Tax Reform May Include Upfront Tax On Retirement Savings

elderly man holding caneOur tax attorneys in San Jose have been closely following Republicans in Congress as they prepare to battle out tax reform and attempt to cut taxes. However, this leaves individuals to wonder who pays for the cuts. A solution currently being considered is an upfront tax on retirement savings. Many individuals in the retirement savings industry are concerned that Congress may decide to “Rothify” employees’ 401(k) contributions, in whole or in part.

The Fate of Future Contributions

Currently, the funds you put in a conventional 401(k) are not taxed when you contribute. Rather, the growth of the money is tax-deferred. However, when you begin withdrawing funds for retirement, these funds are taxed as standard income. The latter is the exact opposite of the way both Roth IRAs and Roth 401(k)s work. With Roth accounts, you make contributions after taxes are paid, but tax-free status comes into play regarding your gains and withdrawals. Should Congress decide to “Rothify” 401(k)s, it could enable them to regard all or some of your future contributions to 401(k) accounts as taxable income during the year the contributions are made.

Nothing New in This Approach

It is not the first time this approach has been considered: in 2014, under then House Ways and Means Committee chairman, Dave Camp, a version of this plan was discussed during conversations focused on tax reform.

Under this plan, it would be possible for you to contribute up to half of the allowed annual contribution limit before taxes. That limit is currently $18,000. Pretax status would also apply to your employer’s match; however, other monies you invest in the fund would be taxable immediately.

Tax Reform or a Fiscal Gimmick?

Because the taxes on long-term savings would be front-loaded under this plan, revenue could be raised in the short term by Rothifying 401(k)s. In fact, it was estimated that the proposal made by Camp in 2014 would raise almost 144 billion dollars over 10 years, seemingly “paying for” the permanent tax cuts desired by Republicans.

I can tell you as a tax attorney, that making such a change would result in lost money over time. This is because money collected by the federal government would decrease once employees begin making tax-free withdrawals upon retirement. According to the Committee for a Responsible Federal Budget, shifting the timing in this manner is little more than a fiscal gimmick. A spokesperson for the Committee stated that the plan would merely produce short-term savings by pushing costs into the future.

These facts and figures, however, do not really tell individuals who are saving for retirement whether the deal would be good or bad. The answer is that no one truly knows.

In a recent blog post, Nevin Adams, who works at the American Retirement Association as communications chief, noted that there is essentially no research that addresses the subject of how employers and workers might react to this plan.

However, this may soon change: The Employee Benefit Research Institute is in the process of studying

Read More

IRS Announces Relief For Those Affected by Hurricane Harvey

Hurricane Harvey floodingIn the wake of the Hurricane Harvey, our San Jose tax attorneys have learned that The Internal Revenue Service has announced hardship distribution and plan loan relief for individuals affected by the disaster. These include individuals who have their principal residence or workplace in the counties of Texas or other states that are designated for individual assistance by FEMA. (Currently, only certain counties in Texas are designated for assistance, although these can be expanded later. For a list of designated areas, visit https://www.fema.gov/disasters.) The benefits will also extend to employees who have any dependants—parents, grandparents, children, spouses—living in those affected areas. The relief will stay in place for the period of 23rd Aug, 2017 through to 31st January, 2018.

The qualified retirement plans that are eligible for relief according to Announcement 2007-11 include, among others, 401(k), 457(b), 403(b) and 401(a) plans. Loan procedures have been streamlined and hardship distribution rules relaxed for these plans. The announcement however does not allow IRA participants to take out loans, though they will be permitted to accept distributions under relaxed procedures.

The IRS’s relaxing of administrative and procedural rules related to distributions and plan loans means that the participants in eligible retirement plans will be able to receive the money more quickly than is usual. Additionally, the employees will not have to face the stipulated six month ban that applies to hardship distributions on 403(b) and 401(k).

The maximum distribution amount that can be taken out will still be restricted as per the IRS rules and regular tax rules will apply to all such distributions. However, the plan will be permitted to ignore the normal reasons for hardship distributions. If certain documentation is required for a plan to make a distribution, it can also relax this requirement. In addition, qualified plans that don’t come with provisions for loans and hardship distributions will also be permitted to make these distributions and loans given the plans make necessary amendments for such provisions by Dec 31, 2017.

Some additional relief has been announced by the Department Of Labor for benefit plans whose participants reside within the designated disaster area. This includes extension of the filling date for Form 5500, enforcement relief for delays/failures to provide blackout notices or to forward participant distributions as well as relief to certain insurance carriers and welfare plans and more.
For more information on relief announced by DLO, visit this page.

Alongside loans and hardship distributions, emergency PTO or leave- sharing plans have been proposed for employees affected by the hurricane. According to this proposal, an employer can adopt a PTO (paid time off) sharing plan and establish a PTO bank where employees can donate their PTO so that those who have been adversely affected by Harvey can access PTO in addition to their own share of paid time off. The PTO bank would be administered by the employer who retains the rights to grant additional PTO to an employee who, due to the severe hardship caused him by the natural

Read More

San Francisco Home Owners May Take a Hit Under The New Tax Reform Plan

San Francisco HomesWe all know how important the home mortgage deduction is, and as far as our tax attorneys can tell, it should be safe for the foreseeable future — even though there’s an upcoming tax reform debate.

However, this deduction doesn’t need to be completely revoked by lawmakers in order to be deemed useless by homeowners and taxpayers in San Francisco.

It seems as though lawmakers are currently trying to replace the cash flow that they would ultimately lose as a result of the trillions of dollars in tax cuts they would like to make. As a tax attorney in San Francisco, I can tell you that the mortgage deduction is one of the most expensive tax breaks we have in America. The estimated cost for the next decade is in excess of $80 billion a year.

As the law stands today, San Francisco homeowners that itemize deductions may deduct the interest they pay on their mortgage, up to one million dollars between a primary residence and secondary property. You may also deduct loan interest from home equity loans, up to $100k, as long as you’re not subject to the Alternative Minimum Tax. Seeing as how the median price for a home in San Francisco is over one and a half million dollars, these deductions are absolutely critical for home owners in the bay area.

What’s the average price of a home for the rest of the country? Not as much as you might think. A paltry $250k is the median price for a home in the United States.

So what kind of salary do you need to be pulling down in order to be a home owner in San Francisco? It’s estimated that you would need over $180k in order to own a home and make ends meet.

Under our current tax law, a lot of the expenses associated with home ownership are deductible. Eliminating these deductions could cause a hardship on San Francisco residents who rely on them in order to maintain their budget.

Of course, you don’t need a tax lawyer to tell you that any change to the mortgage deductions could cause a disruption to the housing market. In fact, the National Association of Realtors predicts that eliminating tax incentives for home ownership could cause home values to plunge across the country.

It’s been reported that we may see even more eliminations of itemized deductions that would significantly decrease the tax benefits of owning a home.

We’ve also seen reports that lawmakers are trying to increase the standard deduction, which would greatly reduce the amount of people who would itemize their deductions.

It’s important to remember that none of these laws are set in stone yet. Lawmakers are beginning to debate about what the upcoming tax reform would look like, and our tax attorneys want to make sure that the public is well informed a head of time so that you can have an informed opinion, and let your representatives know how you feel about the

Read More

The Impact of Trump’s Proposed Tax Cuts

man calculates his taxesWhile plans to reorganize tax brackets, get rid of alternative tax, and eliminate several itemized deductions would save American taxpayers $4.8 trillion, it would appear that some Americans may disproportionately benefit more than others. According to a report prepared by the Institute on Taxation and Economic Policy, 61.4% of the savings would go to 15% of the top taxpayers. In contrast, 14% of the middle-income earners would pay more.

Over the past few months, the newly proposed tax cuts have been keeping our San Francisco tax attorneys busy. We’ve been studying what the possible changes could mean, and have put together the following predictions.

Likely Winners of Trumps Tax cuts

The biggest winner of this law would be Wyoming. The state would save $1.38 million in taxes if Trump’s proposed tax cuts were enacted. The middle-income taxpayers would get $940 while the richest would keep an average of $308,540 every year. The wealthiest residents of Connecticut would also benefit from the tax cuts, as they will receive 60% of the pie; while the middle income tax payers would only get 3.7%. The same goes for District of Colombia. The wealthiest residents of D.C. will receive 70% of the tax cuts while the bottom would pay an average of $600 more in taxes per year.

Other states that would win include:

• North Dakota: The state’s richest taxpayers would receive more than half of the savings. The middle income earners would only get 44% of the tax cuts received by North Dakota.

• Massachusetts: The richest from this state would save approximately $215,670 on taxes while middle-income earners would receive $1,150.

• Florida: The poorest in the state of Florida would get 5.5% of the tax cuts; the middle taxpayers would get around 8% while the wealthy would get 86%.

• South Dakota: The poorest residents of South Dakota would save around $410 while the richest would get $203,110.

Trump Tax reform losers

Evidence suggests that several states would not benefit from the tax cuts. In fact, things might actually get worse for them.

The state of Mississippi would be the biggest loser if the proposed tax became law. The poorest of Mississippi would receive less than 1% of tax cuts going to that state. The wealthiest would receive 47.8% while middle- income taxpayers would get 13%. West Virginia would not benefit much from the new cuts either. Middle-income tax payers would save $500 annually. Around three quarters of the cuts would benefit the top 20% of the richest tax payers in West Virginia.

Others that have a lot to lose include:

• Arkansas: The richest 1% of this state will receive almost half of the tax cuts while 20% of the middle income tax payers would keep1.3 % of their income.

• Kentucky: In this state, the middle-income earners would save $640 annually and the rich would get $68,550 every year.

• New Mexico: Middle-income taxpayers in this state would save around $580 annually, if that proposal were enacted. The

Read More

The Tax Reform Controversy

dollar billsOver the past few weeks we’ve been closely following the news as Democrats and Republicans are gearing up for an upcoming tax reform battle. Let me tell you, it certainly is an interesting time to be a tax attorney in San Francisco.

Chuck Schumer, the Senate Minority Leader, and his members are having ongoing dialog about how tax reform will be handled. However, for now, the main takeaway is that the Democrat representatives will not blindly consent to a Republican bill that profits the top 1 percent of earners. In an interview with CNN, Schumer stated that the notion that individuals will back large tax cuts for the wealthy when the rest of the population are offered crumbs will no longer work.

In a letter dated August 1, 2017, Democrats highlighted their principles to the White House and Republican leaders. If the latter want assistance in giving tax cuts to Americans or overhauling the tax code, certain conditions had to be met. The conditions outlined include:

• The tax reforms could not increase the deficit
• They could not cut taxes for the ‘1 percent’
• They could not increase taxes on the middle class

However, it does not seem as if the Republicans feel the pressure to meet the demands of the Democrats. After that letter was sent, it was announced by Mitch McConnell, the Senate Majority Leader, that reconciliation will be used to overhaul the tax system. Only 51 votes are required by this process, which is 9 fewer votes than the usual 60. This provides the option for McConnell to pass tax cuts without the help of any Democratic vote.

He said this move is necessary as the letter highlighted that the Democrats are clearly not interested in addressing what is necessary to promote the growth of the country. So, it seems as if Republicans are willing to go it alone where tax reform is concerned; they have 52 chamber seats.

During his CNN interview, Schumer stated that he still wants McConnell to reconsider using reconciliation. Schumer believes that this approach will not be as easy as it seems. Democrats are doubtful that their opponents are as close on tax reform as they claim to be. He further stated that he believes rank-and-file members of the Republican Party have more interest in a bipartisan approach.

It has been widely highlighted that without health care, the governing party has less funds to finance tax cuts. In addition, there is still fighting among Republicans about their budget. The GOP would have to pass this vehicle in order to use reconciliation. A Senate Democratic aide, in an interview with CNN, stated that he is doubtful that congressional Republicans will all come together on tax reforms as there is in-fighting within the party.

However, as it relates to Republican attempts to reform the tax code, Democrats face their own challenges. In contrast to the health care dispute in which it could be clearly pointed out that millions of Americans

Read More

San Francisco Vacancy Tax Could be Coming Soon

Streets of San FranciscoIf you live in San Francisco it is no surprise to you that our great city is currently facing a housing crisis. For this reason, San Francisco’s Supervisor Aaron Peskin wants to tax large property owners who leave their properties unoccupied. In particular, Peskin wants the City Attorney’s office to introduce a “vacancy tax.” Currently, the city authorities require owners of unoccupied properties to register with the city and pay an annual fee ($711). As of May 2017, the number of residential and commercial buildings on the registry, excluding buildings that had become occupied or received exemptions, was 38 and 47 respectively. However, because the city generally relies on complaints and self-reporting to identify unoccupied properties, the registry likely does not contain the complete inventory.

Non-Primary Homes

The percentage of non-primary homes in San Francisco is relatively low, especially when compared to other high cost markets such as Manhattan, Honolulu and Miami. This is according to a recent study by SPUR, a nonprofit based in Bay Area focused on planning issues. In this case, non-primary homes are housing units that remain unoccupied for a period for reasons other than foreclosure, construction or natural turnover. Put another ways, these are homes used for occasional, seasonal or recreational use. The study, which was published in 2014, found that such homes accounted for about 2.4% (about 9,100 units) of the housing units (rental and owner occupied). It is worth noting that has already passed laws aimed at discouraging full-time vacation rentals through Airbnb and other similar companies.

Factors Responsible for Housing Crisis

According to real estate experts, some of the factors responsible for the housing crisis in San Francisco include:

Building and Zoning regulations — While San Francisco’s building and zoning regulations have helped preserve the character of the city, they have also contributed to the present housing shortage. For instance, from 2007 to 2014, the city approved only about half of the building permits presented by developers.

Rent control policies — Some property owners fail to rent out their properties due to the city’s rent control policies.

How to Structure the Vacancy Tax

If San Francisco implements a vacancy tax, it will be the first city to do so in California. To minimize the risk of lawsuits, the city should structure the vacancy tax as a parcel tax and get voters to support it, says Darien Shanske, a law professor at UC Davis. This is important because California’s Proposition 13 bases property tax rates on the assessed value of a property and caps the tax at one percent of that value.

Disadvantages of the Vacancy Tax

Still, a vacancy tax could be a burden for property owners. Moreover, the tax would not necessarily free up more housing units because some property owners might just decide to pay the tax or even worse, find ways around it. Moreover, according to some real estate experts, the tax could actually have a negative impact on San Francisco’s property market. For instance, Patrick Carlisle,

Read More

Opposition Mounting Against The Proposed “Age Tax”

elderly couple holding handsMillions of Americans within the 50 to 64 age bracket buy their health insurance through marketplaces supported by the Affordable Care Act. If the Republicans succeed in their plan of dismantling Obamacare (ACA), those Americans may get a big and unwelcome surprise in regard to their monthly premiums.

Because older Americans typically require more healthcare services and products than younger Americans, insuring them is more expensive. The amount of money, however, that insurers can charge older Americans relative to the younger ones is capped by the ACA at a 3:1 Ratio. On top of the cap, Obamacare provides financial support with premiums as well as out-of-pocket expenses in an effort to keep healthcare costs for older Americans down.

Repeal and Replace Version of ACA

Recently, the Senate began debating on repealing the Affordable Care Act (ACA). Known in some quarters as Ryancare, the new version of the “Repeal and Replace” Affordable Care Act is seen by many as an attack on old people and retirees.

When you critically analyze the proposal that is being championed by the President and Republican Senator from Wisconsin, Paul Ryan, it’s clear that the goal is to strip away Medicaid Coverage along with taxes currently being levied on sections of the most affluent in America. But less affluent, older Americans will end up paying more. Besides weakening Medicare, the proposed Bill would also trigger a health care coverage loss for over 24 million Americans.

The Bill Components

One measure being considered by the lawmakers is a bill that imposes an “age tax” on Americans who are over 50 years, and raising premiums paid by older Americans by about $13,000 annually. This would leave an excess of Americans without health insurance coverage.

Another aspect virtually repeals all of the Affordable Care Act without any replacement. Estimates made by the Congressional Budget Office (CBO) indicate the result would have 32 million Americans losing their health insurance coverage. A third approach seeks to just eliminate a requirement that individuals should get health insurance and that large employers should offer coverage.

AARP Opposes New Health Care Bill

According to AARP’s Executive VP, Nancy LeaMond, they oppose the proposed bill which they term as an “age tax.” AARP is opposed to the legislation being introduced as it would weaken Medicare, effectively leaving the door wide open to the introduction of a voucher program that would be shifting the risks and costs to seniors. Even before attaining retirement age, insurance companies will be allowed to charge people an age tax that every year adds up to thousands of dollars more. According to Nancy LeaMond, any senator who thinks of voting for the new bill should appreciate the consequences of 38 million AARP members being ignored.


If the new Bill passes, the ACA shifts to a flat tax credit system based on age from an income-based system. Older people need health care services as well as prescriptions that are affordable. The new plan is heading in the other direction, not taking … Read More

Multiple Tax Deductions On The Chopping Block

tax documentsPeople expect certain services from a country, such as roads, protection, and assistance. All of these services cost a certain amount of money, which is the reason people agree to pay taxes.

So far, most of this makes sense, but things start to change when tax codes start distinguishing how much a poor person pays and how much a rich person pays into the system. Deciding just how much a large corporation should pay as opposed to a small business can be hard, which makes tax reform a hot topic.

The new administration, under the guidance of President Trump, is aiming to slash a few rates and change the tax code. Many are speculating that certain itemized deductions taxpayers have enjoyed for a long time might vanish under Trump.

The Trump administration wants to get rid of most deductions, except for those associated with mortgage interest and charitable contributions. Around 30 percent of tax filers itemize specific items, meaning that a lot of Americans stand to lose money. Of course, this is something many tax payers do because their deduction exceeds the standard deduction.

Households that make more than $200,000 gain the most by itemizing, though they are not the only ones. There are still others who use this opportunity to save a little cash during the tax season.

The Treasury Secretary, Steven Mnuchin, believes that getting rid of these tax deductions will help ensure the rich do not take advantage of the deductions and try to hoard money, but it seems that these changes are going to affect people across several tax brackets.

One deduction that may be on its way out is the state and local deduction, which allows taxpayers to write off their state, local, and general sales taxes as well as property taxes.

Medical expenses that exceed 10 percent of a person’s adjusted gross income may also be deducted, but some of the tax reforms proposed may eliminate this, too. It is true that some of the House and Senate repeal-and-replace proposals would have preserved this deduction. The proposals went as far as attempting to make more people eligible for the deduction. Still, one has to compare this to the amount of people who may be without health insurance, which is a large number.

The tax reforms proposed may also get rid of the deduction given to those who pay interest on loans for income-producing investments. This is going to affect individuals who buy stocks or other similar expenses for personal growth, though this does include businesses as well.

Miscellaneous expenses might not be covered anymore. This includes expenses like prior tax year tax preparation fees, employee expenses such as union dues or even work travel expenses. Any expenses related to work improvement, such as taking job-related classes may no longer be deductible. Granted, miscellaneous expenses, combined, cannot really exceed two percent of a taxpayer’s AGI, but every little bit helps in these uncertain times.

There is a reason to be concerned about these possible

Read More

Floyd “Money” Mayweather’s Tax Troubles

Flody Mayweather Weighing InThe IRS is currently demanding boxer Floyd Mayweather Jr. pay his outstanding 2015 federal income taxes, amounting to about $22.2 million. In response, the boxer, who goes by the nickname “Money,” has filed a Tax Court petition requesting the IRS to grant him more time to settle his outstanding tax liability. However, tax lien documents from the IRS indicate that the boxer has been either unable or unwilling to pay his taxes on time over the past decade or so. In fact, the IRS has filed over two dozen liens and releases from those liens in Clark County, Nev., in Floyd Mayweather’s name since 2004. The lien documents reveal Floyd Mayweather has owed the IRS $3.1 million, $7.1 million and $6.1 million in outstanding taxes at various points. Despite earning hundreds of millions of dollars from fights and establishing his own boxing promotional firm, the boxer regularly accumulates huge tax debts, some of which have gone unpaid, according to public tax records, and this could have far-reaching consequences for the boxer.

Mayweather’s “Money” Persona

Floyd’s brand portrays him as being ridiculously wealthy to the point that he doesn’t give much thought to spending enormous amounts of money on expensive things, such as limited edition supercars. For instance, at one point in an interview with Stephen A. Smith, the boxer says his Bugatti is a “cheap” Bugatti because, according to the boxer, it is not the most expensive Buggatti money can buy. The Mayweather persona is about wealth and unlimited amount of money as much as it is about boxing. In fact, Mayweather calls his company, crew and lifestyle gear “The Money Team.” However, whether Floyd Mayweather is actually obscenely wealthy or just pretends to be, the reality is the boxer has failed to settle his tax obligations on several occasions since 2004. Public records from Clark County, Nev., show that the IRS filed tax liens against Floyd Mayweather in 2007, 2008, 2011 and 2012. The records also show the corresponding releases for these liens. However, the IRS has filed another lien this year (2017) against the boxer, claiming the boxer has not settled his 2015 tax obligations in full. In total, the IRS is demanding about $22.2 million from Floyd Mayweather.

Large Investments

It is important to note that the existence of these liens does not necessarily prove Floyd “Money” Mayweather is broke. Put another way, a person can be cash-poor but own high value assets such as valuable art collections, property and stocks. It is an open secret that Floyd Mayweather has plenty of high value assets that the IRS can put a lien on, such as his collection of expensive supercars. Still, someone who claims to be rich beyond imagination and whose brand revolves around money should be willing and able to pay his taxes on time. The boxer’s PR team has found a way to put a positive spin on the issue, with Mayweather’s tax attorney, Jeffrey Morse, recently telling Fight Hype, an online news resource, that

Read More

Who Will Benefit From The Tax Breaks Under The GOP’s Newly Proposed Healthcare Bill?

The U.S. Capitol BuildingIf the GOP’s newly proposed healthcare bill, the American Health Care Act (AHCA), becomes law in its current state, it would change or repeal more than a dozen taxes that help fund Medicare and Medicaid subsidies under the Affordable Care Act, commonly known as Obamacare. The taxes targeted for repeal include taxes on corporations, as well as taxes related to individual income. According to estimates from the Congressional Budget Office (CBO), the federal government’s revenue would decrease by $700 billion over the next decade due to these tax cuts. The winners of the tax breaks under the GOP’s newly proposed healthcare bill include:

High-income Earners

The Senate bill will give high-income earners (individuals who earn at least $200,000 annually or couples that earn $250,000) a tax break by eliminating two Medicare taxes on such individuals. Specifically, it would eliminate the 0.9% Medicare payroll tax and the 3.8% tax on net investment income, including bonds, stocks, capital gains and interest, levied by the Obamacare to help fund Medicare subsidies. However, by repealing these two taxes, the federal government stands to lose about $231 billion in revenue over a 10-year period, says the CBO.

Healthy, Mid-income Earners

While Obamacare gives tax credits to low-income earners to enable them purchase health insurance through the Health Insurance Market, it caters only to individuals who earn less than $48,000. The AHCA, on the other hand, extends these tax credits to Americans who earn upward to $100,000. Moreover, the AHCA makes it easier for insurers to charge lower rates to young people. Obamacare allows insurers to charge the oldest enrollees up to three times as much as the youngest enrollees. Under the AHCA, insurers would be able to raise premiums for the elderly and at the same time, lower premiums for young Americans. In fact, according to estimates from the RAND Corporation, this policy would lower the annual health insurance premiums for the average 24-year-old American from $2,800 to about $2,100.

Individuals with Pre-existing Conditions

The Senate bill ensures insurers do not deny individuals with preexisting conditions coverage. Moreover, its “continuous coverage” protections prohibit insurers from charging such individuals more than the applicable standard rates. The bill also creates funds to assist states take care of individuals with preexisting conditions. These funds include the $100 billion Patient and State Stability Funds intended to assist states stabilize their individual markets by lowering costs and improving access for patients. The Invisible Risk Sharing Program will provide an additional $15 billion to help insurers cover high-cost enrollees.

Large Employers

Unlike Obamacare, the Senate bill would not require employers to provide their employees with affordable coverage. Consequently, companies will enjoy several benefits. Firstly, companies that fail to provide cover for their employees will not get in legal trouble. Secondly, large companies will have less work to do in regards to complying with reporting requirements. Thirdly, the federal government is likely to take longer to implement the tax on high-cost employer health plans.


If the AHCA, becomes

Read More