Tax Reform in 2014

I think there is a good chance that will happen because the Republicans and Democrats are not that far apart!

Among the highlights of the proposed Tax Reform Act of 2014 are the following:

New Individual and Corporate Rate Structure:Flattens the code by reducing rates and collapsing today’s brackets into two brackets of 10 and 25 percent for virtually all taxable income, so over 99 percent of all taxpayers would face maximum rates of 25 percent or less. The plan also would reduce the corporate tax rate to 25 percent.

Larger Standard Deduction:Makes the code simpler by providing a significantly more generous, inflation-adjusted standard deduction of $11,000 for individuals and $22,000 for married couples. 

Larger Child Tax Credit:Increases the child tax credit to $1,500 per child, adjusts it for inflation going forward and expands the number of families that can claim the credit.

Simpler, Improved Taxation of Investment Income:Taxes long-term capital gains and dividends as ordinary income, but exempts 40 percent of such income from tax, resulting in a 3 percentage point decrease from the maximum rates individuals pay today on such income while also achieving the lowest level of double taxation on investment income in modern history. 

No AMT:In addition to lowering tax rates for families and all job creators, the plan repeals the Alternative Minimum Tax for individuals, pass-through businesses and corporations. 

Easier Education Benefits:Adopts recommendations stemming from the bipartisan working groups to consolidate education tax benefits so, along with the additional money from stronger economic growth, families could more easily afford the costs of a college education.

Modernized International System:Modernizes the international tax code for the first time in more than 50 years while protecting jobs, wages and profits from being shipped overseas.

Permanent R&D Incentive:Invests in innovation by making permanent an improved Research & Development Tax Credit.

More Affordable Health Care:While the plan generally leaves ObamaCare policies untouched and for a later debate on health care, there are two main exceptions given strong bipartisan support for: (1) repeal of the medical device tax and (2) repeal of the medicine cabinet tax, which prohibits use of funds from tax-free accounts to purchase over-the-counter medication without first obtaining a prescription.

Infrastructure Investment:Dedicates $126.5 billion to the Highway Trust Fund to fully fund highway and infrastructure investment through the HTF for eight years.

Simplification for Seniors:Reflecting a proposal supported by AARP and Americans for Tax Reform, the plan requires the IRS to develop a simple tax return to be known as Form 1040SR for individuals over the age of 65 who receive common kinds of retirement income like annuity and Social Security payments, interest, dividends and capital gains.

Charitable Giving:Expands opportunities to make tax-deductible contributions past the end of the tax year, makes permanent conservation easement incentives, simplifies exempt organization taxes and sets a floor instead of a cap to the amount of donations that can be deducted. The economic growth in this plan will increase charitable giving by $2.2 billion annually.

Shrinks and Simplifies the Income Tax Code:In addition to easing complexity and compliance burdens by adopting a larger standard deduction, an enhanced child tax credit and lower rates, the plan repeals over 220 sections of the Tax Code, cutting the size of the income tax code by 25 percent.

The proposal to tax capital gains as ordinary income while exempting a percentage of the income from tax is a throwback to the way capital gains were taxed years ago, noted Williamson.

Other reactions were mixed. Ways and Means Committee ranking member Sander Levin D-Mich., stated, “Chairman Camp’s tax reform proposal opens up a discussion that Democrats have wanted to engage in on a bipartisan basis. As Democrats, we believe it is vital that tax reform encourage economic growth, support working families, broaden the middle class, and address income inequality. It must produce a fairer and more adequate tax code for all Americans, ensuring that wealthy individuals and corporations pay their fair share while preserving our long-term economic security in a fiscally responsible way that promotes jobs in the United States. It is through the lens of those priorities that we will review Chairman Camp’s proposal in detail as the Committee undertakes a thorough examination of his proposal.”

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About Jeffrey Brooks

Jeffrey Brooks, CPA, CFP, MBA since 1976 has specialized in helping clients save significant taxes, help businesses increase their cash flow, revenues and profits while increasing their control and satisfaction. Jeff and his accounting firm sincerely cares about the happiness of his clients.

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