2011 Q2 | Easing the Burden of Estate Tax

2011 Q2 | Easing the Burden of Estate Tax

The new tax law relieves many taxpayers from concerns about federal estate tax for the next two years. What’s more, the law clarifies the treatment of estates of the people who died last year. New rules For 2011 and 2012, the federal estate tax exemption is set at $5 million. That’s a significant increase over the $3.5 million exemption for deaths in 2009 and a huge jump from the $1 million exemption that would have taken effect if a new law had not been passed. Excess assets are now taxed at 35%, down from 45% in 2009. As before, bequests to charities and surviving spouses who are American citizens are not subject to estate tax, regardless of the amount. Perhaps

2011 Q2 | Income Shifting

2011 Q2 | Income Shifting

The annual gift tax exclusion for 2011 is $13.000. A middle-aged man could give his retired parents up to $26,000 of appreciated securities with no gift tax consequences. If he is married, the man and his wife could give up to $52,000 of appreciated securities to his parents and another $52,000 to her parents this year. The parents in this scenario would retain the original investor’s basis (cost for tax purposes) of the appreciated securities, if they are sold for a gain, and the original investor’s holding period. The new owners would have along-term gain on a sale of appreciated assets held more than one year. As long as the retired couple’s taxable income remains under $69,000 this year, the

2011 Q2 | Deduct, Don’t Depreciate

2011 Q2 | Deduct, Don’t Depreciate

The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of2010 focused mainly on personal income and estate tax. Nevertheless, some additional provisions may be helpful to businesses. In particular, the new law enhances the Section 168(k) bonus depreciation provisions by temporarily allowing 100% first~year bonus depreciation of new business equipment that qualifies for bonus depreciation. That is, a company that purchases qualifying depreciable assets may deduct the entire cost of the assets right away. First~year deductions will immediately boost a company’s cash flow, compared with taking depreciation deductions over several years. No limits exist on the amount of qualifying equipment purchased that is eligible for the 100% deduction. This 100% deduction provision is effective for qualifying equipment placed in

2011 Q2 | Taxes on Bonds Bought at a Premium or Discount

2011 Q2 | Taxes on Bonds Bought at a Premium or Discount

The taxation of bond interest is relatively straightforward. Assuming the bonds are held in a taxable account, the interest on corporate bonds is generally subject to all income taxes: federal, state (if applicable), and local (if applicable). Treasury issues pay interest that’s subject to federal income tax but not state or local tax. Most municipal bonds pay interest that’s exempt from federal income tax. If you buy a bond issued in your home state, you probably will avoid all tax on the interest income. Plus or minus You may have a more difficult time figuring capital gain or loss on a bond, however. Bonds are issued at so-called par value (for example, $1,000 per bond). Then prices fluctuate as interest

2011 Q2 | Capital Gains, Not Ordinary Income

2011 Q2 | Capital Gains, Not Ordinary Income

Tax-exempt bonds that were purchased with a market discount before May 1, 1993, are not treated as market discount bonds. Any gain on the sale of such bonds is treated as capital gain. For example, suppose you bought tax-exempt bonds that were issued with a $10,000 par value. Before May 1, 1993, you paid $9,000 for those bonds. If you sell the bonds now for $9,500, you’ll have a $500 long-term capital gain. A similar example using tax-exempt bonds bought after April 30, 1993, would result in $500 of ordinary income taxed at higher rates.

2011 Q1 | Lower Taxes May Mean More Jobs

2011 Q1 | Lower Taxes May Mean More Jobs

In some ways, the title of the Small Business Jobs Act of 2010 says it all. This new federal law aims to create jobs within the United States, with small companies acting as engines of growth. Among the multiple provisions of this act, several provide tax benefits for small businesses. The authors of the new law hope that lower taxes will make many small and thus more to add employees. Equipment deductions One provision of the new law expands Section 179 of the tax code, which allows small companies to buy business equipment and take a first-year tax deduction. Ordinarily, companies must depreciate the equipment they buy, thus spreading deductions over several years. From 2008 through 2010, Congress passed a