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HPG Offers Analysis of Tax Proposals by Obama and Romney

Services: Tax

RALEIGH, N.C. (October 29, 2012) — After the rhetoric of three presidential debates, many Americans are unclear as to what changes to the federal income tax system each candidate is proposing. Tim Robinson, CPA/PFS with Hughes Pittman & Gupton, LLP, one of the largest CPA firms headquartered and staffed in the Research Triangle Park region of North Carolina, shares his insights, as well as an analysis of the presidential candidates’ tax proposals.

“The first thing to remember is that Congress will have to vote to approve any changes in the tax laws proposed by the candidates,” says Robinson. “Given the current makeup of Congress, that process will require compromise and a lot of time. Therefore, the debate is more about direction than about a specific future.”

Robinson continues, “It is possible that the new Congress will enact retroactive tax legislation in 2013. However, the only guarantee is that January 1, 2013 will bring higher individual tax rates across the board, absent Congressional action prior to December 31, 2012 to extend the Bush Tax cuts. The new top tax rate will be 39.6 percent. Taxpayers should plan for the worst and hope for the best.”

Here is a glimpse at what the tax structure will look like if no new tax laws are enacted.

The changes proposed by President Obama include:

President Obama has made two different proposals regarding itemized deductions. One allows for the phaseout of itemized deductions and personal exemptions to be reinstated after 2012. The second, reduces the value of itemized deductions and other tax preferences to 28 percent for families with incomes over $250,000. It is not clear whether both proposals will apply to taxpayers or if only one will be implemented.

“If these proposals move forward, small business owners would be wise to consult their CPA, tax attorney and financial planner to discuss the implication of these changes,” says Robinson. “It is possible that in certain cases changing the legal structure of the business entity may provide some relief from the higher tax rates.”

In contrast, Governor Romney proposes:

“One difficulty in evaluating the tax proposals made by Governor Romney is the lack of detail,” says Robinson. “There are no specifics as to what deductions and exemptions would be changed or how, nor are high-income individuals defined.”

One thing that is clear for taxpayers is that tax laws are going to change in 2013. In the short term, everyone’s taxes are going to go up. The other thing that is clear is Congress is going to be pressured by whoever becomes president to dedicate some time and energy to change the U.S. income tax code.

DISCLOSURE REQUIRED BY U.S. TREASURY DEPARTMENT CIRCULAR 230: Hughes Pittman and Gupton, LLP must inform you that any advice in this communication to you was not intended or written to be used, and cannot be used, to avoid any government penalties that may be imposed on a taxpayer.