02.22.10
Posted in Tax at 4:43 pm by Eric
There’s a tax credit for plug-in electric vehicles. The credit is in the $4,000-$6,000 range.
This is potentially huge for people in those big retirement communities where everyone revs up their golf cart hogs to get around Condo Phases 1, 2, 3, and 4.
Unfortunately, the IRS has recently ruled that, in order to qualify for the credit, the golf carts must be street legal, which knocks out the vast majority of such carts. I wouldn’t be surprised if an enterprising cart manufacturer comes up with a low-priced version that qualifies for street use, but don’t hold your breath: the carts would have to meet federal safety standards, the IRS says.
Permalink
02.17.10
Posted in Tax at 12:41 pm by Eric
You pay 7.65 cents in Social Security taxes for every dollar you earn . . . until your wages hit $106,800. At that point, the SS tax ceases. It’s call the Social Security “wage base.” The amount is indexed for inflation, but it didn’t go up in 2010 and it’s not expected to go up in 2011. The reason? Social Security recipients didn’t get a cost-of-living hike in 2010 or 2011. By law, the wage base can’t go up if benefits don’t rise.
Of course, Congress could just change that law, but such two-facedness would be rare, even for the Beltway (”You old guys don’t get an inflation adjustment, but you younger guys pay more like there was an inflation adjustment”).
The wage base, incidentally, is projected to start climbing again after 2011: to $111,3000 in 2012 and $115,200 for 2013.
Permalink
01.11.10
Posted in Tax at 10:00 pm by Eric
It’s not as sweet as the repeal of Prohibition, but the Estate Tax has been repealed . . . for now . . . and only temporarily. Under convoluted earlier legislation, the Estate Tax was scheduled to go away as of 1/1/2010, but then scheduled to come back on 1/1/2011 with a mere $1 million exemption (in 2009, the exemption was $3.5 million). The 2009 Congress meant to act on it but failed, so right now, the Estate Tax is repealed for 2010 and will come back on 1/1/2011.
Important note: Many members of Congress, especially Democrats, want to bring back the Estate Tax during the next legislative section and make it retroactive to 1/1/2010. Such retroactivity, though, has constitutional hurdles.
We’ll see.
Permalink
01.06.10
Posted in Tax at 2:01 am by Eric
The 2010 standard mileage rate is now 50 cents per mile, which is a reduction from 2009’s 55 cents. The reason: lower fuel costs.
But are they really that much lower?
Permalink
01.05.10
Posted in Tax at 9:57 pm by Eric
Does your favorite charity offer scrip cards? With a scrip card, the charity buys scrip from retailers at a discount, then sells the scrip to supporters at full value. The difference between the amount paid by the supporter and the amount paid by the charity is the charity’s “profit.” The difference is also tax-deductible to the supporter, if the supporter has the option of receiving the discount margin in cash. (Added bonus: If the supporter keeps the discount margin, it’s not taxable.)
Permalink
12.05.09
Posted in Tax at 3:49 pm by Eric
According to the PBS News Hour last night, the House has passed the bill freezing the estate and gift tax at 2009 levels, which means a continued $3.5 million exemption. Whether the Senate acts, who knows. They’re bogged down with health care right now.
If nothing gets passed, there is no estate tax next year then the exemption drops to $1 million in 2011.
Permalink
10.22.09
Posted in Tax at 11:56 am by Eric
Looking to find the schemes and plans of the devil himself? Try IRS publications. They’re typically not hard to read (as far as tax prose goes), and they’ll tell you how the devil interprets the Internal Revenue Code. Of course, the IRS puts a slant that’s most favorable to collecting taxes, but in most matters, you’re safer being safe . . . and normally, you’re not looking to scam a tax dollar, you’re just looking to find your way through the daggone maze.
For a publication that affects most people at one time or another, check out Publication 590 (pdf). It’s considered the koran of retirement plans and benefits.
Permalink
10.20.09
Posted in Tax at 1:26 pm by Eric
“The IRS doesn’t recognize limited liability companies.” I’ve told clients that a hundred times, and it almost always evokes a blank stare, so I’m going to try to summarize the reality here.
The Technical Background. The Internal Revenue Code is divided into Subtitles. The Subtitles are then broken down into Chapters, and each Chapter is further broken down into Subchapters (which are then broken down into Parts, then Subparts, and then Sections). Subtitle A deals with “Income Taxes.” Chapter 1 deals with “Normal Taxes and Surtaxes.” Among Chapter 1’s Subchapters are “Corporations” (C), “Exempt Organizations” (F), “Partnerships” (K), “S Corporations” (S). There is no Subchapter for limited liability companies. That’s what tax planners mean when they say “The IRS doesn’t recognize limited liability companies.” Although the IRS certainly realizes that LLCs exist and have even modified their forms somewhat to reflect that many taxpayers are limited liability companies, there is no designated tax treatment for them.
What It Means. It’s a good thing. Because the IRS doesn’t recognize LLCs, you can select whatever tax designation you want. If you’re a one-person LLC, you can select C corporation, S corporation, or nothing (referred to as a “disregarded entity,” which means your profits/losses from your business will go on Schedules C, E, or F of your IRS Form 1040). If your LLC has two or more people, you can be a partnership, C corporation, or S corporation.
How to Decide What to Be. You need to talk with your attorney or accountant to determine how your LLC should be taxed to maximize post-tax profits. If you don’t make any elections, a one-person LLC will be taxed as a disregarded entity, and a two-person entity will be taxed as a partnership. Those are the defaults. As a practical matter, most clients want their LLCs to be taxed as S corporations, but that’s not always the best choice. Fringe benefit issues, self-employment taxes, and entity flexibility are just a few of the things that play into the final decision.
Permalink
10.15.09
Posted in Tax at 11:17 am by Eric
Congress’ 2001 estate tax provisions have created delays and uncertainty. For the past three years, if estate planning clients have come to my office with a net worth over $2 million, I’ve told them (i) not to die and (ii) to hold off on a comprehensive estate plan until 2009 because that’s when everything gets changed (in the meantime, we stay with their existing plan or put simple Wills and related documents in place). My rationale: if things don’t get changed, the estate tax gets repealed entirely on 1/1/2010 (meaning that anyone who dies during 2010, no matter how rich, escapes estate taxes), then on 1/1/2011, the estate tax exemption goes back to $1 million. Both scenarios–the no estate taxes and the low exemption–aren’t desired by many people in the Beltway, so everyone thought new estate tax provisions would be passed in 2009.
But 2009 is nearing the end, and nothing is happening. Congress is embroiled in health care, job creation, and other socio-economic scheming. The estate tax situation isn’t being addressed at all.
So what’s going to happen? According to John L. Buckley, the Chief Tax Counsel of the House Ways & Means Committee, Congress will probably just “kick the can down the road a bit.” Speaking at the 2009 Notre Dame Estate Planning Institute, he said Congress will likely extend the 2009 rules into 2010–in effect, buying themselves another 12 months to deal with the situation.
And what then? That’s where it becomes interesting. If Congress then does nothing, the low $1 million estate tax exemption would be re-instilled on 1/1/2011, meaning that far more middle class Americans get stung by it. This would please people on the further reaches of the left aisle in Congress like Charlie Rangel. Rangel and his ilk want more people to pay estate taxes. Democrats could also deflect criticism for it by simply pointing out that they didn’t do anything. They merely left in place the tax scheme implemented by Republicans back in 2001.
Interesting stuff.
Permalink
07.30.09
Posted in Tax at 11:41 am by Eric
Are you thinking about transferring a parcel of real estate from yourself to yourself and another as tenants-in-common (not as joint tenants)? If the parcel is in Michigan, you’re going to face an anomalous property tax result.
Under 1994’s Proposal A, all property values for purposes of taxation became subject to a limit: they could only go up the rate of inflation or 5%, whichever is less. Prop A also provided, though, that when a piece of property is transferred, the limit (the “cap”) comes off, with the result that the parcel is then valued (for purposes of taxation) at its then-fair market value.
If you transfer a parcel into a tenancy-in-common, retaining one-half for yourself, you are essentially transferring one-half of the parcel, with the result that one-half of the cap should come off. Example:
Parcel’s Current Fair Market Value: $90,000.00
Parcel’s Current Taxable Value: $50,000.00
Parcel’s New Taxable Value: $70,000.00 ($25,000 original one-half + $45,000 uncapped one-half).
The resulting tax hit? It’s impossible to say. To figure it out, you need to multiply your tax jurisdiction’s mills by 70 and contrast it with the old tax hit.
Permalink
« Previous entries Next Page » Next Page »
