Three Tax Issues to Watch For in 2017 and Beyond

Between now and April, I’ll use my blog to periodically answer client questions and spread awareness about some of the biggest tax issues that could affect your 2017 return. Let’s begin with a brief overview of three potential changes with large implications.

Health Care

The individual and employer health insurance mandates remain the law now that the Senate has rejected GOP proposals for a repeal of  Obamacare. The Affordable Care Act remains in force unless and until changed by Congress. Uninsured individuals must pay a penalty tax if they don’t qualify for an exemption. Employers with 50 or more full-time employees but no affordable health plan owe a penalty tax if their employees opt to buy insurance on an exchange and qualify for the premium tax credit. Trump’s executive orders on Obamacare do not change the law, per the IRS. Don’t be surprised to see more exemptions to the individual mandate. There are several now.

Also, keep an eye out for a bipartisan plan with significant changes to Obamacare. A new proposal by the 30 plus members of the House’s Problem Solvers Caucus sets forth solutions intended to help stabilize the individual health insurance market. It includes two tax provisions: First, repeal of the 2.3% tax on medical device sales; second, an easing of the employer mandate so it would only apply to businesses with 500 or more employees, up significantly from the current 50-employee threshold. In addition, the 30 hour per week threshold to qualify as a full time employee would be hiked to 40 hours.  

Identity Theft

The incidence of reported individual tax identity theft is on the decline, but an increase in business tax identity theft is causing concern. This occurs when fraudulent individuals file bogus corporate, payroll, or excise tax returns, Schedule K-1s, and others, using stolen tax ID numbers and claiming false tax refunds. The IRS has flagged 10,000 suspicious business tax returns filed thus far in 2017. To help alleviate the problem, the IRS is asking more from tax return preparers. Beginning next year, tax preparation software will be updated to require additional data, such as the name and Social Security number of the executive signing the return and the company’s payment and filing history. The IRS anticipates that these questions will help it identify suspicious returns. Be ready for this. This would become a requirement by way of an internal IRS administrative ruling.    

Tax Reform

Tax reform is a priority in Congress, and GOP tax writers and their staff are busy working on a proposal to overhaul the federal tax system, which they expect to release after the August recess. In the meantime, those in the know are making the following forecast.

Will the business tax rate be cut to 15%? No. Despite President Trump’s promise to slash the current 35% corporate rate to 15%, this won’t fly with moderate congressional Republicans. There just aren’t enough revenue raisers to offset such a low rate, they argue, especially now that the projected savings from the repeal of Obamacare is no longer in the mix. GOP lawmakers will aim for a 20 to 25% rate in their plan which will also apply to owners of pass-through businesses such as partnerships and S Corporations and self-employed business owners, such as those filing on Schedule C with their personal tax return.

If you have tax questions, I’d love to hear from you. Feel free to call me at (713) 785-8939 or email me at – I may even feature your question in a future blog post.

Until next time,
Robert Stevenson, CPA

A By-Product of the Affordable Care Act

I don’t know if anyone has noticed, but healthcare – and the Affordable Care Act in particular – has been in the news quite a bit lately.

That got me thinking about employer responsibility requirements.

Maybe you’ve already heard about these requirements. Under the ACA, “large” employers with 50 or more full-time or full-time equivalent employees are required to offer healthcare to all of their full-time employees. If they fail to comply, the employer must pay a $2000 penalty per employee.

For most companies, this isn’t too big of a deal. Either you’re a small business and don’t need to worry about this mandate, or you’re large enough that you can afford to offer your employees health insurance. (In fact, the Kaiser Family Foundation reported back in 2013 that more than 9 out of 10 businesses with over 50 full-time or full-time equivalent employees already offered healthcare before the ACA took effect.)

But I have a number of business clients hovering right around 50 full-time employees. They exist in an unfortunate sweet spot – they’re too big to be small, and too small to comfortably afford to offer comprehensive benefits. Some of these businesses can barely make payroll every two weeks as it is – there’s no way they could take on the added expense of paying for health insurance for their employees and their dependents. What’s more, every person they have in their employ is vital. There are no excess employees.

It puts me in an uncomfortable position. I feel a professional obligation to my clients to advise them to get below 50 employees. But even though that’s the best business decision, it’s not a very nice human decision. I don’t want anyone to lose their livelihood. To make matters worse, the first people to go are usually younger or less skilled workers, often on the first rung of the ladder of success. People like my kids. And by losing their jobs, they’ll lose their means of support and could end up living with their parents or depending on social programs.

But if my clients can’t afford to offer health coverage, I can’t in good faith recommend that they suffer the consequences and pay the $2,000-per-employee fine. What’s more, the Affordable Care Act has effectively made tax preparers like me the compliance officers of the federal government. It is the tax preparer who must indicate on the return that the taxpayer did not comply with the law, and it is the tax preparer who will compute the shared responsibility payment.

I guess everyone in Washington is right: Healthcare is hard.

I’d love to hear what you think: Should the employer responsibility requirements stay or should they go?