During this Tax Season, we want to provide you with a great Tax Planning Guide to help you evaluate your options and outline tax planning strategies with your accounting professional.
In addition to referencing this guide during the tax season, it can also be a helpful year-round tool. Staying actively involved in these and other underlying areas of tax planning will keep you in a position to preserve and create longer-term wealth for yourself and your family.
We all learned a thing or two about Panama last week.
The country is not the home of the Panama hat, which is made in Ecuador. However, it is the only place in the world where you can watch the sun rise on the Pacific Ocean and set on the Atlantic Ocean.
It’s also home to a lot of offshore companies, according to the millions of records leaked from the world’s fourth largest offshore law firm. The Guardian reported 12 national leaders were among 143 politicians, athletes, and wealthy individuals (including family members and associates) who were participating in offshore tax havens.
It’s not illegal to hold money in an offshore company, unless the company facilitates tax evasion or money laundering, reported The New York Times. Further investigation will be required to know whether that was the case. CNBC suggested financial markets could be affected if the findings lead to greater regulation of foreign banks or prosecutorial action against them.
While the Panama scandal captured a lot of attention, it didn’t have much of an impact on markets. News that the U.S. Treasury was cracking down on corporate inversions, along with indications the U.S. Federal Reserve may raise rates twice during 2016, caused stocks to dip late in the week. Some major U.S. indices finished the week lower. (Corporate inversions are mergers that give U.S. companies a foreign address and lower their tax rates.)
We may be in for another round of market volatility. Corporate earnings season is here. That’s the period when publicly traded companies report how well they performed during the previous quarter. CNBC said, “Over the past 10 years, the emergence of first-quarter earnings reports has generally corresponded with a rise in volatility.”
Data as of 4/8/16
Standard & Poor’s 500 (Domestic Stocks)
Dow Jones Global ex-U.S.
10-year Treasury Note (Yield Only)
Gold (per ounce)
Bloomberg Commodity Index
DJ Equity All REIT Total Return Index
S&P 500, Dow Jones Global ex-US, Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT Total Return Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.
Sources: Yahoo! Finance, Barron’s, djindexes.com, London Bullion Market Association.
The upcoming U.S. tax filing deadline — Monday, April 18 — doesn’t just have regular Joes on edge. Massive corporate entities based in the U.S. are getting a little nervous, too, according to a report from the Financial Times.
The number of companies warning their investors about increased impact from taxes in 2015 has doubled from last year, the FT says.
The warnings come from the potential closing of myriad international tax loopholes, courtesy of the Organisation for Economic Co-operation and Development (OECD), a consortium of 34 countries, including the Germany, the U.K. and the U.S.
Some of those loopholes include accounting tricks like shifting profits from Ireland, where tax rates are already relatively low, to Bermuda, where the company doesn’t pay any taxes. Companies are able to do this because the definitions of “residence” are different in U.S. and Irish tax law, allowing money made from sales in Ireland to wind up being “based” in Bermuda or another country considered a tax shelter.
The OECD estimates that various companies’ tax avoidance costs governments around $240 billion.
The companies that are likely to be hit hardest are those in the tech sector, like Apple, already-beleaguered Yahoo and Google. Travel site Priceline is already fighting a French tax penalty of 356 million euros ($397 million), and the U.K. is looking to take back 1 billion pounds ($1.4 billion) from corporations after eliminating a tax break on interest costs.
Google, the report notes, has included language about tax concerns for 10 years now. Other companies have also been proactive about warning investors that the tax hammer could fall at any moment.
But investors have been slow on the uptake. “I still think that investors are not asking the right questions. They are in early stages of understanding the issues,” Fiona Reynolds, the managing director of a network of fund managers, told the FT.
Written by Oriana Schwindt of International Business Times
Healthcare spending is expected to increase more slowly during 2016! It’s projected to grow by 6.5 percent this year, according to a report from PWC. That’s still a lot faster than inflation. The Economist projects overall consumer prices in the United States will increase by 1.2 percent this year.
The report suggested several factors are contributing to lower healthcare spending, including:
The Affordable Care Act’s Cadillac Tax. PWC reported the tax “…is motivating businesses to enact high cost-sharing. Their workers are already responding to the higher deductibles by scrutinizing what services are necessary and which are not…cost sharing can backfire if the employee foregoes preventative care and faces years of chronic illness.” Twenty-five percent of employers offer only high-deductible healthcare plans for employees.
Virtual healthcare. Telemedicine appears to be the next big thing in medicine. Doctors making house calls using real-time audio and video is the gold standard for service, according to the Modern Medicine Network. Remote patient monitoring, pre-recorded videos, and computer-assisted or message-based communications also are being offered.
New health advisors. A new variety of healthcare company is making information about facilities, providers, services, and pricing more accessible. In some cases, financial incentives encourage employees to seek treatment at a preferred facility.
These gains are more than offset by factors that are pushing healthcare spending higher, including:
High-cost specialty drugs.PWC reported specialty drugs are becoming a focus for the pharmaceutical industry. “With 700 specialty products currently in development, these investments will soon surpass traditional drug investments…According to a recent Express Scripts report, total national prescription spending increased 13.1 percent last year to about $980 per person.”
Cyber security investments. Healthcare organizations are spending heavily on cyber security to protect patients from data breaches. The cost of a breach is about $200 per patient record. The cost of security is about $8 per patient record.
It’s critical to factor healthcare spending into retirement plans. In 2015, the Employee Benefits Research Institute (EBRI) found a 65-year-old man needs $124,000 in savings and a 65-year-old woman needs $140,000 if each wants a 90 percent chance of having enough money saved to cover healthcare expenses in retirement. EBRI’s analysis did not include the savings needed to cover long-term care expenses.
With the field of six candidates, there’s a wide range of tax proposals, each of which have different effects on your wallet. For one, GOP front-runner Donald Trump’s plan would slash tax rates for everyone. The real estate mogul is seeking to eliminate the current top individual income tax rate of 39.6 percent and create three tax brackets: 10 percent, 20 percent and 25 percent.
That said, a few observers have their doubts.
“I don’t think it’s viable,” Tax Foundation President Scott Hodge told CNBC. “I think it’s a dramatic overreach and an over-promise.”
Established in 1937, The Tax Foundation is an independent, non-partisan tax policy research organization. For the current election cycle, the organization compared the economic effects of each of the candidates’ tax plans.
Studies from both the Tax Foundation and another group, the Tax Policy Center, estimate that Trump’s plan could cut tax revenues by more than $10 trillion dollars over the next 10 years, resulting in a large burgeoning of the national debt. Earlier this week, Trump responded by telling CNBC he could close that gap by cutting waste and fraud in government.
However, Hodge branded that as “unrealistic,” suggesting that Trump’s plan doesn’t have structural changes to the tax code that could improve the economy. “It’s really just a tax cut plan, it’s not a tax improvement plan.”
On the other side, Bernie Sanders is promising the opposite: Higher taxes for all. The Democratic candidate/senator from Vermont wants to raise all taxes by 2.2 percent and create four higher tax brackets for high earners. Sanders’ top bracket would tax income over $10 million at a 52 percent rate.
The Tax Foundation’s Hodge found that tax increase could raise $14 trillion but “would come at a dramatic cost to the economy overall.”
Hodge said Sanders’ plans “would reduce the size of the economy by almost 10 percent and eliminate almost five million jobs.”
On Tuesday, primary votes in two battleground states, Ohio and Florida, will head to the polls. Gov. John Kasich and Sen. Marco Rubio are counting on victories in their home states to jump-start their campaigns.
Both candidates want to lower the top corporate tax rate to 25 percent, yet Kasich plans to change personal income tax rates to three brackets, with a top rate of 28 percent. Separately, Rubio wants a top bracket of 35 percent, and that top tax rate would apply to $150,000 in earnings for single filers, and $300,00 for joint filers.
The Tax Foundation found that Rubio’s plan would boost growth and wages by double digits over 10 years, but would cost more than $6 trillion in static revenue.
Hodge said Democratic front-runner Hillary Clinton is “living up to promises to tax high-income people making $250,000 or more.” Under Clinton’s plan, those with incomes above $1 million would pay at least 30 percent in taxes. And she’d add an additional 4 percent tax on income above $5 million.
But Hodge pointed to Clinton’s plan to change how profits on investments are taxed. According to the Tax Foundation, the plan has “increased incentives to delay capital gains realizations,” and would be a drag on growth and wages over a decade.
The former secretary of state “wants to control when people realize capital gains by taxing people at different rates when they actually realize those gains,” Hodge explained. “If you’re at a high income, your tax rate could be as high as 47 percent on your capital gains, and then it lowers to 27 percent over the next seven years.”
The foundation estimated that capital investment would fall by nearly 3 percent over a decade. “It could have a very chilling effect on the market and on investors overall,” Hodge added.
Hodge called Republican Texas Sen. Ted Cruz’s tax reform “a very interesting plan from a couple different perspectives.” Indeed, the organization gave Cruz’s plan high marks on growth, capital investment and jobs added and, of the major candidates’ plans, found it cost the least.
Cruz is calling for the Internal Revenue Service to be abolished, and wants to create a flat 10 percent income tax and add a consumption tax. Yet the left-leaning Citizens for Tax Justice recently branded both Cruz and Trump’s plans as bad for taxpayers.
Hodge said that the Texan “wants to eliminate the corporate income tax and replace payroll taxes with a ‘business activity tax’ … it’s really a Value-Added Tax, much like what they have in Europe.” Cruz wants the consumption tax to be 16 percent.
The VAT raises a lot of “revenue for the federal government, which allows (Cruz) to reduce individual income tax rates down to 10 percent, which is a dramatic cut for everyone,” Hodge added. However, he warned the consumption tax “adds to the price of goods by 16 percent.” He added the 10 percent income tax rate “offsets some of the burden that might come from higher prices.”
As with any legislative plan, Hodge cautioned it should be taken with a grain of salt. “You have to take them as guidelines rather than proposals,” he said.
Some states, still facing tight budgets after years of recession and slow recovery, are turning to tax increases to make up for the shortfalls. In some states, you’ll soon pay more for Gucci bags and other luxury goods. In others, soft drinks, cigarettes, gasoline and live entertainment will cost more.
Pay attention even if your state isn’t on this list. Some of the taxes are aimed at tourists and motorists passing through the states. And many other states may follow suit with similar tax hikes if these states’ efforts prove successful at raising revenues without upsetting voters.