Research Paper Required: Write A Minimum 5-Page Paper

Research Paperrequired You Are To Write a Minimum 5 Page Paper Using

Research Paper Required: You are to write a minimum 5 page paper, using APA format. Find and discuss five (5) recent tax rule changes. You are to discuss the change and how it will impact those involved. Note, the CARES act, is a large bill with many tax law changes. So you will find many of these in the newly passed law. Feel free to cover any new law for the 2019 tax return and ahead. You are to have at least 3 reliable sources.

Paper For Above instruction

This research paper aims to explore five recent changes in U.S. tax laws, particularly those emerging from legislation enacted around 2019 onward, including significant amendments passed through acts like the CARES Act. The recent period has seen considerable modifications to tax regulations, driven by economic shifts, crises such as COVID-19, and policy reforms aimed at fostering economic growth and recovery. Understanding these changes and their implications is crucial for taxpayers, accountants, and policymakers alike. This paper investigates five significant tax rule changes, analyzing their provisions and the tangible impacts on individuals and businesses.

1. The CARES Act and its Tax Provisions

The Coronavirus Aid, Relief, and Economic Security (CARES) Act, enacted in March 2020, was a groundbreaking legislative response to the COVID-19 pandemic. Among its numerous provisions, several tax law changes directly impacted both individual taxpayers and businesses. One significant change was the relaxation of the loss deduction rules for businesses. The CARES Act temporarily suspended the limitation on net operating losses (NOLs) for 2018, 2019, and 2020 returns, allowing businesses to carry back NOLs for five years. This provision provided liquidity relief and tax refund opportunities during a period of economic downturn. It also permitted corporations to offset income with prior-year losses, dramatically influencing corporate tax planning and cash flow (IRS, 2020).

Additionally, the act introduced a simplified process for claiming the Employee Retention Credit (ERC), a refundable payroll tax credit aimed at incentivizing employers to retain employees despite pandemic-induced economic hardships. This change allowed eligible employers to claim significant tax credits, reducing payroll tax liabilities and improving cash flow for businesses (Congressional Research Service, 2021).

2. Extension and Expansion of the Child Tax Credit

Another critical change pertains to the enhancement of the Child Tax Credit (CTC) as part of broader stimulus efforts. The American Rescue Plan Act (ARPA) of 2021 significantly increased the CTC for 2021, including doubling the maximum credit from $2,000 to $4,000 per child for children under 6 and $3,000 for children aged 6-17. Furthermore, it made the credit fully refundable, ensuring low-income families could benefit fully from the relief. The IRS implemented monthly direct payments to eligible families, a departure from annual claim filing, aiming to reduce child poverty. The impact of this change is significant, providing immediate liquidity to families and reducing child poverty rates (IRS, 2021).

3. Changes in Capital Gains Taxation

Recent tax reforms have also targeted capital gains taxation, intending to address wealth inequality and ensure tax fairness. The Biden administration proposed raising the top capital gains tax rate from 20% to 39.6% for high-income taxpayers earning over $1 million annually. If enacted, this change would markedly alter investment strategies for wealthy individuals and hedge funds, potentially increasing tax revenues. This proposal reflects a shift toward more progressive taxation and is part of broader efforts to fund infrastructure and social programs (Joint Committee on Taxation, 2022).

4. Modifications to the SALT Deduction Limit

The State and Local Tax (SALT) deduction cap, implemented under the Tax Cuts and Jobs Act of 2017, limited deductibility of SALT to $10,000. Recently, several states have sought legislative relief or adjusted their tax codes to mitigate this cap. Some legislative proposals aim to allow pass-through entities to deduct SALT payments at the state level, circumventing federal limits. The potential removal or increase of this cap could benefit high-tax states and their residents, but it remains a politically contentious issue, with debates focusing on fair taxation and federal revenue implications (Tax Policy Center, 2022).

5. Changes in Business Expense Deduction Rules for Small Businesses

The IRS introduced additional provisions for small businesses, particularly regarding the Qualified Business Income Deduction (Section 199A). The law extended and clarified how certain service and trade businesses could qualify for a 20% deduction on qualified income, designed to promote small business growth. Recent updates addressed the definition of eligible income and limitations based on income thresholds, directly impacting tax planning strategies for small business owners (IRS, 2022).

Conclusion

The landscape of U.S. tax law continues to evolve rapidly, influenced by economic exigencies, legislative priorities, and social considerations. The five changes discussed herein reflect a trend toward accommodating economic recovery, addressing income inequality, and incentivizing business activity. Understanding these modifications helps taxpayers and professionals make informed decisions, optimize tax liabilities, and comply with current regulations. As new laws emerge, staying informed about legislative developments will remain essential for effective financial planning and policy formulation.

References

  • Congressional Research Service. (2021). The Employee Retention Credit (ERC). CRS Report R46778. https://crsreports.congress.gov/product/pdf/R/R46778
  • IRS. (2020). The CARES Act Effect on Business Losses. Internal Revenue Service. https://www.irs.gov/newsroom/cares-act-impacts-on-taxpayers
  • IRS. (2021). Child Tax Credit and Stimulus Payments. Internal Revenue Service. https://www.irs.gov/individuals/child-tax-credit
  • IRS. (2022). Qualified Business Income Deduction (Section 199A). Internal Revenue Service. https://www.irs.gov/businesses/small-businesses-self-employed/qualified-business-income-deduction
  • Joint Committee on Taxation. (2022). Overview of Proposed Changes to Capital Gains Taxation. JCX-22-01. https://www.jct.gov/publications/2022/jcx-22-01/
  • Tax Policy Center. (2022). SALT Deduction Cap and State Tax Efforts. Urban Institute. https://www.taxpolicycenter.org/publications/salt-cap-expansion

Related Assignments