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By JOHN HOINSKI
Staff Writer
Although most changes in the
new tax law will not go into
effect until 1987, businesses, cor-
porations and individuals should
begin as soon as possible to
become familiar with those
reforms.
“People won’t have many
problems with filling out their
tax forms this year,” said
Gerald Bernstein, CPA and
partner in the J.H. Williams &
Co. Certified Public Accountant
Firm, Kingston. ‘‘But they
should become aware of some of
the changes for next year so
they know what they can and
cannot deduct.”
Those changes are seen as the
most massive reforms since the
1954 revenue code and, in fact,
are so voluminous that J.H.
Williams & Co. offers its clients
a 45-page ‘‘guideline’”’ of those
changes.
Despite the abundant changes,
the average person should be
able to fill out tax returns in
1987 without much difficulty.
“There will be some mechani-
cal changes for the average guy
on treatment of certain items,”
Bernstein noted. ‘“But unless
they are involved in tax shelters
and other preferences, most
individuals should be able to
handle their forms with relative
ease.
CAPITAL GAINS AND
LOSSES
PRIOR LAW — An individual
was able to exclude 60 percent
of his net capital gains (the
excess of net long-term capital
gains over net short-term capi-
tal losses) from his adjusted
gross income. The result was a
maximum effective tax rate of
20 percent of such income.
Regarding net capital losses,
short-term losses were deducti-
ble in full and 50 percent of
long-term losses were deducti-
ble against other income up to
$3,000 per year with any excess
being carried forward.
NEW LAW — 1. Beginning in
1987, the 60 percent net long-
term capital gain exclusion is
repealed. All capital gains,
whether short-term or long-
term, will be taxed dollar for
dollar as ordinary income. It
should be noted that the top rate
on such transactions in 1987 will
be 28 percent even though the
top individual rate that year
will be 38.5 percent. Thereafter,
capital gains will be taxed at
the same rate as other income,
depending upon the individual’s
income level.
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$3,000 per year maximum as
under prior law except that
long-term losses will no longer
have to be reduced by 50 per-
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ried forward.
CHARITABLE
CONTRIBUTIONS
PRIOR LAW — Charitable con-
tributions were able to be
deducted infull by both itemiz-
ers and non-itemizers alike in
1986.
NEW LAW — 1. The treat-
ment of charitable contributions
by itemizers is unaffected by
the Act.
2. Beginning in 1987, those who
do not itemize their expenses
will no longer be able to deduct
their charitable contributions.
STATE AND LOCAL
SALES TAX
PRIOR LAW — State and
local taxes were deductible as
an itemized expense.
(See TAX, page 4)
“Basically, the reforms are a
revenue neutral act that won’t
create or take away tax money
from the government. It is the
shifting ¢f Saxes from one seg-
ment of taxpayers to another.”
The new law will eliminate
several million people from the
tax roles, but will not necessar-
ily hurt individuals in the higher
income bracket while those in
the middle income range should
benefit only slightly. The
reforms are really aimed at
businesses and for those individ-
uals who utilize tax shelters and
other tax preferences. Those
individuals who don’t avail
themselves to those preferences
will benefit.
“You are going to see people
investing in things because of
economic reasons and not
because of tax advantages,’’
Bernstein said.
Some of the general changes
on items that will provide reve-
nue allowing others to enjoy tax
breaks include: 1) strict rules
on passive losses, resulting in
curtailment of most losses; 2)
elimination of investment tax
credits; 3) elimination of capital
gains treatment of certain
income; 4) elimination of con-
sumer interest at individual
level; 5) depreciation changes
whereby longer lives will be
required to be used to write off
business assets; 6) reduction of
deductability of certain meal
Checking changes
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and entertainment expenses for
business purposes; 7) new
requirements for methods of
reporting income and certain
business deductions. :
“There have been a lot of
technical changes made already
on the new tax laws,’’ Bernstein
said. “And there will probably
be many more before the
majority of those laws go into
profits because of increased
taxes, I think it’s only logical to
believe there will be an increase
in prices in some areas to make
up for those losses. I don’t see it
as a far-reaching problem or as
an overriding problem. But it is
something to think about.
“Eventually, I think we are
going to see a national sales
tax,” he added. ‘Not on food or
effect. But I really believe they
pushed them in too fast.”
Although the average person
will see more of a financial
return with the new code, Bern-
stein says he feels they will
probably have to pay in the long
clothes, but on other items as a
supplement to the income tax.
In 1980, our national debt was $1
trillion and we have added
another $1 trillion since that
time.
“How else are we going to
mn. raise money? Raise taxes?
“A lot of these laws are aimed Maybe. But we are going to
at businesses,”” Bernstein have to do something just to
explained. “If they are losing slow the pace down.”
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