IRS Things That Might Happen
Things that might happen, as excerpted from Kiplinger & the President's Economic
Recovery Advisory Board's August 27th report,: because Lawmakers have too much remaining on their plate to tackle reform, especially since they're still stuck on what to do about extending the Bush tax cuts. Still, taxwriters will eye many proposals from the President's economic recovery board once they get serious about reform.
Revamping family tax breaks. One option is to combine the personal exemption, standard deduction and the child credit into one credit.
The earned income credit and the refundable extra child credit for low incomers would also be consolidated.
The other choice would combine the earned income credit, the dependent exemption
for kids and the child credit into a single credit. Because many of these tax breaks
require complex calculations, Congress will likely opt for some form of simplification.
And restructuring education tax incentives. There's widespread agreement
that the hodgepodge of the American opportunity credit, the lifetime learning credit
and the tuition deduction is confusing. Melding them into one credit would help.
Defanging the alternative minimum tax, or possibly even repealing it.
Lawmakers know the AMT is affecting far more taxpayers than it was intended to.
Options include increasing exemptions and eliminating several tax preferences.
Easing the scope of the kiddie tax. Under current law, dependents
with investment income over certain thresholds are taxed at their parents' rates.
The leading options are to raise the threshold so the tax affects fewer dependents
and to use the rate schedule for trusts to figure tax on excess investment income.
Simplifying the hodgepodge of savings plans. Two of the board's proposals
have decent shots: Combining 401(k), 403(b) and 457 plans into one standard plan.
And consolidating all health and education savings plans...flexible spending plans,
health savings accounts, Archer MSAs, Coverdells, 529 plans...into a single plan.
Turning to business taxes: Reducing the maximum corporate tax rate.
The board did not suggest a particular rate. But there is a consensus in Congress
that the current 35% top rate makes it hard for U.S. companies to compete overseas.
Broadening the corporate tax base is the flip side of a rate cut. Tax reform
won't result in a net tax cut for business, so many deductions will be wiped out.
Among the more plausible options offered by the board are eliminating the deduction
for domestic production and limiting the deduction of interest on corporate debt.
Discussions on bigger-ticket items such as personal tax rates will come later.
The board wasn't asked to recommend major tax reform, such as the 1986 overhaul,
which consolidated five tax rate brackets into two. That's why the report is silent
about revising the tax brackets. Remember, to sell tax reform to the public in 1986,
Congress funded tax cuts for individuals with a $120-billion tax hike on business.
Contact B. Joe Rosa, CPA for more information
IRS Things That Might Happen
By: b joe rosa, cpa
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