CCH Issues Crib Notes on Obama’s Tax Plan

For the non-tax professionals in the house, CCH is a company that provides tax, accounting and audit information, software and services, including one of the leading tax preparation software packages used by CPA firms.

They’re predicting passage of a big tax bill sometime by the summer of 2009, and likely to be retroactive to January 1.

Tax Joy for the Average Joe

As promised to Joe the Plumber, middle-class and working-class families are expected to benefit most under Obama’s tax proposals:

• The 10-percent bracket will continue (was scheduled to expire in 2011)
• $500 per-wage earner tax credit
• Elimination of income taxes for seniors with incomes under $50,000 a year
• Refundable mortgage interest credit
• Refundable child and dependent care credit
• New education credits
• Expanded Earned Income Tax Credit
• Possible tax-free unemployment benefits for 2008 and 2009
• *Maybe* another stimulus bill

Bummer for the Rich

Those whose income bumps them into the top two tax brackets (roughly the $200,000/$250,000 mark) are going to feel some pain with the following:

• Increases from 33% to 36%, and 35% to 39.6%, which were the rates in effect when Bush took office
• Restoring the personal exemption phase-out (PEP)
• Bringing back the and itemized deduction limitation (Pease deduction)
• Increased FICA tax, possibly as high as four percent, on earnings above $250,000
• A possible permanent patch (though not a repeal) to keep millions of taxpayers free of the AMT (Alternative Minimum Tax)

Year end planning will be especially crucial for high earners this year. According to George Jones, JD, CCH senior tax analyst:

"Taking into account restoration of PEP and the Pease limitation, the top marginal individual income tax rate would effectively be above 40 percent. Because of this, 2008 year-end tax planning should consider such things as accelerating some income into 2008 and deferring some deductions until 2009 or beyond."

Business as Usual for Passive Income and Retirement

Continued favorable treatment for dividends and capital gains

• Increase in capital gains rate for individuals earning more than $200,000 and families over $250,000 from 15 percent to 20 percent
• Possible new zero rate for all investors for certain small business stock
• Relaxed or reduced penalties for early withdrawals from retirement plans
• Temporary suspension of required minimum distributions
• Estate tax of 45%, with a $3.5 million per-person, $7 million per-couple exemption. *This would effectively eliminate the tax for 99.7 percent of estates, according to the President-elect.

Business Will Have to Adjust

CCH predicts a "mixed bag" for business Obama’s administration. Tax cuts will be focused on job creation:

• Extension of $250,000 in first-year expensing
• Making the research and development credit permanent
• Provisions to discourage moving jobs offshore
• Closing of unspecified "loopholes"
• Possible limits on executive compensation (what’s deductible for tax purposes that is)
• Tax credit to encourage small businesses to provide health benefits to their employees
• Possible expanded tax breaks for alternative energy production
• Tax rebates to help pay home heating costs
• Windfall profits tax

While we won’t know specifics until actual tax code is written, one thing seems clear. With the same party in control of the White House and both Houses of Congress, whatever Obama wants at least at first, he’s likely to get.

Read the full brief here.

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