21th July

Full Time Position Available

My CPA firm is currently seeking a motivated person interested in a Full Time Career as an Admin Assistant / Account Manager.

The position is full time at the Roseville office, and pays $14-16 per hour (experience dependent) with the chance of a pay raise after 6 months, as well as yearly performance pay raises and bonuses thereafter. Certain benefits are included as well.

The candidate must be very comfortable with Computers, Excel, and Word. If any classes have been taken related to those items, or specific experience, please list them on your resume or in a cover letter.

A lot of the job will entail administration functions and contact with my clients both current and prospective. The goal of this position is to maintain an organized office as well as clients being well informed and knowing that they have someone to reach out to. There may be some minor marketing work as well.

Other than that, I really need someone interested in a career, and excited about growing with a small company. My firm is only 6 years old and there is a lot of potential. I am fully willing to share that success with anyone willing to show they are dedicated.

Instructions:

  • Send an email to: info@guenthertax.com
  • Subject Line: Job Opening
  • Content: Who you are and why you would be good for the position, I prefer a less formal email cover letter. Including a link to a social media profile is a plus (linkedIn, Google+, Facebook, etc.)

*Include an up-to-date resume as a Word or PDF attachment

There are a lot of questions raised about the Affordable Healthcare Act and taxpayers ability to offset their medical premiums using the integrated tax credit. Only certain people will qualify.

Here are the requirements:

  • Must buy health insurance through the Marketplace;
  • Are ineligible for coverage through an employer or government plan;
  • Are within certain income limits (described below);
  • Do not file a Married Filing Separately tax return (unless you meet the criteria in Notice 2014-23, which allows certain victims of domestic abuse to claim the premium tax credit using the Married Filing Separately filing status for the 2014 calendar year); and
  • Cannot be claimed as a dependent by another person.

The income requirements can be confusing, but are as follows:

100% is considered “Poverty Level”. 400% is considered 4x ABOVE the poverty level based on family size.

  • $11,490 (100%) up to $45,960 (400%) for one individual.
  • $15,510 (100%) up to $62,040 (400%) for a family of two.
  • $23,550 (100%) up to $94,200 (400%) for a family of four.
  • These numbers continue to rise based on the family size

Refund:

As far as the actual tax refund, it is much more complex than a “straight line”. Typically at 100% of the poverty line or lower, you get nearly a FULL refund (90-99%) of any health insurance premiums you pay. At 200% you are looking at 40-65%, depending on family size. At 300% or above you get very little unless your family size is higher than 4 (approximately 0%-10% refund).

All of this is filed on the tax return, though there is an option to collect this credit throughout the year by contacting your health insurance provider.

Penalty:

Penalties are in place if you do not have insurance from an employer or through the exchange. The penalty for 2014 is 1% of adjusted gross income with a minimum of $95.

I get asked this question A LOT. Especially for service based businesses. There is confusion between Leasing and Buying, whether or not to get the car personally or through the business entity, and what kind of car to buy. Hopefully I will clear this up.

1) Leasing vs Buying

Simple Answer: Buy a vehicle: you usually get a slight tax advantage over leasing. Though if you typically turn over cars every three years, get a lease if only for the reason that a lease was designed for that sort of thing.

Complex Answer:

Categories used for Calculation of tax savings

  • Buying – able to deduct up to the percentage used for business (for example 20% personal and commuting, 80% business – 80% of each of the below would be deductible):
    • Depreciation (purchase price spread out over 5 years)
    • Gas
    • Registration
    • Repairs
    • Interest paid on car loan
  • Leasing – Able to deduct up to the percentage used for business (Same as Buying):
    • Lease Payments
    • Gas
    • Registration
    • Repairs
  • Standard Mileage Deduction of “business miles driven” = .56 cents per mile

Calculation of Tax Savings

Lets assume that the SAME mileage is driven regardless of which we choose. In that case, only Depreciation, Interest and lease payments will vary. Lets also assume that the car price is $35,000 at 5% interest, and the lease monthly payment is $575 based on an online calculator using a standard residual and no down payment.

  • Buy:
    • Depreciation: $6,000 (average over 3 years)(FYI this may change for 2014)
    • Interest Paid: $1,750
      • Total: $7,750
  • Lease:
    • Lease Payments: $6,900
  • Difference
    • $850 – Buying Wins!!

Although it is a small difference, buying always tends to beat out leasing by a small margin strictly from a tax benefit standpoint.

2) Should I buy the car under the business?

Simple answer: No, there is no tax advantage to doing this.

Complex Answer: No, unless you are planning on having an employee drive the car more than 50% of the time and it will be used 100% for business reasons. There is no tax advantage for buying a car through your business since the IRS allows you to bring personally owned cars into your business by using a “percentage of business use” model.

If you are having employees drive the cars, or it is used as a delivery vehicle, then you will need commercial insurance and an added layer of legal protection. By registering the vehicle as commercial, and getting commercial insurance, you can accomplish this. Otherwise it is just a total pain to do. If you mainly drive the car, I would recommend skipping this step.

3) Is there a tax advantage depending on what kind of vehicle I buy?

Simple Answer: Yes. typically trucks over certain weight limits allow an immediate tax benefit.

Complex Answer:

  • Cars and Trucks under 6,000 pounds are typically depreciated over 5 year and use a complex method of determining this. There is no ability to accelerate that depreciation. beyond the current maximum $11,160 (2013 for a $22,000+ vehicle).
  • Trucks over $6,000 pounds allow a Section 179 deduction of up to $25,000 in the first year.
  • Trucks with an open bed, and are over 12,000 pounds allow a FULL Section 179 deduction for the purchase price (If you buy the vehicle for $40,000, you can take that as a first year deduction if you use it 100% for business)

Really, I would only recommend buying a big truck if you can actually use it for business, otherwise the cost really does not justify the expense.

4) Conclusion

Hopefully that clears up the Buy vs Lease conundrum. I have to admit, that this information is subject to change based on changes in the laws regarding Bonus Depreciation, Section 280F Luxury care limitations, and Section 179 deductions. I will try and update this page as those changes happen, but assume this is all for 2013 for now.

My firm now offers a monthly CFO Package, in this package I am offering the following services included at NO Additional cost:

  • 1 hour of consulting per month ($175 monthly value)
  • Annual Tax Return Preparation for the Business ($100+ monthly Value)
  • Monthly Bookkeeping and Reconciliation with Reports ($175+ monthly value)
  • Payroll for Employees and Contractors ($125+ monthly value)
  • 1099 reporting ($25+ monthly Value)
  • Yearly Financial Analysis and Planning ($30+ monthly value)

Value:

  • Total Monthly Value = $630+
  • Annual Savings = $2,460+

The plans including all of the above start at $425 per month per company. For additional companies (same owner) I will have to come up with a custom quote. If your company processes more than 300 transactions per month, or has revenue above $500,000 per year, I may need to raise the price slightly due to the extra work involved with payroll, bookkeeping and annual reporting.

If a full package is too much for you, I also offer a simple bookkeeping package starting at $150 per month.

Contact me for more details.

 

I get at least 2-3 emails a day asking this question one way or another. I figured I could provide a primer in order to do this.

What would be some reasons a foreign company would want to set up shop in the US?

  • Better Taxes – The US currently has a maximum 35% on net income earned in the United States. Even lower on the first $50,000 at 15%
  • More exposure – Some companies need to set up shop in the US in order to manufacture product here, sell on Amazon US, use US based services like Stripe, as well as carry their product in US stores. Some video game developers would prefer to have a better tax situation when selling on Steam, or Xbox Live. Regardless, the extra exposure from having a “US based” company will sometimes far outweigh the costs to do it.
  • Freedom from VAT tax – In the US, you can set up your company in a sales tax free state, and not pay any VAT or Sales tax on sales of products or services

Before I dive deep into this, I want to point out that this is not an inexpensive process, at minimum it will cost around $1,500 to do with a yearly cost of at least $600-700. And that is the minimum. The main reason for this is the legal help that is necessary to set up some of these items (which is unavoidable) as well as the mandatory yearly tax and franchise filings.

OK, first things first:

1) You need a US C-corporation

The reason you will need a C-corporation rather than an LLC (aka partnership) is a that an LLC is usually treated as a “pass-through” entity. This can cause issues if your company in the US makes net income and is required to pass that through to you as an owner in another country. By doing this the The LLC (aka partnership) makes this whole concept of “tax savings” not applicable because you are eventually going to pay tax on any net income from the US in your country.

With that said, if you live in a country with a tax treaty with the US see here, then you can potentially open an LLC and allow that net income to pass through to you in your country and NOT be double taxed. If you are not looking for the tax savings, and you are in a tax treaty country, then it may actually make sense to set up an LLC rather then a C-corp, though this will be rare.

Delaware used to be the place to set up a C-corp or LLC easily, though with increased fees, I find that MONTANA is the best state to set up a C-corp or LLC. This usually costs ~$500 plus $100 per year for a registered agent and annual filing (Delaware is $800 and $300 per year). This process will get you Bylaws, and EIN (business ID number) and Articles of Incorporation.

2) You need a bank account

This is a difficult one, and can take the most time. In order to open a business bank account in the US you need:

  • a) A registred company, EIN number, and Bylaws that include a corporate resolution
  • b) An officer of the company with a Tax ID number (TIN or SSN)*
  • c) A US based address

* I want to note, that I have heard of some banks which have locations in the foreign country and in the US to allow you to set up a US based account without needing to get a tax ID number. I do not know these banks.

a) Setting up your C-corp was accomplished in step 1

b) Getting a Tax ID number can be difficult. It must be applied for in a W9 application. You must provide identity and a reason for your application. You can find more about that here. This process can take up to 5 months, so proper planning is absolutely necessary. With the help of a professional, this can cost at minimum $800.

c) A US based address should be easy to get, lots of companies provide mail forwarding services (including me).

3) You need to do all the proper yearly filings as well as the management of the US based finances

This usually requires the help of a professional.

  • You must file an annual company report with the state and pay any franchise taxes (cost: Montana it is $20)
  • You must pay a registered agent for your company (this cannot be done by me)(cost: $100 per year)
  • You must file a federal tax return (cost: $500+)
  • You must create company minutes detailing an annual meeting of shareholders(cost: none)
  • Annual tax planning – if your company makes income, it may be smart to plan with a professional the tax implications
  • Monthly bookkeeping – a professional can help you with this, but it can be done on your own

4) Any money that is transferred from the US to you or your company in your foreign country is either considered a Dividend distribution, or payment for services performed. Both are most likely taxable in your country.

Conclusion:

There is is! Hopefully that helps, I will try and periodically update this with better and more detailed information.

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I recently read this piece by Forbes:

http://www.forbes.com/sites/cameronkeng/2013/04/17/warning-kickstarters-policies-cause-irs-tax-audits/

The author dissects Kickstarter’s new tax guide:

http://www.kickstarter.com/help/taxes - Its seems that Kickstarter has since reduced their content to the point of worthlessness, I am assuming to avoid the legal tidal wave of audits from their poor advise.

For prosperity, I will post a link to my article again here,

http://www.guenthertax.com/blog/2012/05/no-kickstarter-project-should-pay-income-tax-in-their-first-year/ (originally posted back in May 2012)

Apparently my article being No. 6 on Google’s search rank for “Kickstarter taxes” was not enough to warrant an inquiry from either party

For shits, I will post a breakdown of how I feel about the Forbes article in question. I am not sure who will benefit from this, maybe other CPAs, but maybe it will clarify it a little more:

1) Kickstarter Campaigns are not businesses

The author of the Forbes article states that Kickstarter Campaigns may not be classified as a business, or at least he alludes to that fact that one out of the many IRS rules on the classification of business may actually make the company a “hobby”. A hobby does not have a simple definition, but the IRS asks: “Does the time and effort put into the activity indicate an intention to make a profit?”

The point that the author made is that most people will need a profit for 3 of the 5 years to be classified as a business. He uses a quote from the IRS website of a way that they determine whether a business is actually a hobby. The quote is meant for that exactly, to determine if a business is actually a hobby, NOT the other way around.

For this reason and more below, I disagree with the author and here is why:

This is a gray area in the IRS code, this is where I tell my clients that the IRS will act based on substance over the form. This means that the IRS will look at the whole picture before determining that the Kickstarter campaign is a trade business or a hobby. Many businesses are opened for one year and then closed down, you dont see the IRS auditing every one of those businesses and saying that they are all hobbies. This is where that substance kicks in, was there any intention of making a profit?

From the IRS:

The term trade or business generally includes any activity carried on for the production of income from selling goods or performing services

I believe that 99% of all Kickstarters intend to make a profit by selling good or performing services, and the IRS will recognize this.

2) Accrual Method

The author mainly gets this right, and it looks like Kickstarter agrees because they removed it from their guide. I do believe that he left out important facts that may benefit people. He left out the information touched in my article, that advanced payments can be classified by electing to do so, and can be postponed until the following year.

He also did not explain GAAP, accrual and tax basis very well. Most people who file a business return as a sole proprietor will never see the “reconciliation” (schedule M1, M2, M3) or GAAP election that is on a partnership or corporate return, yet they are still able to file under the accrual method.

3) Gifts

“A gift is the transfer of property by one individual to another while receiving nothing, or less than full value, in return.”

After writing the first draft of this article, I now realize that this is a pretty big gray area. The code is so simplified that simply stating that a gift is a “detached and disinterested generosity” is WAY to simple to be used as concrete tax advice.

My thoughts on this is that if you can convince the IRS that the backer of a project gives the money to you with NO intentions of getting anything in return and will never use or see the project that you are creating, then it may be a gift. If it falls into any other category, then it is income.

Again, following the concept of “substance over form”, the IRS states in a court case Commissioner v. Duberstein that when determining whether something is a gift for taxation purposes, the critical consideration is the transferor’s intention. This is a question of fact that must be determined on a “case-by-case basis”. This alone allows the IRS to determine the intentions of the gift giver just by evaluating the substance of gift itself, and what the gift giver expects in return of the gift.

I believe that when the IRS sees the intention of someone running a Kickstarter, advertising for money in order to further a personal goal, that will be viewed in substance by the IRS as a generosity that is not detached, and with a potential to be turned into a business. The end result of the project itself is also grounds that the gift giver will get something in return for the gift thereby breaking the IRS rules of classifying it as a gift.

Wow, this one is terrible, I am not sure which smarty came up with this at Kickstarter Legal, you are surely to be busted for this one. In this case the author of the Forbes article gets it mostly right, and I applaud him for being blunt about it.

In conclusion, there may be a project or two that will fall under a category of a gift out of many, but that will be few and far between. I would play the safe card in this instance, and not try and be the first to challenge the IRS. Besides, there are better ways to reduce taxes.

Conclusion

The author gets it right to challenge Kickstarters view of taxation, but he missed a few key concepts that hopefully were explained in more detail above.

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What kind of projects will Kickstarter Accept?

I have seen Kickstarter reject 1 project out of 26 personally, though I have heard many more people complain about a rejection. It may be more common under certain categories since I mainly work with Video Game Devs and Tech companies, I may not see it as often.

The Basics

First and foremost you must follow their guidelines. Kickstarter has done a fairly good job of detailing their guidelines in their help sections.

http://www.kickstarter.com/help/guidelines

also review this:

http://www.kickstarter.com/blog/kickstarter-is-not-a-store

The majority of the time, when your project follows those guidelines, you should not have any issues. Double check your project before submission and you may save yourself some hassle in the future.

When “The Basics” Fail

If your project is rejected, but the rejection does not fall into a specific factual area of the guidelines, you may be a part of the Kickstarter “Black Hole”. Here are a few (out of many) people who’s projects were rejected without merit:

http://www.highprogrammer.com/alan/rants/kickstarter.html

http://www.linkedin.com/groups/Hello-I-have-posted-project-4325381.S.113149709

Although the list goes on, you get the idea. It seems that Kickstarter editors can freely reject projects based on their opinions and/or loosely tied to the project guidelines. Mainly their excuses are that the projects do not fit in with the “theme” of Kickstarter. Flexing a little power maybe? Who knows their reasoning, but it is obviously geared toward their brand and how they want the public to view that brand.

Of the projects that I have seen rejected, there really was not a basis in their guidelines, they simply told the creators this:

They do not want to be seen as a “Home shopping network”

or

“Its not in the style of Kickstarter, please review other projects in those categories and it will give you an idea of what we are looking for”

The project that was flat out rejected on my time, was a piece of technology that was available everywhere, but it was combined with clothing to make it more accessible. Kickstarter classified it as a “QVC” type item.  My client ended up launching on IndieGoGo:

http://www.indiegogo.com/projects/cynaps-get-yours-now-at-www-maxvirtual-com

It funded at $40,000 with 611 backers. Though that may have been less than what Kickstarter may have produced, it really confused me as to why they would reject this successful project.

You may be asking “what the heck can I do!?”

Since that rejection, I have learned a few things:

I would try to add elements to your campaign that Kickstarter likes to see: DIY elements, Nostalgia projects,  also it helps to be a famous celebrity (haha), or get a celebrity to back your project. I have never seen a project get rejected that was run by, or backed by a celebrity.

If those don’t work, The best way to proceed in my opinion, is to create a new login for Kickstarter, completely rewrite your project the absolute best that you can based on their guidelines, change the title and resubmit it hoping that it goes to a different editor. They currently have 37 editors, of all of the editors, I would guess that one of them would be a bit more lenient. This way there is a 95% chance you will get a different editor. Make sure you take the time to review the guidelines and eliminate anything from the project that may seem like it won’t pass.

Truthfully, I don’t think that this practice from Kickstarter is as prevalent now than it was in the past. Kickstarter is in the media’s eye now more than ever and if any potentially high profile that gets rejected, it would definitely create some controversy for them.

Best of Luck!!

 

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That’s a great question, and there is no easy answer. This may clarify it a little:

As individual taxpayers Romney and Buffet pay so little in taxes because of two sources of income:

  1. They take qualified dividends from their corporations that they own or are investors in.
  2. They take Capital Gains distributions from investments they have created

For qualified dividends, between 2001 and 2012 they were taxed at 15% (now its 20%), regardless of what tax bracket you were in. Although it seems like a relatively small amount of tax, before any shareholder is able to receive and pay tax on those dividends, the corporation had to pay a tax on that as well (somewhere in the ballpark of 35-40% usually). This is where double taxation occurs. If the company is a foreign company, lets use the Netherlands as an example, they only charge 3-4% taxes on that income, then it gets distributed to Mr Buffet, and he only pays 15%. Heck of a deal.

For capital gains, the maximum rate from 2001-2012 was 15% (now its 23.8%). For investments in a “small business” (a company that has less than 50 million in assets), sale of any stock provides a tax deduction of 50% of that sale, this means that sale is now only taxed at 7.5%… wow. This is why there are so many venture capital firms.

In addition to this, they can also take advantage of investments made in countries with favorable tax laws. Both store a good chunk of their money in overseas, tax favorable bank accounts and investments. Though a slipperly slope for US tax law, many ultra rich investors have many advisors that make it legal. To explain fully would require a whole other blog post.

So as you can see, using those two methods, Buffet and Romney were able to keep their upper tax limit to around 15%, then using deductions, like donations, property taxes, etc, they dropped their tax rates to around 11-12%.

That is only for their individual rates, below is how they win with their corporations:

Huge corporations use a combination of tactics to keep tax low, but the latest and greatest is setting up shop overseas in a “tax haven” country. For example, Ireland made a deal with apple so that they would only charge 3% in taxes on ALL of their worldwide appstore sales. That’s almost a billion dollars in sales a year that they only pay 3% tax on. In comparison, the US would charge 35%.

The research and development credit allows for a very good option too. An example of the extraordinary benefits of the R&S Credit includes the fact that Boeing reported a $20 billion dollar pre-tax income, yet they received a refund from the government of $110 million. Also the new Domestic Production Activity deduction allows a very large deductions as well, most US based companies can access that.

I’ve researched this stuff a lot, mainly because I want to be in the business of offering these options to small businesses and startups, as well as people who may not be as wealthy as Mitt Romney.

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10th January

What the JOBS Act Means to Startups

The JOBS act (Jumpstart Our Business Startups Act) was spearheaded by the Whitehouse in an effort to boost the economy and make it easier for startups to acquire capital for growth. It is slated to become active in January of 2013 (pending the SEC’s final guidelines).

Before the JOBS act, and according to recent studies, startups requesting capital have a high chance of being rejected by VCs. The JOBS act creates a streamlined process to advertise and trade equity for capital from anyone available to do so, including the amateur investor.

The Key aspects of the JOBS act:

  • Startups with less the $1 million in revenues qualify and are considered an “emerging growth company”
  • Startups can offer equity via a crowdfunding portal up to $1 million dollars, the requirements by the company are gradually increased with a target over$100k. According to the JOBS code, this can be repeated once every 12 months.
  • The crowdfunding portal must meet certain minimum disclosure requirements, and educate investors of the risks associated.
  • The maximum dollar amount people are able to invest will be limited to 5 percent for individuals with annual income of less than $100,000 and 10 percent for those who make over $100,000. Anyone, regardless of income level, can invest up to $2,000 according to the JOBS code.

What this could mean to Startups:

  • A large influx of capital and growth in many different industries
  • Easier access to money
  • Increased competition by limiting barriers of entry
  • The public, and potential customers of the startup get to determine the value of the startup rather than VCs and SEC approved public investors

Issues with the JOBS act

The SEC still has yet to approve their final regulations which are due in January of 2013, and may not have them approved for a  long while. For reference, the Dodd-Frank act was supposed to be completed by the SEC on 4/15/2011  and still has not been finalized.

As expected, the regulations are said to include the requirement of full disclosure of company information within the crowdfunding portal. This includes financials, articles, current equity positions, officers and directors, tax returns and descriptions of business and use of funds.

The JOBS code also requires a full review of financials if the start up is seeking between $100k-$500k.

A full audit of financials is required if the startup is seeking over $500k.

For most companies, this may be an issue because Reviews and Audits can be quite pricey. For very small companies, this may be fairly simple, as they may not even have sales or expenses yet, but even then, it requires the signature of a CPA and that still costs a fair amount. Regardless, startups will have to alter their Articles, stock term sheets, investor rights agreement, etc. All of which require a CPA or Attorney to do. I would guess that a start-up company who is seeking $1 million in capital could pay on average $3-10k just to get everything set up.

There are also some regulations for the investors themselves, mainly to protect people from investing their life savings.

Once the target capital is reached within the crowdfunding portal, the investors still have a chance to backout, so if the percentage of equity (or any other reason) was not what they were expecting, they have a chance to say no. This may lead to under-valuation or under-funding.

Any advertising that the startup does for the project must be disclosed, including who is providing the service, how much was paid whether in the past or present.

Regardless of any issues, these changes should inspire some really interesting events in the startup world. All we have to do is wait for the SEC to make their final regulations, which may take a while.

 

 

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I wanted to create a post to give taxpayers a better look into what tax increases occurred and who was affected by them. Without further ado:

Adjusted Gross Income of less than $200k (single) $250k (married)

  • Increase on payroll and self employment taxes of 2% up to $113,700 per wage earner
    • A two income household that makes $250k could see a tax increase of up to $4,548

Adjusted Gross Income of between $200k and $400k (single), $250k and $450k (married)

  • Increase on payroll and self employment taxes of 2% up to $113,700 per wage earner
    • A two income household that makes $250k could see a tax increase of up to $4,548
  • Phase out personal exemptions – typically $3800 per member of the household
    • 2 percent reduction for every $2,500 in adjusted gross income over $250k (single) and $300k (married)
    • For example:  if you file Single, and make $260,000 in adjusted gross income. The value of the personal exemption for the 2012 tax year is $3,800. Because this filer is $10,000 over the income threshold, the value of his personal exemption would fall 8 percent, or $304
      • Once the taxpayer reaches $375k single and $425k married, the will completely lose their personal exemptions
  • Phase out of Itemized deductions
    • Itemized deductions are reduced by 3 percent of the actual adjusted gross income above the threshold – $250k (single) and $300k (married)
    • Using the example above of a single taxpayer with adjusted gross income of $260,000, being $10,000 over the threshold means his itemized deductions would be reduced by $300, or 3 percent of $10,000.
    • It’s important to note that the reduction would be capped at 80 percent of total itemized deductions.
  • Increased Capital Gains of 3.8% (18.8% total)

Adjusted Gross Income higher than $400k (single) and $450k (married)

  • ALL of the above.. plus:
  • Increased Capital gains rates of 8.8% (23.8% total)
  • Increased Qualified Dividends rate of 5% (20% total)
  • Increased Ordinary tax rate above thresholds of 4.6% (39.6% total)

Additional Tax Increases

  • Estate tax increase of 5% (to 40% total)
    • Note: The estate tax exemption will remain the same at $5,120,000 (adjusted for inflation)
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