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 [email protected] or (404) 814-4981.
