Individual Income Tax Return Mistakes and How to Fix Them INB4/17/01-X6 /DQFDVWHU$YHQXH 'HYRQ3$ 3 ) LQIR#VXUJHQWFRP ZZZVXUJHQWFSHFRP 6XUJHQW Calling All Exceptional Instructors! Surgent is currently accepting nominations of prospective new discussion leaders in the following areas: . Tax . Accounting and Audit . Government and Not-for-Profit A&A . Business and Industry (all topics) If you are an experienced CPA with strong public speaking and teaching skills and an interest in sharing your knowledge with your peers by teaching live seminars, we would love to hear from you! Learn More by Contacting [email protected] Table of Contents Supplement: The Trump Tax Plan and What You Need to Know in 2017 Top 25 Tax Mistakes Individual Income Tax Return Mistakes and How to Fix Them ..................... 1 This product is intended to serve solely as an aid in continuing professional education. Due to the constantly changing nature of the subject of the materials, this product is not appropriate to serve as the sole resource for any tax and accounting opinion or return position, and must be supplemented for such purposes with other current authoritative materials. The information in this manual has been carefully compiled from sources believed to be reliable, but its accuracy is not guaranteed. In addition, Surgent McCoy CPE, LLC, its authors, and instructors are not engaged in rendering legal, accounting, or other professional services and will not be held liable for any actions or suits based on this manual or comments made during any presentation. If legal advice or other expert assistance is required, seek the services of a competent professional. Revised May 2017 surgentcpe.com / [email protected] Copyright © 2017 Surgent McCoy CPE, LLC – INB4/17/01 NOTES Supplement: The Trump Tax Plan and What You Need to Know in 2017 Learning objectives 1 I. All aboard the tax reform train 1 A. Why 2017? 1 1. Similarities with 1986 1 2. Selected proposals to replace the income tax 2 II. The engineers and the build-up (not all inclusive) 5 A. Candidate and President-Elect Donald J. Trump tax proposal 5 1. Individual proposals 5 2. Business proposals 5 B. Speaker of the United States House of Representatives Paul D. Ryan Jr. 5 1. Better way a.k.a. the “Blueprint Plan” 5 2. Individual proposals 6 3. Business proposals 6 C. United States Secretary of the Treasury Steven T. Mnuchin 7 D. Chairman of the Committee on Ways and Means Kevin Patrick Brady 7 E. Majority Leader of the Senate Addison Mitchell "Mitch" McConnell Jr. 7 F. United States Senate Committee on Finance Chairman Orrin G. Hatch 7 G. Director of the National Economic Council Gary D. Cohn 7 III. President Trump’s tax plan as released April 26, 2017 8 A. Goals for tax reform 8 1. Individual proposals 8 2. Business proposals 8 3. Miscellaneous 8 B. Hatch, McConnell, Ryan, Brady statement on administration’s tax plan 9 C. Process 9 IV. Early projections 10 A. Projection #1 10 1. Assumptions 10 B. Projection #2 11 1. Assumptions 11 C. Projection #3 12 1. Assumptions 12 D. Projection #4 13 1. Assumptions 13 E. Projection #5 14 1. Assumptions 14 F. Projection #6 15 1. Assumptions 15 G. Projection #7 16 1. Assumptions 16 V. Closing notes 17 A. What could be on the table? 17 1. In short – Everything! 17 2. Surgent’s Trump-Tracker 17 B. Elements of engagement discussion 17 surgentcpe.com / [email protected] Copyright © 2017 Surgent McCoy CPE, LLC -- SUPP/17/X6 i Supplement: The Trump Tax Plan and What You Need to Know in 2017 Learning objectives Upon reviewing these materials, the reader will be able to: • Understand the key components of the Trump tax plan; and • Identify likely tax outcomes and the practical impacts for CPAs and their clients. Professionalism Prelude: Where 18th Century Poets Meet 21st Century Professionals In the late 18th century, while plowing his farm in Scotland, Robert Burns unearthed a mouse’s protective nest. In lamenting the creature’s poor fortune he dedicated a poem -- To a Mouse – which includes a quite famous tagline paraphrased today as: “The best-laid plans of mice and men often go awry.” Many times when discussing accounting, tax and finance policy issues, it can be difficult to divorce the politics from the policy. This manual is dedicated to various policy issues professionals must have detailed knowledge of to fully discuss with their clientele. This dialogue is not intended to be an editorial, opinion, or view of politics. In regard to the 2017 changes discussed by President Trump, professionals must appreciate that the final brew to be ladled from the fiery cauldron of a joint congressional committee will be “awry” of what certain factions deem the “best-laid plans.” There will be winners and losers, singles, doubles, home runs, and grand slams. In the spirit of professionalism, respectfully limit the discussion to policy, not politics, and focus on doing the very best for our clients. I. All aboard the tax reform train A. Why 2017? 1. Similarities with 1986 In October 1986, President Ronald Reagan signed into law the Tax Reform Act of 1986 – landmark legislation that is recognized as the single largest reform of the U.S. tax code in our nation’s history. In many ways, the current tax and political environment is remarkably similar to the one that allowed President Reagan to successfully overhaul the tax code three decades ago: a. The American people were fed up with the tax code. It was a complicated mess of multiple brackets, high rates, and special-interest provisions. As President Reagan described it, the code had become a “haven for special interests and tax manipulators, but an impossible frustration for everybody else.” b. Members of Congress had bold proposals for pro-growth tax reform. Americans saw the total number of income brackets reduced from 15 to two. In addition, the top income-tax rate for individuals was cut from 50 percent to 28 percent, and the top corporate tax rate was reduced by 12 percentage points. c. President Reagan was willing to lead on tax reform. It took three years of sweat and difficult work in Congress to finally reach enactment in 1986. surgentcpe.com / [email protected] Copyright © 2017 Surgent McCoy CPE, LLC -- SUPP/17/X6 1 A striking number of these same factors are present today: a. The American people are fed up with the tax code. It again has become a complicated mess of multiple brackets, high rates, and special-interest provisions. Once again, Americans are forced to devote their hard-earned dollars and their hard-pressed time to complying with an overly complicated and complex code. And at the end of the process, most people believe that everyone else but them got a better deal. b. Members of Congress now are proposing a variety of serious ideas for pro-growth tax reform; some are outlined below. Representative Rob Woodall of Georgia is a champion of the Fair Tax, which would repeal the income tax and other taxes, abolish the IRS, and enact a national retail sales tax. Representative Mike Burgess of Texas is a powerful advocate for the Flat Tax, which would give taxpayers the option of having a flat rate of tax applied to their annual income. Representative Devin Nunes of California has designed the American Business Competitiveness (ABC) tax, which would transform the way businesses are taxed in America. Representative Bob Goodlatte of Virginia is making the case for the Tax Code Termination Act, which would end the current tax code after 2019 and require Congress to adopt a fair and simple federal tax system to replace it. More broadly, members of Congress on both sides of the aisle believe that Americans deserve a better tax system and that Congress must deliver it. c. Every major primary and general election candidate in the 2016 presidential election introduced a plan to reform the tax code. It should be noted, since 2012 President Obama and several Congressional proposals were bandied about for reduced C corporation tax rates. Under several proposals, the current 34- and 35-percent brackets would disappear and be replaced by an approximate 25 percent bracket. 2. Selected proposals to replace the income tax In general a number of alternative tax systems to replace the current income tax system have been proposed. Many of these proposals alter the tax base so that it is based on consumption, rather than income. a. VAT A VAT is generally a tax imposed and collected on the “value added” at every stage in the production and distribution process of a good or service. Over 140 countries, including every member country in the Organisation for Economic Cooperation and Development (“OECD”) besides the United States, has implemented a VAT, although the countries have generally done so to supplement, rather than replace, their income tax system. (i) While there are several ways to compute the taxable base for a VAT, the amount of value added can generally be thought of as the difference between the value of sales (outputs) and purchases (inputs) of a business. (ii) A VAT is generally thought of as a consumption tax, not because it uses value added as a base, but because it uses cash-flow accounting principles to measure value added. (iii) The amount of value added may be determined in a number of ways under a VAT. surgentcpe.com / [email protected] Copyright © 2017 Surgent McCoy CPE, LLC -- SUPP/17/X6 2 The credit-invoice method has been the system of choice in nearly all countries that have adopted a VAT, and determines the tax liability based on the difference between the aggregate VAT disclosed on sales and purchase invoices of a taxpayer.