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U.S. tax reform – Effect of decrease in the tax code’s bias for debt

The much awaited tax reform has at last arrived to reduce the tax code’s bias for debt. As per the recent announcements, the U.S. corporate tax rate may reduce to 25% from 35%. The non-financial corporations will be allowed a deduction of nearly 65% of their gross interest expense, whereas the financial corporations will be allowed a deduction of up to 79%. Some special rules and regulations have also been implemented for the corporations who have stated a malfunction in the tax purposes.

Interest Rates

Interest Rates (Photo credit: 401(K) 2013)

According to various financial experts, the general strategy is to reduce the corporate tax while restraining the interest rate deduction. This strategy may be helpful in reducing the tax code’s bias for debt. Consequently, the investments projects may get more lucrative for U.S. in the near future.

Debates are on regarding whether the situation will really improve or not. Doubts have been raised whether the tax code’s bias for debt will actually be modified or not. Well, there are justified reasons behind these doubts and debates. The reduction of tax code’s bias has both benefactors and oppositions. If the bias gets corrected, then it may be helpful for numerous debt finances. On the contrary, some organizations which were used to take advantage of this bias may face serious hike in the tax burden. They may encounter difficulties to pay off taxes.

However, the evaluation of the tax reform proposal must not be done by judging only individual interests. If the tax reform may help in overcoming the economic obstacles in U.S., then it should be received positively. It’s being assumed that the tax deductions may lead to efficient distribution of resources. Many corporations may avoid issuing debts because of interest rate deduction. This will ensure that the organizations will not make financial decisions due to tax purposes. Rather, the decisions will be influenced by economic reasons. This may be beneficial for an overall economic growth in U.S.

As per some financial analysts, the application of interest cap to the pre-existing debt is not an excellent idea. To make the reformation successful a few other steps must also be taken by the U.S. government. If the tax reformation permits grandfathering of accessible debts, then the corporations may rush for issuing long-maturity debts. The rush to pay off taxes must be reduced too. For the reduction of the rush the U.S. government must take some fortified step. Only then the corporate taxes may be controlled and the reformation may turn out to be really effective.

There are arguments regarding what should be the nature of tax reformation. Many financial experts believe that the interest cap must be applied only to the net interest expenses and not to the gross interest expenses. This opinion has faced much criticism. The application of interest cap to the net interest expenses may raise the amount of revenue. As per the reports of the Congressional Research Service, the reduction in the corporate taxes may reach the 15% notch.

The restriction of net interest rate deduction may even increase the effective marginal tax rates on the vital debt-financed investments. So it’s better to concentrate on applying the interest cap on net interest expenses rather than targeting gross interest expenses.

The U.S. tax reforms may have reduced the tax code’s bias for debt but it’s not yet clear how effective this is going to be. Unless the tax reforms turn out to be completely revenue-neutral, it can’t be effective enough.

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Filing For Bankruptcy In Phoenix

Seal of the United States bankruptcy court. Ch...

Seal of the United States bankruptcy court. Church of Scientology attorney Steven Hayes bought rights to the Cult Awareness Network assets during its bankruptcy proceedings. (Photo credit: Wikipedia)

Filing For Bankruptcy In Phoenix

If you have made the big financial decision to file for bankruptcy, one of the Phoenix bankruptcy lawyers can help you. Most lawyers specializing in this field, including The Frutkin Law Firm, and Bennett Parker PLC offer a free initial consultation, allowing you to determine if bankruptcy is right for you.

Medical bills are the cause of most bankruptcies in the US, and your unpaid medical bills, credit card bills and other loans will be wiped out once you file. Most people look upon bankruptcy as a chance to start afresh, and it is also an opportunity to rebuild your credit. Your creditors also have to stop calling you asking for payments, and you do not have to worry about being sued for non payment or having your wages garnished.

However, your all important credit score is going to suffer once you have filed for bankruptcy, and the filing will remain on your credit report for up to 10 years. Although it is unlikely to happen, your friends, family and people you work with can find out about your bankruptcy, as it becomes a matter of public record. However, for millions of people, it is the only realistic option and if this move is one that you are planning, the expertise of an experienced attorney can be invaluable.Filing For Bankruptcy In Phoenix

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How to Choose a Tax Accountant for Your Business

While you may have been doing taxes on your own in the beginning, a growing business usually needs an accountant. Unfortunately, not all accountants are the same. While some may know a lot about your type of business, others may not. Then there’s the fact that some accountants may be too busy to work with you one on one. If you’re starting to feel overwhelmed, don’t. Here are a few tips on how to choose a tax accountant for your business.

Find an Accountant That Understands Your Business

There are many different fields of work out there and different accountants will understand different businesses. It’s important that you find an accountant that understands your business or you could risk missing several tax deductions. For example, if you’re a freelance writer, you can deduct things that others can’t, such as books bought for research. An accountant that doesn’t work with writers would try to tell you that this deduction isn’t legal. That’s why you must find an accountant that knows your line of work.

Choose an Accountant That Has Time for You

Accounting isn’t as easy as some accountants would lead you to believe. It takes several hours to complete difficult business forms. If your accountant doesn’t have time to meet with you one on one to discuss your taxes before and after preparing them, you should look for another accountant.

Opt for an Accountant with Experience

There are a number of classes that turn out tax preparers in a matter of weeks. However, when you’re dealing with complicated tax issues, you want to choose someone that has years of experience. Not having enough experience can result in you being audited or paying more than you were supposed to.

Select an Accountant That Uses the Latest Technology

Believe it or not, there are still a number of accountants that do taxes by hand. While there isn’t anything wrong with this method, it will take longer to receive your return. Opt for an accountant that uses the latest technology so that you receive your return quickly and know that the IRS has received your return.

Consider the Accountant’s Qualifications

There are a number of qualifications that an accountant can have. The best accountants will have a CPA along with other certifications, such as ABV (Accredited in Business Valuation). A CMA can prepare your taxes and has passed many exams, but they lack the education that a CPA has.

Seek Out an Accountant That Can Offer More Than Tax Returns

Obviously, tax returns are important, but a business has more accounting needs. You may need to pay estimated taxes or need help keeping financial statements. Either way, there’s a good chance you’ll need your accountant throughout the year rather than just on April 15.

A good business accountant is necessary for not only getting the best return on your taxes, but preparing financial statements. Take your time and choose an accountant that is right for your business.

About the Author: Patria Bigger is a tax advisor who enjoys working with small business owners. During tax season she offers free tax support to her family members and friends but she also recommends anyone who needs help seek the advice of a qualified accountant.

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