf of consumers.

Irony aside, the Equifax situation is a good example of what happens when theory and practical application in the real world collide. From the get-go, the Trump administration has highlighted excessive government regulations as an unnecessary drag on business profitability and economic growth, and has made loosening regulations on banks and other financial institutions a major priority. Few people want more red tape in their daily business dealings; but on the other hand, most people want more accuracy in reporting and more accountability from the credit agencies that play such a major role in our country’s financial sector.

Credit agencies are integral to the financial infrastructure of the United States. When problems arise, the implications are serious. Apart from a major data breach like the recent one at Equifax, credit-reporting agencies’ errors can cause significant difficulties for consumers who cannot buy homes and autos or get bank credit without good credit ratings. A Federal Trade Commission report published in 2013 showed that 5 percent of all consumers had errors on one or more of their credit reports that could cause them to pay more for transactions like auto loans and insurance. Consumer complaints, which have increased 1,700 percent over the past 20 years according to the U.S. Chamber of Commerce, have grown exponentially as the agencies’ reliance on technology has soared. Industry critics believe the credit agencies should be held as accountable, and face as much scrutiny, as regional banks.

For their part, anti-regulation Republicans argue that abuses in the court system can adversely affect not only a business, but also its employees, customers and vendors. A bill to cap penalties resulting from class-action lawsuits and to eliminate punitive damages leveled against credit agencies, introduced by U.S. Rep. Barry Loudermilk (R-GA), was derailed by the Equifax data breach and by the agency’s subsequent delay in making the news public. Given the extent of the data breach and vocal criticism of the company’s handling of the situation, public opinion and sentiments on Capitol Hill most likely will be tipped in favor of the pro-regulation faction for the time being.