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Tax News: February ’17

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in Small Business Tax

Pay the IRS first. In a new case, a physician discovered an employee had embezzled money. As a result, the practice failed to deposit payroll taxes that had been withheld from employee paychecks with the IRS. The doctor then paid part of the amount owed and loaned the firm money so it could pay its workers as well. However, despite his good intentions, he was still held personally liable for the remaining unpaid taxes that had been withheld from employee paychecks. (McClendon, CV NO. H-15-2664, S.D.-TX, 11/17/16)

Higher fees for EAs. So you want to be an enrolled agent (EA)? In late 2016, the IRS announced that it was increasing the fee for the three-part test for EAs from $11 per part to $99 per part, a hike of nine times the prior fee. After a storm of protest, the IRS says it will cut back the proposed fee, but only to $81 per part.

Top-heavy taxes. According to IRS statistics, upper-income taxpayers have been carrying more of the tax load. The top 1% of taxpayers by income paid 39.5% of all taxes in 2014, the last year for which information is available, compared to 37.8% in 2013. Also, the top 5% paid 59.97% of all the taxes in 2014. Conversely, the bottom 50% paid just 2.75%.

Tax pros have their say. In line with its recent attempts to reach out to the tax community, the IRS has posted a notice on feedback from tax professionals who attended the Nationwide Tax Forums in 2016 (IR News Release 2016-174). In particular, the agency highlighted several areas that will help to shape its “Future State” efforts to improve taxpayer service.

This plan envisions the taxpayer experience over the next five years and beyond. Notably, the IRS asked tax pros in a survey what changes in the Future State plan could have the greatest impact. Of the more than 1,300 respondents, more than 30% cited enhanced support and tools for taxpayers, while more than 20% referred to agile, efficient and effective operations.

Section 199 in peril? One proposed tax reform affecting business entities has mostly flown under the radar. Under both the House GOP tax blueprint, which was released in 2016, and President Trump’s proposed tax plan, the Section 199 deduction for qualified domestic production activities would be wiped off the books.

Currently, a business can write off 9% of qualified production activities income, but this provision could be axed as part of a trade-off for lower corporate income tax rates.

Of course, Section 199 still might be saved from the chopping block. At the very least, if a repeal is enacted, some pundits expect that it would go away gradually, perhaps over a three-year period. We will keep you posted.

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