2011 Q3 | State Taxes Can Crimp Your Cash Flow

2011 Q3 | State Taxes Can Crimp Your Cash Flow

If your company does business solely in one state, it probably owes tax to that state, as well as to the federal government. Many companies, however, operate across state lines, and therefore, may owe tax to more than one state. In the current economic slowdown, some states are endeavoring to address tax shortfalls by aggressively seeking more tax from companies based in other states. Types of tax State taxes come in several categories. The most common include • income taxes. If your company has net income from operations within a state, that state may tax those profits. • sales taxes. These taxes generally are imposed on the retail sale of goods (that is, when goods are sold to an end

2011 Q3 | Voluntary Disclosure for State Taxes

2011 Q3 | Voluntary Disclosure for State Taxes

Companies may discover that they had nexus in a given state and, thus, owe back taxes. Most states allow voluntary disclosure agreements (VDAs). These agreements call for the company to submit delinquent tax returns and pay the required taxes. Typically, a VDA will limit the lookback period to three or four years. No penalties will be assessed if the company pays taxes in full for those years.

2011 Q2 | Income Tax Rates Hold Steady

2011 Q2 | Income Tax Rates Hold Steady

Tax legislation passed at the end of 2010—the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of2010—maintains the person in effect since 2003. In 2011 and 2012, those rates range from 10% to 35%. In 2012, we might see yet another debate on future tax rates. Capital gains and dividends The 2011 and 2012 tax rates ranging from 10% to 35% are on ordinary income: earnings, interest on savings accounts, pensions, and so on. For long-term capital gains and qualified dividend income (which includes most dividends received by investors), the top tax rate remains at 15% for this year and the next. Therefore, investors are likely to continue to seek dividend-paying stocks and all types of investments that may

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 | 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