Estate Planning Strategies

2012 Budget Proposal – Act Now Before Current Tax Benefits Change

President Obama recently announced his 2012 budget proposal.    Tax increases highlight the proposal, with estate and gift tax increases included.

The possibility of higher gift and estate taxes underscores the importance of acting NOW to gain the benefits of the 2-year tax relief bill.   The window of opportunity for shifting $5 million of assets to family members free of gift and estate tax may be closing.

Included in the 2012 proposal is a return to the $3.5 million estate tax exemption of 2009 and, more significantly, a return to the lower $1 million lifetime gift tax exemption.   Under the proposal, these exemption amounts would begin in January, 2013, with a higher rate of 45%.

For more details, please read the article from Forbes Magazine. We encourage you to contact our lawyers to assist you in 2011 planning.  Our lawyers are implementing strategies today for clients in anticipation of these changes taking place.

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Expanded Trusts & Estates Services

From The Feldman Law Firm LLP

Dear Friends and Valued Clients:

We are proud to announce the expansion of our trusts and estates practice with the addition of Joseph C. Vitek.

Joe joins us from Chicago where he practiced for over 10 years, most recently with the Trusts & Estates practice group of Arnstein & Lehr, LLP. Joe brings to our clients over 20 years of legal experience in estate planning and probate.

After receiving his law degree from the University of Nebraska, Joe received his LLM in taxation from the University of Missouri at Kansas City. He and I will work together in servicing our expanding roster of clients and advisors in our estate planning and probate practice.

The rapid growth in the Firm's estate planning practice is a direct reflection of the unusual opportunities that exist today for our clients given the remaining sixteen month window granted by the 2010 Tax Relief Act and the accompanying commitment of our Firm to serving clients in preserving and transferring wealth to family members.

We extend a heart-felt "thank you" for entrusting us with your estate planning needs. Please contact me immediately for more details on the planning opportunities available over the next sixteen months as a result of the 2010 Tax Relief Act. Very truly yours, Stewart A. Feldman

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Family Limited Partnership2010 Estate Planning Strategies Update

Re:  "Could My Family Benefit from a Family Limited Partnership?"

Family Limited Partnerships (FLPs) and Family Limited Liability Companies (FLLCs) continue to be appropriate and effective vehicles for protecting family wealth and shifting value to future generations.

Not only does existing law support this planning when formed as well for legitimate non-tax reasons, but we have also been given the benefit of IRS guidance with respect to the timing and nature of formations of these entities.

To find out more about how a Family Limited Partnership may benefit your family, click here for a recent article published for Wells Fargo Advisors.

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Why Do Firms Pass Up on Tax Breaks?

Earlier this summer, The Wall Street Journal published an insightful article entitled, "Firms Pass Up Tax Breaks, Citing Hassles, Complexity,"  July 23, 2012 (click here for full article).

Though it is anybody's guess what Congress will do with the current tax policies set to expire January 1, 2013, it remains a fact that businesses shy away from opportunities to engage in planning for fear of the perceived headaches and complexity involved.

The Feldman Law Firm LLP specializes in sophisticated business and tax planning.   Our Firm's practice, and our specific area of expertise, lies in representing closely-held businesses and their principal owners in tax and corporate matters.

Our staff of 10 attorneys excel in taking the more sophisticated planning techniques used by large corporations and Fortune 1000 companies and, by reducing the cost and complexity of the planning process, makes it practical for use by the middle-market, privately-held company and its principal owners.   Click here for article excerpts.

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Small Business Tax Cuts

President Obama signed the Small Business Jobs and Credit Act of 2010 (H.R 5297) (the "Act") on September 27, 2010, that includes $12 billion in tax cuts for small businesses and a new $30 billion lending fund to aid credit availability for small firms.

Key Provisions Affecting Our Clients

The legislation includes a one-year extension of the 50% bonus depreciation provision created in the American Recovery and Reinvestment Act (Pub. L. No. 111-5), an increase in Section 179 expensing limitations up to $500,000, and an increase in the Section 179 phase-out threshold amount to $2 million for 2010 and 2011.

The legislation temporarily reduces the holding period to 5 years for S corporations with built-in gain that have previously converted from C corporations. No built-in gains tax will apply to assets of an S corporation sold during its 2011 taxable year provided that the S corporation is already in the 5th year or more of its holding period prior to such taxable year.1

The Act will also allow business owners to deduct the cost of health insurance for the purpose of computing 2010 self-employment taxes and permits general business credits of small businesses to be carried back for five years.

Additionally, those credits would not be subject to the alternative minimum tax. Individual investors in "qualified small business stock"2 acquired between September 28 and December 31, 2010, would be allowed a 100% gross income exclusion (an increase from 50% before 2009 and 75% in 2009 and 2010) from the sale of such stock if held for more than five years.

The Act doubles the allowable deduction for start-up business expenses from $5,000 to $10,000 for tax years beginning in 2010. Additionally, the phase-out limitation is increased from $50,000 to $60,000. Therefore, businesses that make the election to expense qualifying start-up expenditures may benefit from an additional deduction of up to $10,000.

Taxpayers that do not make this election are required to capitalize start-up expenditures and deduct such costs pro rata over 180 months. Firms would also get relief from the oft-criticized tax code Section 280F requirement that they account for how much of their employees' company-issued cell phone use is for personal calls in order to deduct the full cost of the phones.

More Taxes

Offsets Through Retirement Accounts To offset the cost of the tax cuts in the Act, lawmakers agreed to allow individuals with 401(k), 403(b), and governmental 457(b) plans to roll their pretax account balances into Roth individual retirement accounts, an idea expected to raise more than $5.5 billion over 10 years.

The change would make the amount of the rollover taxable as income, except in the case of money that is a return of after-tax contributions. If the rollover is made in 2010, the participant can elect to pay the tax in 2011 and 2012. Another $2.5 billion in revenues would come from a new provision to require individuals who receive rental income from real property to file Form 1099 information returns to the Internal Revenue Service and to service providers if payments have totaled $600 or more during the year for rental property expenses.

Lawmakers also added a provision to prohibit companies from claiming the $1.01-per-gallon biofuel production credit on crude tall oil (sometimes also called liquid rosin or tallol), a waste by-product of the paper manufacturing process, as a way to raise $1.8 billion.

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While Democrats celebrated passage of the Act, Republicans criticized the legislation's use of another round of new Form 1099 rules as increasing the paperwork burden on small businesses, and also the Small Business Lending Fund, which was equated with a miniature version of the Troubled Asset Relief Program.

Meanwhile, Senate leaders say efforts to advance a bill to extend most of the 2001 and 2003 Bush tax cuts are continuing, but now that Congress has adjourned, there will not be any floor action prior to the midterm elections in November. Please contact Stewart Feldman or Steven D. Cohen if you have any questions about this new tax legislation.
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1 By way of background, C corporations that convert to S corporations must recapture their built-in gains (unrealized gain in assets at the time of conversion) upon a subsequent sale of their assets. For tax years beginning prior to 2009, the holding period is 10 years.

For taxable years beginning in 2009 or 2010, the holding period is 7 years provided that the S corporation was in the seventh year of its holding period prior to its taxable year beginning in such taxable year. 2 See IRC §1202.

To qualify for this provision, the stock must be issued by a domestic C corporation with a gross adjusted basis in assets of $50 million or less. In addition, the corporation must conduct a "qualified trade or business" and meet certain other requirements.

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Recent Tax ProposalsFrom The Feldman Law Firm LLP RECENT TAX PROPOSALS

President Obama's Proposed Additional 2.9% Tax on Unearned Income

An analysis from the Joint Committee on Taxation shows that President Obama's recent proposal to impose a new Hospital Insurance Tax on unearned income to replace the "Cadillac" plan tax as the main revenue source for a health care overhaul would produce $183.6 billion in new revenues over 10 years.

The proposal would levy a new 2.9% Medicare tax on income from interest, dividends, annuities, royalties, rents, and other unearned income for individuals earning more than $200,000 per year ($250,000 for joint filers).

The proposed tax would also apply to long term capital gains. That would push the capital gains rate to 22.9% in 2011, up from 15% now and 20 percent scheduled to take effect next year.(1) The higher Medicare tax would not apply to income earned in tax-deferred retirement accounts.

None of these items are now subject to Medicare tax. The president also wants to burden these so-called "higher earners" with an additional 0.9% Medicare tax on their earned income. The additional Medicare taxes are similar to those proposed in the Senate's health care bill.

White House officials say President Obama's proposal would be 'fairer' to everyone because it would subject all so-called "high-income" people to the tax, regardless of how they receive their income. With the Obama Administration continuing to struggle with Congress over health care reform, we will have to wait and see whether the President has any better success with these tax hike proposals in a Congressional election year.

Hiring Tax Incentives.

The Senate on February 24, 2010, by a vote of 70 to 28, passed H.R. 2847, Hiring Incentives to Restore Employment Act (the "Senate jobs bill"). The Senate jobs bill features a payroll tax break and a tax credit for new hires.

More specifically, for wages paid after the enactment date and before 2011, employers would not have to pay the employer-portion of FICA with respect to new hires who have been unemployed for at least 60 days, and who are hired after February 3, 2010, and before January 1, 2011.

Additionally, for tax years ending after the enactment date, the bill would create a $1,000 business credit for unemployed individuals hired after February 3, 2010, and before January 1, 2011, who (a) work for the employer for a period of not less than 52 consecutive weeks, and (b) whose wages for such employment during the last 26 weeks of such period equal at least 80% of the wages for the first 26 weeks of the period. The bill also would:

  •  Extend to 2010 the enhanced 2008 and 2009 section 179 expensing thresholds so that taxpayers could elect to write-off up to $250,000 of certain capital expenditures (subject to a phase-out for expenditures that exceed $800,000).
  • Extend highway and transit programs through calendar year 2010, and transfer $19.5 billion from the General Fund to the Highway Trust Fund.
  • Enact a comprehensive set of measures to reduce offshore noncompliance. The IRS would be given new administrative tools to detect, deter and discourage offshore tax abuses.

While Senate leaders celebrated passage of the bill as the first step toward putting Americans back to work, House lawmakers appeared to be less impressed. As such, we understand that no decisions have yet been made one way or the other on whether the House will bring the Senate bill to the floor. (1) Wall Street money-management firms estimated a 2.9% tax on unearned income would produce a 3.5% to 4% decline in the broad stock indices.

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National Experts Join Feldman in Analysis of 2012 Taxpayer Relief Act

This month, NBIZ Magazine published a provocative article entitled, "Finding Tax Relief May Require A Microscope,"  February 2013 (click here for full article).

In the article, The Hermitage Foundation and the American Enterprise Institute (among others) join Stewart Feldman of The Feldman Law Firm LLP in a sobering analysis of the "Relief" act and its effect on middle-market businesses and their principal owners.

While President Obama touts the Taxpayer Relief Act of 2012 as a "victory for middle-class families" that will boost the economy and shrink the deficit, Feldman says that stealth taxes abound in the new tax act, which will have a dramatic effect on business owners and high-income taxpayers: "Depending on the city and state in which you live, we now live in a 45 percent to 55 percent tax world.  Said another way, you begin working for yourself around July 1 of each year." 

For more consensus on the negative impact of the Act, click here.

The Feldman Law Firm LLP specializes in sophisticated business and tax planning.   Our Firm's practice, and our specific area of expertise, lies in representing closely-held businesses and their principal owners in tax and corporate matters. Our staff of 10 attorneys excel in taking the more sophisticated planning techniques used by large corporations and Fortune 1000 companies and, by reducing the cost and complexity of the planning process, makes it practical for use by the middle-market, privately-held company and its principal owners.

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MORE TAXES COMING--PROPOSED INTERNET SALES TAXFrom The Feldman Law Firm LLP

More Taxes Coming--Proposed Internet Sales Tax

More Direct Taxes On the Horizon.

Federal streamlined sales tax legislation enabling states to require sales and use tax collection by internet and other remote sellers will be introduced in the Senate within two weeks, according to Neal Osten, federal affairs counsel with the National Conference of State Legislatures.

Osten told delegates at a recent meeting of the Streamlined Sales Tax Governing Board Inc. that Sen. Mike Enzi (R-Wyo.), who is a past sponsor of the legislation, will introduce the bill. He said a companion bill will be introduced in the House soon after.

The Main Street Fairness Act is the latest version of legislation that would enable states to overcome the restrictions of Quill v. North Dakota, a 1992 U.S. Supreme Court decision that held a state could not impose a sales tax collection duty on a retailer that did not have a physical presence in a state.

The project is a 10-year effort by states and industry to enforce sales and use tax collection. Federal legislation, which would transform the system from a voluntary program to a mandatory one for retailers, appears to be critical to the ultimate success of the project. Enzi's bill has gone through multiple iterations, but none has been introduced in the current Congress because of disagreements among stakeholders over appropriate levels of vendor compensation and language governing telecommunications.

The new version of the bill will not specify levels of compensation-only that states must provide it. The specifics of how much vendors will be paid for collecting on behalf of states will be included in an amendment to the Streamlined Sales and Use Tax Agreement itself. Could this be the beginnings of a value added tax?

IRS Circular 230 Notice: To comply with certain U.S. Treasury requirements, we inform you that, unless expressly stated otherwise in writing, any U.S. federal tax advice provided by this Firm, whether in this email or its attachments or otherwise, is not intended or written to be used, and cannot be used, by any person for the purpose of avoiding any penalties that may be imposed by the Internal Revenue Service.