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Written by Wendy Adams, CPA
As we embark on a new year, many uncertainties and questions arise, particularly when it comes to a new tax year. Plus, add in the start of a new presidency, and the questions mount higher and higher. What will 2017 bring? What will President Trump and the Republican-controlled Congress change? How will it affect you and your business?
In answer to these questions and more, unfortunately, there is no easy, clear-cut answer. While this is the first time since 2006 that both the legislative and executive branches of government have been controlled by Republicans, difficulties still lie ahead. Of the tax-reform plans proposed for consideration, most notable are the House Republican Tax Reform Task Force Blueprint (Blueprint) and the Trump Tax Plan (Trump Plan). Both of these, among other proposals, have the potential of being decided upon by Congress. Our emphasis and goal here is to provide you with a simple overview of the potential effect on you and your business and may not cover all provisions in each plan. Also included for your benefit are upcoming deadlines for the first quarter of 2017.
Business Tax
Blueprint
- Reduction in the corporate tax rate from 35% to 20%
- Sole proprietorship and pass-through entities, essentially small business income will be taxed at a maximum of 25%
- Relieve the burden of corporate alternative minimum tax
- Provide the benefits of full and immediate write-offs of investments in both tangible and intangible assets
- Eliminate the tax on business investments and instead introduce a business cash-flow tax
- Preserve the LIFO method of accounting for inventory
- Provide/retain the Research & Development credit
- Move towards a destination-basis tax system rather than a production location-based system
Trump Plan
- Reduction in the corporate tax rate from 35% to 15%
- Eliminate the corporate alternative minimum tax
- Eliminate most corporate tax credits except for the Research & Development credit
- Manufacturing companies may elect to expense capital investment and lose the deductibility of corporate interest expense
- Business tax credit for on-site childcare
Individual Tax
Blueprint
- Reduce the number of tax brackets seven to three: 33%, 25% and 12%
- Eliminate the individual alternative minimum tax (AMT)
- Eliminate the estate tax and the generation-skipping transfer tax
- Reduced tax on investment income
- Simplify personal exemptions which includes how the child credit is calculated
- Streamlining the tax benefits for higher education
- Income will be based on compensation received and eliminate many itemized deductions excluding the mortgage interest deduction and charitable giving deduction
Trump Plan
- Reduce the number of tax brackets seven to three:
- 33% earn more than $225,000
- 25% earn more than $75,000 but less than $225,000
- 12% earn less than $75,000
- Single filers will be half of these amounts
- Maintain the existing capital gains structure
- Repeal the net investment tax and alternative minimum tax
- Standard deductions will be increased
- The death tax will be repealed but capital gains held until death and valued over $10 million will be subject to tax with the exception of small businesses and family farms
- Above-the-line deduction for childcare who are under the age of 13 as well as eldercare with a specified cap
- Implementation of Dependent Care Savings Accounts
Deadlines in the First Quarter of 2017
January 31
- File 2016 Forms W-2 (“Wage and Tax Statement”) with the SSA and provide copies to your employees.
- File 2016 Forms 1099-MISC (“Miscellaneous Income”) reporting non-employee compensation payments in box 7 with the IRS and provide copies to recipients.
- Most employers must file Form 941 (“Employer’s Quarterly Federal Tax Return”) to report Medicare, Social Security and income taxes withheld in the fourth quarter of 2016. If your tax liability is less than $2,500, you can pay it in full with a timely filed return. If you deposited the tax for the quarter in full and on time, you have until February 10 to file the return. Employers who have an estimated annual employment tax liability of $1,000 or less may be eligible to file Form 944 (“Employer’s Annual Federal Tax Return”).
- File Form 940 (“Employer’s Annual Federal Unemployment [FUTA] Tax Return”) for 2016. If your undeposited tax is $500 or less, you can either pay it with your return or deposit it. If it is more than $500, you must deposit it. However, if you deposited the tax for the year in full and on time, you have until February 10 to file the return.
- File Form 943 (“Employer’s Annual Federal Tax Return for Agricultural Employees”) to report Social Security, Medicare and withheld income taxes for 2016. If your tax liability is less than $2,500, you can pay it in full with a timely filed return. If you deposited the tax for the year in full and on time, you have until February 10 to file the return.
- File Form 945 (“Annual Return of Withheld Federal Income Tax”) for 2016 to report income tax withheld on all non-payroll items, including backup withholding and withholding on accounts such as pensions, annuities and IRAs. If your tax liability is less than $2,500, you can pay it in full with a timely filed return. If you deposited the tax for the year in full and on time, you have until February 10 to file the return.
February 28
File other 2016 Forms 1099 with the IRS and provide copies to recipients. (Note that Forms 1099-MISC reporting non-employee compensation in box 7 must be filed by Jan. 31, beginning with 2016 forms filed in 2017.)
March 15
2016 income tax returns must be filed or extended for calendar-year partnerships and S corporations. If the return is not extended, this is also the last day to make 2016 contributions to pension and profit-sharing plans. The State of Alabama conforms to this due date for income tax returns, however, for the Alabama Privilege tax, the due dates do not change. Therefore, calendar year C Corporations must file or extend and pay Alabama Privilege Tax due on March 15.