07.19.10
Posted in Tax at 12:15 pm by Eric
Blanche Lincoln (D, Ark) and Jon Kyl (R, Ariz) have introduced legislation to add a “35 and 5″ estate tax extension to a small business bill the Senate is debating. The “35 and 5″ means: 35% tax rate and $5 million unified credit (i.e., you can die with $5 million without paying estate taxes–roughly speaking). The Senate had already agreed to the “35 and 5″ in a prior non-binding budget resolution. The question now is whether it can get through the House. Pelosi is expected to oppose it.
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06.10.10
Posted in Tax at 10:47 pm by Eric
Dispatches from our internal office memoranda:
1. I can authoritatively report, from a couple of different sources, that the “tax reforms” that are now going through Congress attached to some other legislation have nothing to do with estate or gift tax. They’re essentially about some Bush-Tax-Cut related benefits for business that expired 1-1-10, and the legislation would revive them and make them permanent, along with as couple of similar things related to individual income tax.
2. The bill that passed the House late in 2009 got first and second readings in the Senate and was assigned to committee, where it has since died. The problem is, that bill did two things. It not only made the 2009 levels permanent, but it also repealed the repeal (if you will) of the estate tax for 2010 and applied the 2009 scenario to 2010. As time has gone by, there is less and less political will to do the latter, so the question going forward would be whether it would be easier to strip that part from the House bill, or simply start over.
3. So anyway, while it appears that the 2010 “repeal” is probably cast in stone. the issue of whether we’ll have pre-Bush rules or 2009 rules for 2011 and after is still open, and as of mid-May at least, Congress had yet to consider that. There’s some thought that they may extend the 2009 regime, at least for a few years, before they adjourn for the midterm elections, but some sources say there’s bipartisan support in the Senate to go to a $5 million unified credit and a 35% rate, so we may be back to the same old problem that derailed us last year, i.e., there’s nothing that can get 60 votes.
4. Obama originally supported making the 2009 scheme permanent, but according to one source, he’s now waffling a little bit because of the deficit, and saying maybe we ought to soak the rich a tad in order to help finance the middle class tax relief he still wants to do. You may recall that he appointed a blue ribbon deficit reduction commission, and now he’s saying he isn’t going to take any position on tax reform until after they’ve reported, which isn’t due until December 1. That will give Congress another reason to do nothing.
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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.
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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.
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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.
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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?
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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.)
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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.
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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.
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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.
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