As a continuation of our last article summarizing the President’s federal budget proposals impacting closely-held businesses, Nardone Limited will now focus on the tax changes for individuals. As discussed in the prior article, the President released his budget on March 4, 2014, covering many provisions that affect a wide variety of individuals. We will aim, however, to provide you with a summary of those that most likely impact Nardone Limited’s clients. We will then cover estate and succession planning provisions as our third and final article, drafting later this month.

 Nardone Limited Comment: Except as otherwise noted, the proposals would generally apply for tax years beginning, property placed in service, and other triggering events occurring, after December 31, 2014.

The President’s plan calls for numerous changes to be made for individuals, including to:

1. Reduce the value of itemized deductions and other tax preferences to 28{c91082aefe0e580fe546c40af534787b48cfd474f8c9ab8dac50bf49a7a1c43a} for families with income in the top three highest tax brackets. This limit would apply to: (i) all itemized deductions; (ii) foreign excluded income; (iii) tax-exempt interest; (iv) employer sponsored health insurance; (v) retirement contributions; and (vi) selected above-the-line deductions.
2. Observe the “Buffet rule” by requiring millionaires to pay no less than 30{c91082aefe0e580fe546c40af534787b48cfd474f8c9ab8dac50bf49a7a1c43a} of income, after charitable contributions, in taxes. This would be referred to as the fair-share tax or, as we at Nardone Limited like to refer to it as Obama’s attempt to shift the wealth to others.
3. For tax years beginning after December 31, 2017, permanently extend the American Opportunity Tax Credit (AOTC), a partially refundable tax credit worth up to $10,000 per student over four years of college.
4. For tax years beginning after December 31, 2017, permanently extend the increased refundability of the child tax credit (CTC) by permanently reducing the earned income threshold to $3,000.
5. Provide for automatic enrollment in IRAs, effective after December 31, 2014.
6. Extend the exclusion from income for cancellation of certain home mortgage debt to amounts that are discharged before January 1, 2016, and amounts that are discharged pursuant to an agreement entered before that date.
7. Provide for limited exclusions from income relating to student loan forgiveness.
8. For tax years beginning after December 31, 2017, permanently expand the EITC for workers with three or more qualifying children by maintaining: (i) the phase-in rate of the EITC for workers with three or more qualifying children at 45{c91082aefe0e580fe546c40af534787b48cfd474f8c9ab8dac50bf49a7a1c43a} and (ii) the phase-out range for married couples at $5,000 higher than those for unmarried filers, indexed after 2009.
9. Increase the child and dependent care credit available to working families with incomes between $15,000 and $103,000.
10. Extend the exclusion for income from the discharge of qualified principal residence indebtedness to amounts that are discharged before January 1, 2016, and to amounts that are discharged pursuant to an agreement entered before that date.
11. Amend certain conservation easement deduction rules by eliminating the deduction for easements on golf courses and disallowing deductions for any value of a historic preservation easement associated with forgone upward development above a historic building.
12. Prohibit individuals from accumulating over $3 million in tax-preferred retirement accounts.
13. Require non-spouse beneficiaries of deceased IRA or annuity (IRA) owners and retirement plan participants to take inherited distributions over no more than five years.
14. Allow all inherited plan and IRA or annuity balances to be rolled over within 60 days.
15. Effective for taxpayers who attain age 70 ½ by December 31, 2013, and for taxpayers who die on or after that date before attaining age 70 ½, eliminate the required minimum distribution (RMD) rules for IRA or annuity plan balances of $75,000 or less.

Nardone Limited Comment: As you will see, many of these provisions are very unfriendly to businesses and high income earners. This is Obama’s continued attempt to shift the wealth to those who have not earned it. Many of these provisions are simply not consistent with further helping our economy. To the extent you have a voice and a platform, we should all be taking the necessary steps to challenge these proposals.

Nardone Limited, a Columbus, Ohio law firm, provides specialized tax and business planning services. Nardone Limited represents businesses in such diverse areas as: (i) buying and selling businesses, (ii) asset purchase agreements, (iii) employment contracts, (iv) labor and employment representation, (v) human resource representation, (vi) licensure representation, (vii) lease agreements, (viii) real estate purchase agreements, (ix) tax planning, and (x) estate planning. The staff at Nardone Limited strives to understand our client’s business, represent our client’s zealously, while minimizing the tax impact of each transaction. Whether your business is beginning, transitioning, or encountering adversity, Nardone Limited provides the necessary legal and tax planning guidance your business needs under the circumstances. Contact Nardone Limited today to discuss your Practice and how Nardone Limited may help you.