While the effects of these tax proposals hit home for everyone, there are separate, specific implications for high-income individuals and many large businesses, which is precisely why an in-depth understanding of the Green Book is essential for tax professionals. This 130-page document is a blueprint of all tax proposals by the administration for its Fiscal Year 2010 budget, and a careful study will foreshadow the tax planning challenges practitioners may encounter with clients.

John Stevko discusses the importance of 2010 budget proposals and Gear Up.

While the thesis for the proposed tax changes is “the more you make, the more you’ll be taxed,” the administration’s impetus for the edits is an attempt to level the playing field. John Stevko, a consultant, lecturer, author and trainer for Thomson Reuters, says the administration is pushing for changes to provide a catalyst to stimulate the economy.

“President Obama wants the people who have benefitted the most from the uptick in the economy over the past several years to bear more of the burden,” Stevko explains. “Married couples who make under $250,000 and

single filers who make under $200,000 won’t see tax raises.”

Tax Implications for Individuals
Assuming the budget is approved and the changes are inevitable, the question then becomes, “how will tax professionals prepare to assist clients?” It all starts with understanding the facts. Most of the tax provisions will affect those individuals making more than $200,000 and married couples with a $250,000 and higher income. Specifically:

The highest income rate will be taxed at 39.6 percent, following the next group at 36 percent. These increases are only at the federal level. State taxes are not factored into the proposed changes. (Those in the current 28 percent tax bracket will not see a tax rate increase.)

Itemized deductions (charitable deductions, property taxes, mortgage taxes, etc.) will be capped at 28 percent. This means that although a high-income individual is taxed at 36 percent or more, he can only deduct up to 28 percent. “This is the first time there’s been a disconnect between what a person can take as a deduction and what they could pay as income tax,” Stevko explains. Itemized deductions not affected are medical expenses, investment interest, theft and casualty losses and gambling losses.