Last week President Obama issued his proposed 2017 budget for the United States. While most of the information included within is too detailed for most, there is one section that individuals, small business owners and other should review. It’s the proposed tax changes section. In this section, the President has proposed enhancing, eliminating or creating new tax programs to encourage job creation, skills training, and investment in key technologies. In addition, there are new programs designed to discourage companies from taking jobs offshore. While these changes are still in the proposal stage, it’s important to be aware of the possible changes which could be forthcoming. To help clients, prospects and others understand these changes; JLK Rosenberger has provided a summary of key changes below.
Proposed Income Tax & Other Changes
- Extend Employment Tax Credits – One of the proposed changes seeks to permanently extend the Work Opportunity Tax Credit. This would impact qualified individuals that started work after December 31, 2019. There is also discussion about doing the same for the Indian Employment Credit which would impact qualified individuals starting work after December 31, 2016.
- Extend the New Markets Tax Credit – The budget also seeks to make the New Markets Tax Credit permanent and extend the benefits offered to companies. As outlined, the changes would permit qualified equity investments made after December 31, 2019, to offer AMT liability, which under current rules of the program is not permitted. Other changes include increasing the yearly credit allocation to $5 billion dollars annually.
- Community College Tax Credit for Businesses – Included in the proposal is the addition of new and enhanced education related tax credits. Businesses could receive a tax credit for hiring graduates from community and technical colleges as a way to encourage employer engagement. The program would allow $500M in tax credit authority for a period of five years starting in 2017 and ending in 2021. Credits will be allocated by state and will be available to qualifying employers.
- Enhance Renewable Energy Credits – The budget also seeks to make the renewable electricity production credit permanent and refundable. It would also allow individuals to claim the credit for energy produced in connection with a residence. What makes this unique is that individual taxpayers could claim the credit whether or not they consumed the additional energy or sent it back to the grid for distribution and use by others. Finally, it would permanently extend the renewable energy investment tax credit for companies providing a 30% investment tax credit for solar, fuel cell and wind property and 10% for geothermal sources.
- Simplify Small Business Accounting – To make it easier for small businesses to comply with regulations, the proposal seeks to simplify small business accounting. Starting in 2017, companies with less than $25M in annual revenue would be exempt from certain accounting reporting requirements. This would allow them to use the cash method of accounting avoiding uniform capitalization and other requirements. The income threshold would be indexed for inflation for taxable years starting after December 31, 2017.
- 14% Tax on Untaxed Foreign Income – The proposal creates a one-time tax of 14% on previously untaxed foreign earnings that U.S. companies have accumulated overseas. The good news is that once the foreign income is taxed, a company could repatriate the earnings back to the U.S. without paying additional taxes.
- 19% on Foreign Income – To reduce the tax incentives for companies to locate production overseas, the proposal creates a 19% minimum tax on all foreign income.
There are a number of proposed changes designed to discourage companies from taking jobs outside of the U.S., award small companies for creating new jobs and enhancing benefits for companies making qualifying investments in alternative energy and other areas. Although these changes require action by Congress to become ‘law, it’s important to understand the possible tax changes on the horizon.