How will the new administration affect Joe the Eyecare Professional and his Taxes?
The last presidential debate before the election centered on Joe the Plumber and the question of the new taxation threatening the small business that nets $250,000 and up. Now that we know that the country has elected Barack Obama should the independent optical provider be concerned about this? Maybe depending on how your business is set up, number of employees and several other factors. Basically it comes down to what income bracket you are in.
Analysts calculated that the extra tax would amount to $900, which would likely be more than offset by separate provisions of Obama’s plan: a 50 percent tax credit for health care and elimination of the capital gains tax for small businesses.
The Chicago Sun Times reported that “Obama started his campaign saying his plans would not increase taxes for people earning less than $250,000. But he found himself in an apparent contradiction by saying he would tax all income to fund Social Security, not just income up to $102,000, as is now the case. So now, Obama’s plan calls for no Social Security tax on incoe between $102,000 and $250,000, but all income above $250,000 would be taxed for Social Security.
The 95 percent-plus of the American population that earns less than $250,000 would see the following tax breaks: A $500-per-worker tax credit for people who earn less than $150,000 and do not itemize, and a $4,000 credit per child in college. Seniors who earn less than $50,000 would pay no income tax.”
The argument against the new tax plan: This is an interesting article if you want to see the possible effect of tax on S Corp, partnerships, sole proprietorship etc.
I asked my CPA to comment as well, this is his analysis:
IS CHANGE COMING TO U.S. INCOME TAX LAWS?
During the recent presidential campaign, the Obama – Biden ticket proposed changes in the tax code that would reduce income taxes for families earning less than $200,000 and increase income taxes for families earning more than $250,000. Now that they have been elected what can be done between now and the end of December 2008 to take advantage of this?
While the legislation has not been written yet, nor has it passed Congress and a lot of economic facts have changed since those proposals were first made, it may be possible to on one hand plan for the changes and on the other hand not make your position any worse if they do not come to fruition. Here are a couple of ideas:
1. If income taxes are to be reduced for those earning less than $200,000 it seems reasonable to anticipate that this would be done by expanding the lowest income tax brackets (10%, 15%, & 25%). If your income is typically below $200,000 it may be desirable to push 2008 income recognition from 2008 into 2009 or accelerate deductions that might otherwise fall into 2009 into 2008 to cause more of your income to be taxed at the lowest rates.
2. If we are going to see another stimulus / rebate plan, it is likely that it will have phase outs for higher income earners (as last spring’s plan had), so lowering your 2008 income may have the added benefit of getting you into the rebate plan.
3. To increase income taxes for those making over $250,000 it was propoand possed that the favorable tax rate on capital gains (typically 15% now) would increase to 20%. So, to the extent that you have unrealized capital gains that would likely be recognized in 2009 you might save tax on them by accelerating the recognition into 2008 to take advantage of the 15% rate, while we have it. However, before implementing such a strategy taxpayers need to consider how the Alternative Minimum Tax might impact their individual tax situations.
November 11, 2008
Mark M. Gordon, CPA
Mark M. Gordon Accountancy Corp.