On February 2, 2015, the White House released their proposed 2016 budget plan, the cost of which is just under $4 trillion dollars. The following is a list of highlights of the White House’s 2016 budget proposal for businesses and individuals.
Proposed For Businesses:
- Reduce the corporate tax rate to 28% (25% for manufacturing) only if widening the tax base occurs by eliminating certain tax incentives.
- Impose a minimum tax of 19% on foreign income.
- Impose 14% one-time tax on previously untaxed foreign income that has been accumulated in foreign corporations. The income could then be moved back into the U.S. without incurring further tax.
- Repeal of last-in, first-out (LIFO) method of accounting.
- The research tax credit would become permanent.
- Section 179 expensing limit would be $500,000 and $2 million for investment for 2015. In 2016, these dollar limits would become $1 million and $2 million, thereafter indexed for inflation.
- Permanent 100% exclusion from tax by a non-corporate taxpayer for capital gains realized on the sale of qualified small business stock held more than 5 years. The eligible gain on the sale would be limited to the greater of $10 million or 10 times the taxpayer’s basis in the stock.
Proposed for Individuals:
- Increase to 24.2% from 20% the top long-term capital gains rate, plus the 3.8% tax of net invested income, which totals a 28% top capital gains tax rate.
- Increase the child and dependent care credit to $3,000 per child for children under 5 with complete phase-out when income exceeds $178,000.
- New second earner tax credit for working couples of up to $500 with phase-out starting at an adjusted gross income of $120,000 to complete phase-out at $210,000.
- Education credits like the American Opportunity Tax Credit (AOTC) would be permanent and be consolidated with other educational incentives. The AOTC would be available for up to 5 years for full-time as well as part-time students.
- Gains on appreciated property above certain threshold amounts would be subject to capital gains tax when inherited or gifted. Only then would an heir receive a “stepped-up basis.” A $100,000 exemption per person, as well as exceptions for surviving spouses, small business charities, and residences among others, would exist.
- Reinstatement of a 45% estate and gift tax top rate with a reduction in the exclusion to $3.5 million for estates and a $1 million exclusion for lifetime gifts.
- Limit the value of itemized deductions and other tax preferences to 28% for high income taxpayers.
- “Buffett Rule” proposed for taxing high income taxpayers with large deductions and other tax preferences at a minimum 30% tax rate.
- Employees who have worked at least 500 hours per year for last 3 years would be eligible to participate in the employer’s retirement plan. The employers would not be required to offer matching contributions.
If you have any questions about this article, please contact Jamie Downey at jmdowney@downeycocpa.com or 800.849.6200.
