![<h1>Taxes</h1>
Next year, President Obama wants to reinstate the 20% R&D tax credit and make it permanent, adjust the alternative minimum tax for inflation, and reduce the corporate income tax rate to 28% from 35%. On the flip side, he has pledged to phase out the George W. Bush tax cuts on upper income Americans. This would increase personal income, capital gains, death and dividend taxes, especially for those in the top income bracket making $250,000 or more a year.
Governor Romney is advocating for tax reform that would lower the corporate income tax rate to 25% from 35%, reduce personal and capital gains and dividends taxes, while eliminating the death and individual alternative minimum tax. He has also stated plans to extend 100% expensing for all businesses for a year, so entrepreneurs are able to immediately recover their costs and reinvest in their business in 2013. He too, wants to make a 20% R&D tax credit permanent. Most importantly, he would not phase out the George W. Bush tax cuts.
Reality Check: Taxmageddon is coming to Main Street. Among the tax provisions scheduled to dramatically increase at the end of 2012 are marginal tax rates for individuals, the estate tax, capital gains, and dividend rates. These add up to an almost-$500 billion tax increase for 2013 alone. According to Chris Whitcomb at the National Federation of Independent Business, "Small business owners will be hit hardest because 75% of these concerns are pass through entities [i.e., LLCs, partnerships, sole proprietorships] that are taxed at the individual rate."
Here's how the uptick in tax rates play out: Obama's proposed personal income tax rate for the top bracket (approximately 24% of small business employers, according to a 2011 Treasury Department report based on 2007 tax data) in 2013 is 39.6%. If you add in the Medicare tax, the top rate hits 43.4%. On top of this, there are plans to raise the capital gains tax next year from 5% to 20% (23.8% with the Medicare tax), the death tax to 45% from 35% (with an exemption level of $3.5 million), and the dividends tax to a top rate of 20% from 15%.](https://fortune.com/img-assets/wp-content/uploads/2012/11/121102063450-142983118.jpg?format=webp&w=1440&q=100)
U.S. taxpayers who mistakenly fail to report income or assets held overseas will soon be getting a break from the Internal Revenue Service, while tax evaders who refuse to turn themselves in will face harsher penalties.
The IRS issued rule changes on Wednesday in a move that affects U.S. taxpayers living abroad as well as U.S. residents with offshore accounts. The point of the rule tweaks is to reduce the pressure on taxpayers who fail to report foreign income or assets, but who come forward and admit their error in a timely fashion.
All penalties will be waived for U.S. taxpayers living abroad who mistakenly failed to report their foreign accounts. Meanwhile, taxpayers in the U.S. who have foreign accounts will face fines of only 5% of the total of the assets at issue. Previously, the offshore voluntary compliance programs were not available to taxpayers living in the U.S., while taxpayers living overseas could only take advantage of the reduced penalties if they owed less than $1,500 in unpaid taxes.
The IRS is also increasing penalties for those who evade taxes on their foreign accounts and then don’t come forward quickly. Those who wait until after it becomes clear that federal officials are investigating the bank holding their accounts face penalties of 50% of the balance in those accounts, up from 27.5% previously.
IRS Commissioner John Koskinen said Wednesday that the changes are the result of the IRS’s determination that it was imposing penalties that were “were too harsh or restrictive.” The U.S. government has been pushing for better overall tax compliance from taxpayers with accounts overseas for roughly five years and those efforts have led to the IRS collecting roughly $6.5 billion in taxes, interest and penalties from more than 45,000 taxpayers in that time. But, as The Wall Street Journal reported earlier this week, some of the government’s strong-arm tactics have also resulted in a record number of U.S. citizens living abroad and green-card holders renouncing their allegiance to the U.S. to avoid what they see as overly harsh penalties.
“Our aim is to get people to disclose their accounts, pay the tax they owe and get right with the government. At the same time, for important categories of these non-willful people with offshore issues, a compliance regime that is too harsh won’t net the desired result,” Koskinen said in a statement.
