Tonight, Tuesday January 20th, 2015, President Obama will deliver his 2015 State of the Union address. Based on previews released to the media, there will be a heavy focus on taxes and tax reform for the coming year.
The big proposals will revolve around tax cuts aimed at helping the “middle class,” which once again will come at the expense of the top 1% of taxpayers. The proposals tonight are just that, proposals, and will not automatically become law, especially considering the Republican-led Congress will oppose almost all of these proposals.
The President will propose the following tax changes tonight:
- Raising the capital gains and qualified dividends rate to 28%, up from the current max of 23.8% (which was previously 15%) for married filing joint with incomes above $500,000.
- A major change in estate taxation, where capital assets will be assessed based on the growth in value from purchase to death. Previously, the items were passed to the heirs will have a step-up in basis that only goes against the unified gift and estate credit and there was no tax imposed on the step-up.
- New tax credits targeting families with children and two earners.
- A reform of education tax credits, reducing the current six different credits into two different credits.
While these likely will not go any further than his speech tonight, these reforms represent overall what direction President Obama and the Democratic party is heading in terms of tax reform. These ideas, particularly the change in estate taxation, represent major shifts in current tax policy and could result in major taxable effects for taxpayers.
Edward McWilliams, CPA
Ed is a Partner in the firm’s tax and business advisory practice focusing on providing services to middle market private companies across different industries as well as to early stage startups. Ed has over a decade of experience providing tax and business consulting services to these companies of different sizes and across different industries, bringing a broad and diverse knowledge base and strategic solutions to the many complex issues that businesses face.