Lame Duck Session Report: Proposed Tax Law Changes and How They Affect You.


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	Lame Duck Session Report: Proposed Tax Law Changes and How They Might Affect You. *November 15, 2010 - By Michelle Boyer, CPA*
	Daytraders are the first to know how unsettling it can be to have tax issues up in the air. How one small decision can have a large effect on their tax bill. Even though the democratic hurtles are high, this congressional lame-duck session will mean a lot, not only to day traders but to every American. The Democrats are coming to the lame-duck session knowing they have lost control of the House after the elections and have barely hung onto the Senate. The Republicans will be less likely to compromise on tough issues knowing that in two short months they will seize power. Regardless, there is a lot on the agenda: Bush Tax Cuts, Funding the Government, Unemployment Insurance, The Doc Fix, and the DREAM act to name a few. Of course, the biggest item on our agenda is the sunsetting of the Bush Tax Cuts from 2001 and 2003. A draft of the President Fiscal Commission proposal has just been released. The goals of the initial Bowles-Simpson Bipartisan Fiscal Commission Proposal (Co-Chair Draft) would (1) lower rates; (2) simplify the Code; (3) broaden the base; (4) cut spending in the tax Code (i.e., tax expenditures); (5) improve compliance (Tax Gap); (6) make America the best place in the world to start and grow a business; and (7) reduce the deficit. There were three options presented: Option 1: the Zero Plan. Consolidate the tax code into three individual rates and one corporate rate Eliminate the alternative minimum tax (AMT), Pease (the 3%/80% reduction in total itemized deductions), and PEP (personal exemption phaseout) Eliminate all $1.1 trillion of tax expenditures Dedicate a portion of savings to deficit reduction and apply the rest to reduce all marginal tax rates; and Add back in any desired tax expenditures, and pay for them by increasing one or all of the rates from their zero-expenditure low. Option 2: Wyden-Gregg Style Reform. Establish 3 rates 15%, 25% and 35% Triple the standard deduction to $30,000 ($15,000 for individuals) Repeal the state & local tax deduction, cafeteria plans, and miscellaneous itemized deductions Limit the mortgage deduction to exclude residences, home equity loans, and mortgages over $500,000 Limit the charitable deduction with floor at 2% of adjusted gross income (AGI) Cap income tax exclusion for employer-provided healthcare at the amount of the actuarial value of the Federal Employees Health Benefits Plan (FEHBP) standard option Modify and repeal several other tax expenditures; and Dedicate a portion of savings to deficit reduction. It also would include the following corporate tax reforms: Reduce the corporate tax rate to 26% Permanently extend the research credit Eliminate and modify several business tax expenditures, including the domestic production deduction, the LIFO accounting method, energy tax preferences for the oil and gas industry, and depreciation rules; and International tax reform including a territorial system. Option 3: Tax Reform Trigger. Call on Finance and Ways & Means Committees and Treasury to develop and enact comprehensive tax reform by end of 2012 Put in place an across-the-board “haircut” for itemized deductions, employer health exclusion, and general business credits that would take effect in 2013 if reform is not yet enacted Haircut would limit proportion of deductions and exclusions individuals could take to around 85% (a very rough estimate of the haircut necessary to reduce the deficit by $80 billion in 2015) in 2015. Similarly, corporations would only take some proportion of their general business credits; and Set haircut to increase over time until tax reform is enacted. Tax planning is close to impossible with these dramatic changes being the starting points for tax reform. Our tax professionals are constantly monitoring all new developments to keep you up to date on all tax code changes and proposals.