Q: What are some of the proposed changes to the tax code on a national level?
A: President Trump recently presented a new tax plan that might impact future taxpayers if it were to be passed by Congress. And under this tax framework, the top individual tax rate would be 35 percent, which would be down from the highest tax bracket of 39.6 percent currently. It would also reduce the tax bracket [of seven] to three [brackets] — that would be 12 percent, 25 percent and 35 percent.
Currently there are seven tax brackets, with the lowest one being 10 percent and the top one being that 39.6 percent.
The framework does allow for Congress to add a fourth higher tax bracket for high-income individuals with income at the highest levels, but none of the actual brackets have been identified. So the rates have been established, but the range has not been established.
Q: From your perspective, what do you think the impetus of these proposed changes is?
A: I think there’s some desire to reduce the tax burden on all Americans. I believe that there’s some hope that that will further generate economic expansion and opportunities that result from that for all Americans and there would also be some other things that would also be impacted, like it would repeal the alternative minimum tax that hits a lot of Americans. The estate tax that hits a lot of Americans. And it would also reduce the tax rate on businesses. So the business tax rates would be reduced and the ability to deduct equipment purchases. That would be expanded.
Q: Gainesville is burgeoning with small businesses. How do you think they would be impacted?
A: There’s some examples that are out there, for example, a single-child tax payer with a $25,000 salary would see a potential federal tax savings of about $200. Similarly, a single-child taxpayer of a $75,000 salary would see a potential federal tax saving of about $2,700, so that would be one way they would be impacted.
Another would be this reduction of the business tax rate to 25 percent. And in Gainesville, those businesses are going to be smaller businesses, so some of the owners are currently taxed as high as 39.6 percent, so if they were able to reduce their tax burden down to 25 percent, obviously that could have a big impact or their ability to expand or hire or open up additional businesses or divisions.
Q: What about people who aren’t small business owners?
A: One of the things is it would increase the standard deduction. Most taxpayers don’t itemize their deduction. This would increase the standard deduction, which is how they would create the tax savings that we went through earlier. So, that would impact taxpayers as well. If they didn’t have to worry about gathering up all the documents for all their itemized deduction, it would simplify their tax return. It would probably reduce the cost if they’re paying someone to prepare the tax return and then obviously it could increase the refund.
Q: How will your work as a CPA be impacted by the tax code changes?
A: What we’ve done is communicate this information to clients just to make sure they’re prepared and understand what the ramifications would be. Also, at the end of the year we’ll be sending another tax update as additional information comes out to our clients, letting them know the implications of any changes.
Jay Hutto, CPA/ABV/CFF, CVA is a certified public accountant and a Partner at James Moore & Co. Jay has more than 25 years of experience providing personalized accounting services.