Wanted to share some of the proposed tax law changes in the President’s budget. With the current political climate, it is hard to believe that the House will accept many of these changes, but really, who knows.
- Raise Federal Unemployment Tax (FUTA) wage base from $7,000 to $14,000
- Elimination of the LIFO inventory accounting method. This is a huge problem for auto dealers, and others with large dollar inventories.
- Carried interests in investment partnerships (think “hedge fund”) would be taxed as ordinary income and be subject to self-employment income. This is an issue here in the oil patch, despite it being targeted at larger partnerships.
- No deduction by a business for punitive damages. If you have insurance to cover those damages, then you would include the insurance proceeds as income.
- Eliminating the lower-of-cost-or-market inventory method. If you have inventory that declines in value, you can’t realize the loss until you sell the product.
- Eliminating tax preferences for oil companies such as expensing of intangible drilling costs, percentage depletion, and production tax credit for marginal wells.
Not So Bad Provisions
- Making permanent the Section 179 limit at $125,000.
- Increasing the energy efficient commercial property with a more generous tax credit.
- Making permanent the exclusion of gain from qualified small business stock.
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