US TAXATION SYSTEM AN TAX REFORMS IN 2024

A professionally formatted presentation with consistent design elements.
Overview of the US taxation system. Tax deductions and credits. Recent tax reforms by the internal revenue service. Tax compliance- process of filing taxes. Tax planning strategies. Impact on individuals. Impact ln businesses. Economic implications. Social implications. Challenges in the taxation system. Futures of US taxation. International comparison. Personal insights

1. UNITED STATES TAXATION SYSTEM 2024 ANAND RAMCHANDRAN 29 May 2024 OVERVIEW AND ANALYSIS

2. Index

3. Introduction

4. Overview of the US taxation system Federal taxes: Income(progressive)- Individuals total income less exemptions and deductions. Corporate- The taxes are paid by the company based on the profits earned. Payroll- Taxes on Employees’ pay on providing Social security and Medicare. State and Local taxes: Income- Each state has a different income tax compared to federal tax. Sales- Tax imposed at the state and local level with no federal sales tax. Property- Tax on physical property (homes, real estate and land) charged Locally. Other taxes: Capital gains-Tax levied on profit made on sale of an asset for a forgiven year. Estate- The tax levied at time of death while transferring properties. Gift- Federal levy on transfer of money or property to another person when equal value is not received in return.

5. Federal income tax tax bracket % of income 2023 vs. 2024 tax brackets: Married filing jointly 2023 2024 10%: $0 to $22,000. 10%: $0 to $23,200. 12%: $22,001 to $89,450. 12%: $23,201 to $94,300. 22%: $89,451 to $190,750. 22%: $94,301 to $201,050. 24%: $190,751 to $364,200. 24%: $201,051 to $383,900. 32%: $364,201 to $462,500. 32%: $383,901 to $487,450. 35%: $462,501 to $693,750. 35%: $487,451 to $731,200. 37%: $693,751 or more. 37%: $731,200 or more. 2023 vs. 2024 tax brackets: Single filers 2023 2024 10%: $0 to $11,000. 10%: $0 to $11,600. 12%: $11,001 to $44,725. 12%: $11,601 to $47,150. 22%: $44,726 to $95,375. 22%: $47,151 to $100,525. 24%: $95,376 to $182,100. 24%: $100,526 to $191,950. 32%: $182,101 to $231,250. 32%: $191,951 to $243,725. 35%: $231,251 to $578,125. 35%: $243,726 to $609,350. 37%: $578,126 or more. 37%: $609,351 or more.

6. FEDERAL INCOME TAX FILED JOINTLY MARRIED AND SINGLE

7. STATE INCOME TAXES State income tax systems vary widely; some states have no income tax, while others have high rates. Example States: No Income Tax: Florida, Texas, Washington, Wyoming, Tennessee, Alaska, Nappa Valley, High Income Tax: California (up to 13.3%), New York (up to 10.9%)

8. CORPORATE TAXES

9. SALES TAXES

10. PROPERTY TAXES Property taxes are based on the assessed value of real estate property. Significant revenue source for local governments. Property tax is used to provide local services like Funding school districts Road construction. Average effective property tax rates: Lowest: Hawaii (0.28%) Highest: New Jersey (2.49%) Property tax formula Assessed Home value x Tax Rate Assessed Home value x mills / 1000 Link to effective property tax rate in the US https://infogram.com/effective-property-tax-rates-by-state-1h7z2l8zpmrog6o

11. CAPITAL GAINS TAX Capital gains taxes apply to the profit from the sale of assets. Short-term gains (held <1 year) taxed as ordinary income. Long-term gains (held >1 year) taxed at lower rates: 0% for income up to $44,625 (single) 15% for income between $44,625 and $492,300 (single) 20% for income over $492,300 (single)

12. ESTATE AND GIFT TAX Estate tax applies to the transfer of estates upon death. Gift tax applies to transfers of property by gift. Tax free gifts School tuition and education payments Charitable donations Medical expenses Political contributions Gifts to spouses and dependents 2024 Exemption Limits: Estate tax exemption: $12.92 million per individual. Annual gift tax exclusion: $16,000 per recipient.

13. PAYROLL TAXES

14. TAX DEDUCTIONS AND CREDITS

15. TAX DEDUCTIONS AND CREDITS- EXEMPLARS

16. RECENT TAX REFORMS -ADJUSTMENTS TO TAX BRACKETS AND STANDARD DEDUCTIONS in 2024 Standard deductions for filing jointly has increased by $1500 from last taxation year which now $29200. Filing separately or individuals the amount is $14600 Tax bracket- The lowest rate is 10% for incomes of single individuals with incomes of $11,600 or less ($23,200 for married couples filing jointly). Alternate minimum tax exemption is now $85,700 to $609,350 which was before $81,300 to $578,150 For Jointly married 2024-$ 133,300 to $1,218,700 2023-$126,500 to $1,156,300 For tax year 2024, the foreign earned income exclusion is $126,500, increased from $120,000 for tax year 2023. Estates of decedents who die during 2024 have a basic exclusion amount of $13,610,000, incr eased from $12,920,000 for estates of decedents who died in 2023. The annual exclusion for gifts increases to $18,000 for calendar year 2024, increased from $17,000 for calendar year 2023. The maximum credit allowed for adoptions for tax year 2024 is the amount of qualified adoption expenses up to $16,810, increased from $15,950 for 2023.

17. TAX COMPLIANCE- KEY PROCESS OF TAX FILING  C reate an account  on the IRS website. This account will allow you to view your tax records, make payments, request tax transcripts, and track your refund status. W2 form received from employers. 1099 forms from banks for unemployement , retirement etc. 1099-K, 1099-MISC, W-2 for gig economy 1099- INT forms if you earned interest income Documentation - to other sources of income and records of digital asset transactions 1095-A, the Health Insurance Marketplace Statement Correspondence from the IRS or other government agencies CP01A Notice containing your new Identity Protection PIN Your ITIN is a tax processing number issued by the IRS. Ensure that your ITIN is valid before filing. If it has expired, you will need to renew it. The IRS typically sends a notice if your ITIN is due to expire. Review your withholding tax to ensure the correct amount has been withheld from your paychecks throughout the year. If too little was withheld, you may owe additional tax. If any adjustments are needed, you will need to submit a new Form W-4 to your employer. If you earn a significant amount of non-wage income, such as self-employment earnings, investment returns, it is advisable to make quarterly estimated tax payments. Setting up a direct deposit for your tax refund can expedite the process. You will only need to provide your bank account and routing numbers. 

18. TAX PLANNING STRATEGIES- Maximizing deductions House planning- Buying a house with the help of a personal loan is beneficial as it clears off your home purchase and planning your funds trajectory to clear off the loan. Interest on loan payables would not be deductible. Result- Effective interest rate Non-deductible Interest deductible Interest A smaller mortgage is safer as a n excess mortgages would lead to higher after-tax yields than the after- tax rate on the mortgage. Note- Home Improvement can be financed by the mortgage which can increase the property value when selling leading CGT at that time. Medical expense deductions- Medical expenses being paid in one single year can create major taxable deductions as it will be adjusted in the gross expenses. Alternative minimum tax (AMT)- AMT ( A separate and a parallel tax system targeting taxpayers making use of deductions to pay less tax) having increased exemption has led to an increase in AMT payment volumes. AMT can be effective to those itemized deductions who can generate minimum tax credit. Otherwise pay the taxable income and don’t include deductions. Secondly, incentive stock option is another result of the AMT trap which can be negated by liquidating in the stock market or exercise on those ISO’s which have no AMT liability.

19. IMPACT ON INDIVIDUALS-TAX BURDEN The largest contributions to federal tax is by individual income tax. This graph proves that individuals in middle and lower income households either fail or pay less tax as they are benefitted from credits and deductions. Secondly, the federal government has focused on higher marginal rates and investment taxes for higher income individuals . This bar chart correlates with the figure on the left as only the top decile (capital income) have a significant share of total income. But the capital income transfer for lower income deciles is lower than 5%. Secondly, transfer of capital income to middle class families are higher than the lower-class deciles. This proves that the US economy are facing through extreme inequalities

20. IMPACT ON BUSINESSES Big Corporations Corporate tax increase-If the proposed amendments are approved, the corporates earning $1 billion in profits will have to pay 7% (21%-28%) more corporate tax which will also affect small businesses. Deduction altercations-Legislation is focusing towards environmental changes by increasing investment tax credit by 30%. This is being implemented for those firms beginning construction before 2025. Small Business Technology stimulation- Tax offset for small and medium sized businesses from $150000 to $250000 Loan interest deductions- Small business can relax their tax spending by increasing 5% (30%-35%) of their adjustable tax income. Depreciation changes- Businesses can elect a special bonus depreciation allowance of 60% for certain qualified property placed in service during 2024. This is a reduction from the 100% in 2022, and 80% in 2023.

21. ECONOMIC IMPLICATIONS Rising interest rates- puts pressure on the congress government to reduce federal spending and to increase federal revenue. The Federal deficit -is on the rise by $1.7 trillion which was used for discrete spending purposes. Fig 6-With increase in public debt, by 2058 it would reach from 98.2% to 180.6% by 2058. A bipartisan tax bill -is supposed to reverse the taxes by again increasing the bonus depreciation to 100% (2017) instead of 60%. Implication- Tighten business interest deduction on profit before taxes and continue to restore R&D spending. This is to strengthen economic growth, decrease interest rates and decrease borrowing costs

22. SOCIAL IMPLICATIONS 1. Individual taxpayers The expanded child tax credit stands as a beacon of hope for individual taxpayers, particularly families with children. By enhancing refundability and increasing maximum amounts, the Act delivers immediate financial relief, albeit with a recognition of its temporary nature. This provision is a critical step toward supporting families in navigating the complexities of the current economic landscape. 2. Business incentives For the business community, the extended incentives and immediate deductions for research expenses signal a strong governmental commitment to domestic innovation. These measures are expected to catalyze investment in research and development, driving forward national competitiveness and technological prowess.

23. CHALLENEGS IN THE TAX SYSTEM- DANIEL BUNN (PRESIDENT AND CEO OF TAX FOUNDATION) TUBE Tube You

24. FUTURE OF US TAXATION Budget reconciliation- the congress will need to have simple majority vote to change the tax bill in the senate. The drawback is that the reconciliation bill should not worsen the federal deficit situation . The net revenue cost should be maintained $1.5 trillion from 2018-2027. While reconciliation procedures can ease the passage of legislation, they can result in tax policy decisions later regretted and can invite gaming of rules that seek to prevent a reconciliation bill from increasing future deficits. The resulting instability of delayed tax increases can add to the challenges individuals and businesses face in making economic decisions and planning investments.

25. INTERNATIONAL COMPARISON Compared to the OECD average, the United States relies significantly more on individual income taxes and property taxes. OECD countries on average raised 21.7% less total tax revenue from individual income taxes, than the United States Reason-Because, m ore than half of business income in the United States is reported on individual tax returns.  The United States relies much less on consumption taxes than other OECD countries. This is because all OECD countries, except the United States, levy value-added taxes (VAT), usually at relatively high rates. State and local  sales tax rates in the United States are relatively low by comparison, but they are on a  different tax base .

26. CONCLUSION

27. References https://kpmg.com/xx/en/home/insights/2023/11/flash-alert-2023-212.html https://kpmg.com/us/en/home/insights/2024/05/tnf-jct-overview-federal-tax-system-2024.html https://www.irs.gov/newsroom/irs-provides-tax-inflation-adjustments-for-tax-year-2024 https://www.ey.com/en_in/tax/how-businesses-plan-to-use-cash-from-tax-cuts-for-m-and-a https://www2.deloitte.com/content/dam/Deloitte/in/Documents/tax/in-tax-presentation-recent-changes-in-the-us-taxation-laws-25-april-2024-noexp.pdf https://natlawreview.com/article/five-six-seven-eight-nine-ten-will-we-love-2024-top-10-tax-issues-year https://taxfoundation.org/data/all/federal/2024-tax-brackets/ https://www.nerdwallet.com/article/taxes/tax-changes https://edition.cnn.com/cnn-underscored/money/2024-tax-brackets https://www.irs.gov/filing/federal-income-tax-rates-and-brackets https://assets.kpmg.com/content/dam/kpmg/xx/pdf/2021/03/us-sales-and-use-tax-in-a-nutshell.pdf https://www.nerdwallet.com/article/taxes/mortgage-interest-rate-deduction#:~:text=You%20can%20deduct%20the%20mortgage%20interest%20you%20paid,married%20filing%20separately%2C%20the%20limit%20drops%20to%20%24375%2C000 . https://www.taxesforexpats.com/articles/news/understanding-the-tax-relief-for-american-families-and-workers-act-of-2024.html https://www.pwc.com/us/en/tax-services/publications/assets/tax-policy-outlook-2024-defining-the-choices-ahead.pdf https://www.pwc.com/us/en/services/tax/library/insights/tax-policy-outlook.html file:///Users/andysham/Library/Mobile%20Documents/com~apple~CloudDocs/kpmg-2024-personal-tax-planning-guide.pdf Link to tax avoidance-https://taxfoundation.org/research/all/federal/international-tax-avoidance/ https://infogram.com/effective-property-tax-rates-by-state-1h7z2l8zpmrog6o

28. Q&A

29. THANK YOU