Back-to-School Tax Update
Back-to-School Tax Update and Recent Client Accolades
As children in grades kindergarten through college begin to settle in for another school year (hopefully free of cheating scandals in Atlanta and a few less beers at UGA), lets take a quick look at what is happening on the tax legislation front. The flurry of tax bills that marked the beginning of the year have waned, but we continue to absorb the two major tax Acts that were signed into law on healthcare reform and hiring incentives. See our website for the tax briefings we sent out with the highlights of these bills. www.wblcpa.com.
It is the legislation that has not passed that has caused confusion. Are tax rates going up for 2011? How will capital gains and dividends be impacted? Unfortunately, we now don’t expect answers to these until after the November elections. Nevertheless, we thought we would address some of the hot discussion items and suggest that you contact us if you would like to discuss anything further:
FEDERAL TAX RATES
Everyone is expecting federal tax rates to go up for 2011, even if there are no tax law changes and the so-called Bush tax cuts are allowed to sunset. However, if there is a delay in any action until the post-election lame duck period, the possibility of extending the 2010 rates to 2011 becomes greater. Still, conventional wisdom indicates tax rates along the lines of the Obama budget shown below. But a wait-and-see approach might be in order.
ESTATE TAXES
We would have never guessed that we would still have a zero estate tax for 2010 by the time the 2010-2011 school year began, but here we are. Despite the deaths this year of high net worth individuals such as Yankees owner George Steinbrenner and Taco Bell founder Glen Bell, the prospects of a retroactive tax is less and less likely as the year progresses. For those estates, the heirs will be subject to a complicated partial-carryover basis calculation for the inherited assets, rather than allowing them to use the date-of-death values as in the past. For 2011, if no tax law changes are made, the life-time exemption will go back to $1 million and the highest tax rate will be 55%. Conventional wisdom indicates that we will see a $3.5 million exemption with a 45% maximum rate for 2011.
OTHER SNIPPETS
Foreign Tax Changes: On August 10, President Obama signed the Education/Jobs/Medicaid Assistance Act of 2010 that had over $9 billion of revenue raisers, mostly targeting multinational companies. There will be changes in calculating foreign tax credits, income sourcing and other provisions aimed at eliminating some perceived abuses.
Healthcare Reform Myth: While it is true that health insurance premiums paid by an employer will have to be reported on the employee’s W-2 beginning in 2011, it is not true that the premiums are taxable. The W-2 is for informational purposes only.
More on Roth IRA Conversions: A lot is being said about the changes to the Roth rules whereby for the first time ever, individuals with greater than $100k in adjusted gross income can convert their traditional IRAs to Roth IRAs beginning in 2010. For some clients, this makes sense, and indeed many computer models will indicate the advantages for a vast majority of clients if you assume tax rates will be higher when you or your heirs are ready to take distributions in the future. However, the assumed tax rates 10 to 20 years down the road are anyone’s guess and further, those computer models do not take into account the possibility that Roth IRAs will be taxed for certain high income taxpayers in the future. The uncertainties make this strategy a difficult one on which to advise. Please contact us if you would like to discuss your situation.
Business Asset Depreciation/Expensing in 2010: We have had numerous questions on Section 179 expensing and bonus depreciation for 2010 purchases of business assets. The $250k Section 179 rule is applicable for 2010 just as it was in 2009. 50% bonus depreciation for new assets is currently not available for 2010. However, there is a bill in Congress under consideration that would make the bonus depreciation retroactive to January 1. That same proposed bill extends and even expands the Section 179 rules for 2011.
CLIENT CORNER
While we are proud of all our clients and their accomplishments, we wanted to mention a few recent ones here and extend our invitation for your future submissions:
