EX-CEO EXPLAINS WHY CORPORATE TAX CUTS DON’T CREATE JOBS

As a small business owner, I’ve always known it would take a mighty big tax cut to pay for me to hire additional help. For small businesses, tax cuts are never sizeable enough to defray the cost of a full-time employee. Interestingly, at least one CEO of a publicly traded company agrees. This Linked In article penned by David Mendels, former CEO of Brighthouse, was enlightening.

You can find the article here: https://www.linkedin.com/pulse/chief-economic-advisor-trump-most-excited-group-out-big-david-mendels/.

WHAT’S GOING ON WITH TAX REFORM

The tax reform bills proposed by the House and Senate contain some similar proposals, but the many differences warrant separate examination. While unknown compromises can be expected before any legislation hits the president’s desk for consideration, here are the highlights from both bills:

HIGHLIGHTS FROM BOTH BILLS
House Bill Senate Bill
Lowers corporate tax rate to 20% from 35% starting in 2018.

 

Eliminates common personal deductions: state and local taxes, personal property taxes, deduction for medical bills, unreimbursed business expenses.

 

Significantly reduces the mortgage interest deduction, and limits the property tax deduction.

 

Changes from 7 individual tax brackets to 4. People earning $500,000.00 to $1M a year get the biggest break. Some middle income earners would be bumped into a higher bracket.

 

Raises standard deduction to $12,000 for a single person and $24,000 for a married couple.

 

Eliminates personal exemptions completely. Currently, the personal exemption is $4050 per household member.

 

Raises child tax credit to $1600 from $1000.

 

Imposes a minimum tax on foreign investments of US corporations.

 

Gives an income tax deduction for income from some “pass through” businesses. Those are businesses that report income on Schedule C. Deduction is limited. Lawyers, engineers, consultants, and doctors cannot take the deduction.

 

Changes the capital gains tax structure.

 

 

Lowers corporate tax rate to 20% from 35% starting in 2019.

 

Eliminates common personal deductions: state and local taxes, property taxes, personal property taxes, home equity loan interest, unreimbursed business expenses.

 

Raises the income levels for personal income tax brackets and lowers tax rate for the highest income tax brackets. People earning $1,000,000.00 or more per year get the biggest break.

 

Raises standard deduction from $6350 to $12,000 for a single person. Child tax credit is raised to $1650 from $1000, but the dependent exemptions are eliminated completely.

 

Gives an income tax deduction for income from some “pass through” businesses. Those are businesses that report income on Schedule C. Deduction is limited to a % of the owner’s W-2 income. Lawyers, engineers, consultants, and doctors cannot take the deduction.

 

Excludes business income earned overseas. In other words, companies won’t have to pay US taxes on overseas earnings.

 

Imposes limited tax withholding on independent contractors.

 

Eliminates the 50% business entertainment deduction but keeps the 50% meals deduction.

 

Expands businesses that can use cash method accounting.

 

 

If you have concerns with how tax reform will affect your bottom line, talk to your accountant. The House is scheduled to vote on Thursday, November 16th, and the Senate plans to vote the week after Thanksgiving.  Elected officials want to know whether constituents favor or oppose these bills. Here’s a website that will give you the contact information for your elected representatives: https://whoismyrepresentative.com/.

REMINDER: VOTE!

Two signs indicating separate choices

Early voting began Monday for the November 7 election. What’s on the ballot:

  • 7 proposed amendments to the state constitution:
    • Property tax relief for partially disabled veterans and their spouses who acquired their homes for less than market value through charities;
    • Expands the ability of lenders to make home equity loans;
    • Limits the time an unpaid political appointee can serve when he or she is appointed by the governor;
    • Requires courts to give notice to the Texas Attorney General when a litigant challenges the constitutionality of a state statute and making courts wait 45 days before holding a statute to be unconstitutional;
    • Allows professional sports teams’ charitable foundations to hold raffles;
    • Provides property tax relief to spouses of first responders who are killed in the line of duty;
    • Permits financial institutions to hold prize contests to promote savings.
  • Travis County – $185 million in bonds to finance bike paths, sidewalks, road expansion projects, and a sports complex in Bee Cave.
  • AISD – $1.05 billion in bonds for building improvements and to build an elementary school in the Mueller development.

The League of Women Voters produces an excellent, non-partisan voter’s guide that can be accessed free on their website: https://lwvaustin.org/wp-content/uploads/2013/09/VG-2017-NOV-online-web-site-FINAL.pdf

Employer News: You Must Start Using the New Form I-9

Employers are required to keep an employment eligibility verification form (I-9) on each employee. The form documents the employee’s citizenship status and eligibility to work in the United States. In July, U.S. Citizenship and Immigration Services revised the form for use beginning September 18, 2017. The new form only applies to new hires; employers don’t have to fill out the new form for current employees.

Where is the new form? You can find the new form I-9 in English and Spanish as well as instructions here: https://www.uscis.gov/i-9.

What changed? The changes seem minor. The most significant change is that U.S. citizens born abroad can now use a Consular Report of Birth Abroad (Form FS-240) as proof of status. Minor edits were made to the form instructions.

Keep a copy of the completed I-9 in the employee’s personnel file. I-9 forms do not get filed with any state or federal agency.

What You Need to Know About the Equifax Data Breach

What happened? From May to July 2017, hackers breached data security at Equifax, one of the three major credit bureaus. The hackers got names, Social Security numbers, birth dates, addresses, and driver’s license numbers. They also credit card numbers of 209,000 consumers and dispute documents with personal identifying information of 182,000 consumers. Equifax estimates this data breach affects 143,000,000 American consumers – over 40% of American adults. Texas Attorney General, Ken Paxton, estimates 12 million Texans are affected. Equifax learned about the breach on July 29 and failed to disclose the breach publicly until September 7.

Was my information stolen? Equifax has set up a website for consumers to find out if they are affected. Visit: https://www.equifaxsecurity2017.com/potential-impact/ and click the maroon box. You’ll be taken to a form where you type in your last name and the last 6 digits of your Social Security number. You’ll also have to answer a question to prove you are a human and not a robot. The site will tell you simply whether or not Equifax believes your information was impacted and will allow you to sign up for a year of free credit monitoring.

What is being done to help victims? Not a lot. Equifax is offering victims one year of free credit monitoring through its TrustedID service. The service includes one year of identity theft insurance. So far, 30 class action lawsuits have been filed against Equifax as a result of the breach; a couple are in Texas. The Senate Finance Committee is asking questions of Equifax, and that could lead to a Congressional investigation. The Federal Trade Commission has put up an information website: https://www.consumer.ftc.gov/blog/2017/09/equifax-data-breach-what-do.

What should I do? Here’s a checklist:

  • It is safest to assume you are affected.
  • Place a 90 day fraud alert on your credit report by calling 1-888-766-0008.
  • Consider placing a credit freeze. A credit freeze is more effective than a fraud alert, but unless you have made a police report, you must pay a nominal fee to each credit bureau to freeze your credit, and to use your credit you must unfreeze your reports. To place a credit freeze, you must contact each credit bureau separately at the links or phone numbers listed below:
  • Visit annualcreditreport.com and get a free credit report from Transunion or Experian. Look through the report carefully. If there is any information on it that does not belong to you, dispute it immediately. Check again with the other company in November.
  • Carefully check all of your bank statements and credit card statements from May forward. If you find transactions that you did not authorize, report them. Note that the financial institution is not required to investigate the items you report from May, June, or July.
  • Make plans to review all of your statements each month and immediately dispute any transactions that you did not authorize.
  • Be alert to scammers trying to profit off your misery. If you did not initiate a phone call, email, or text message, treat it like a scam!
  • Plan to file your federal income tax return as early as possible – before identity thieves do it.
  • Visit our identity theft information page: ppiercelaw.com/identity-theft.

Overtime Update

 

It seems a lifetime ago that the Department of Labor (DOL) announced changes to employee overtime rules that would raise the salary threshold for exempt employees.* The rule was to take effect on December 1, 2016. Many employees who had been exempt from overtime would be eligible for overtime pay under the new rule which raised the exemption threshold to $913 a week: $47,476 per year rather than the current $23,660. Employers scrambled to revise job descriptions and policies regarding overtime work to comply with the rule.

Twenty-one states file suit to challenge the new rule. On November 22, 2016, the U.S. District Court in Sherman, Texas granted the states’ motion to prevent the rule from taking effect. The DOL appealed the decision to the Fifth Circuit. Briefing was completed last month, and it appears that the DOL has abandoned the new salary level. Instead, the DOL is seeking information. On July 26, the Federal Register published a request for information posing 11 sets of specific questions for public comment. Questions include whether there should be multiple salary levels for exempt employees based on factors such as inflation, employer size, and census region; how setting different exemption levels for executive vs. administrative employees would affect businesses; and whether the exemption test ought to be based solely on the employee’s duties rather than salary. Comments are due by September 25, 2017. The questions and instructions for submitting comments are here. Anyone can submit a comment, and so far over 65,000 comments have been submitted.

What should employers do? Nothing for now. Now, we wait for the Fifth Circuit to issue an opinion.

See our previous blogs about the overtime rule: 11/29/16 – A Lump of Coal for Admin Employees? Texas Court Blocks Implementation of DOL’s Overtime Rule Change; 11/16/16 $47,476 the Magic Number – Are You Ready?; 10/10/16 – Time’s a Wastin’ – Get Ready for the new Overtime Rule; 5/27/16 – Holiday Gift for Salaried Workers: OVERTIME.

“Be Nice” Policies Employee handbooks revisited

Many employers want to include provisions in their handbooks requiring that employees be polite to each other and act with honesty and integrity. The National Labor Relations Board took the position that such provisions violated the National Labor Relations Act by discouraging employees from union organizing.

Yesterday, the 5th Circuit Court of Appeals clarified that these kinds of handbook provisions do not violate the law as long as a reasonable employee would interpret the policy as a common sense instruction to use professional manners, maintain a positive work environment, and be courteous.

Employers need not shy away from asking for civility in the workplace with a carefully crafted handbook.

The Court decision is Cause No. 16-60284, T-Mobile USA, Inc. v. NLRB, In the United States Court of Appeals for the Fifth Circuit, July 25, 2017.

Five Things That Will Save Your Start-Up Money In The Long Run

It’s a fact that many small business ventures fail in their first year. There are tons of resources on the web about why so many new businesses fail, and I won’t attempt to recreate them here. However, I’ve noticed five things that many failed businesses have in common. The purpose of this post is to help you avoid these shortcomings when starting your business. Here they are in a nutshell:

  1. Write a business plan.
  2. Set goals.
  3. Get professional help early.
  4. Understand the difference between employees and contractors.
  5. Write everything down.

Show me How!