Obama's New Tax Budget
February 6, 2015 (Houston, TX) - President Obama’s proposed $4 trillion federal budget puts emphasis on tax increases for "high-income" individuals. Under the President’s plan, taxpayers in the 33%, 35% and 39.6% bracket would only receive a tax benefit only equal to 28% of certain claimed deductions. This increased burden would spare the Administration's lower income constituents in furtherance of the income redistribution theme of the Administration. The President's proposal would affect individuals with taxable income in excess of $189,301 (if single) and $230,451 (if married).
An opinion piece from The Wall Street Journal, “An Empire of Taxation” condemns the Administration's continuing attacks on the private sector. Read the article here.
In association with The Feldman Law Firm LLP, Capstone offers sophisticated turnkey alternative risk/captive planning to closely-held midmarket businesses. We offer property & casualty insurance arrangements with annual premiums ranging from $100,000-$20 million.
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Obama Tax Hikes Coming
Re: "Leaders in House Seek to Tax Rich for Health Plan"
The New York Times, July 10, 2009 - The onslaught of adverse tax legislation appears to be imminent. See last Friday's NY Times article (linked below) as one of many publications anticipating adverse tax legislation affecting owners of closely-held businesses.
The Feldman Law Firm LLP www.feldlaw.com provides legal services -- principally tax and corporate -- to owners of closely-held businesses. Together with our affiliate, Capstone Associated Services, Ltd., we are the largest and most prominent providers of turnkey captive insurance services for middle market business and their principal owners, having grown since 1998 to administering almost 70 insurance companies in multiple jurisdictions. Our clients retain custody over the assets which are typically invested with major U.S. financial institutions.
In addition to cross-border financings, Capstone's financial engineering is more generally directed towards enhancing the enterprise value of its clients' businesses. Related divisions operate domestic international sales corporations, with another affiliate providing specialized factoring services for long-term financial receivables. All of Capstone's operations draw upon the resources of The Feldman Law Firm LLP of Houston, TX.
Our Capstone team is available to answer any questions you many have regarding our captive insurance services. Please feel free to contact us to discuss how we can be of service to you.
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Re: "Estate Tax Is Expiring, But Death Won't Last"
The New York Times, December 18, 2009 - While lawmakers have been unable to agree on a year-end fix for the soon-to-expire estate tax, the tax is scheduled to reappear in 2011 with a top rate of 55% and a $1 million exemption equivalent. As a result, many family-owned businesses likely will continue to use a variety of strategies to cope with the tax. See today's NY Times article (linked below) as one of many publications anticipating adverse tax legislation affecting owners of closely-held businesses.
The Feldman Law Firm LLP provides legal services -- principally tax and corporate -- to owners of closely-held businesses. Together with our affiliate, Capstone Associated Services, Ltd., we are the largest and most prominent providers of turnkey captive insurance services for middle market business and their principal owners, having grown since 1998 to administering almost 70 insurance companies in multiple jurisdictions. Our clients retain custody over the assets which are typically invested with major U.S. financial institutions.
In addition to cross-border financings, Capstone's financial engineering is more generally directed towards enhancing the enterprise value of its clients' businesses. Related divisions operate domestic international sales corporations, with another affiliate providing specialized factoring services for long-term financial receivables. All of Capstone's operations draw upon the resources of The Feldman Law Firm LLP of Houston, TX.
Our Capstone team is available to answer any questions you many have regarding our captive insurance services. Please feel free to contact us to discuss how we can be of service to you.
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
More Reports on Obama Tax Hikes
Re: "Small Business Faces Big Bite"
The Wall Street Journal, July 15, 2009 - The bad news continues. "House Democrats on Tuesday unveiled sweeping health-care legislation that would hit all but the smallest businesses with a penalty equal to 8% of payroll if they fail to provide health insurance to workers...The House bill would place new taxes on the wealthiest people to help expand insurance coverage to the nation's 46 million uninsured people. The legislation calls for a 5.4% surtax on those with annual gross incomes exceeding $1 million."
Please see the article linked below from the July 15, 2009 edition of The Wall Street Journal.
The Feldman Law Firm LLP provides legal services (principally tax and corporate) to owners of closely-held businesses. Together with our affiliate, Capstone Associated Services, Ltd., we are the largest and most prominent provider of turnkey captive insurance services for middle market business and their principal owners, having grown since 1998 to administering almost 70 insurance companies in multiple jurisdictions. Our clients retain custody over the assets in their own captives which are typically invested with major U.S. financial institutions.
In addition to cross-border financings, Capstone's financial engineering is more generally directed towards enhancing the enterprise value of its clients' businesses. Related divisions operate domestic international sales corporations, with another affiliate providing specialized factoring services for long-term financial receivables. All of Capstone's operations draw upon the resources of The Feldman Law Firm LLP of Houston, TX.
Our Capstone team is available to answer any questions you may have regarding our captive insurance services, while our Firm is available to discuss our tax and corporate services. Please feel free to contact us to discuss how we can be of service to you.
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Multi-State Planning
Re:"Oregon Passes Tax Boost on Wealthy, Corporations"
The Wall Street Journal, January 27, 2010 - In our recent communication entitled "State Tax Rates on the Rise," we discussed how states hungry for tax revenues are resorting to a so-called "millionaire's tax" in an attempt to balance their budgets. A flurry of tax rate increases occurred in 2009, and expectations are that this trend will accelerate in 2010.
Click here for The Wall Street Journal article which cites Oregon as the most recent state to enact tax increases on U.S. businesses and business owners.
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Re: New Proposed Treasury Regulation Affecting Small Captives
This memorandum is directed at insurance companies operating under IRC §501(c)(15) ("Small Captives").
Summary: If you have a Small Captive and your operating entity or any other entity that you control is an S corporation, a new proposed Treasury regulation would require the gross receipts from the S corporation(s) to be added to the gross receipts of the Small Captive for purposes of determining whether the Small Captive meets the two gross receipts tests discussed below.
Background: In general, an insurance company qualifies as a "Small Captive" under IRC §501(c)(15) only if (a) its "gross receipts" for the taxable year do not exceed $600,000.00; and (b) premiums received for the taxable year exceed 50% of such gross receipts. In calculating these two gross receipts tests, the captive is treated as receiving during the taxable year gross receipts of all companies which are members of the same controlled group as the captive. Prior to the new Proposed Treasury Regulation §1.1563-1(a)(1)(ii), many tax practitioners, including this Firm, have taken the position that a corporation that is an "excluded member," within the meaning of IRC §1563(b)(2), cannot, as a consequence, be a member of a IRC §1563(a) controlled group of corporations. Since S corporations are classified as "excluded members,"1 the Firm's position has been that gross receipts from an S corporation under the same common control as the captive were not taken into account for purposes of the two tests set forth above. The IRS accepted this analysis in issuing several Form 1024 tax exemption determination letters and in our successfully settling at least four audits involving S corporations with "no change".
New Prop. Treas. Reg. §1.1563-1(a)(1)(ii): The new proposed Treasury regulation contains an example in which an S corporation is treated as part of the controlled group of corporations even though it is an "excluded member" under IRC §1563(b)(2). Thus, under the proposed regulation, the gross receipts of an S corporation under the same common control as a captive insurance company would be included as part of the "gross receipts" calculation for the two tests that determine whether the captive qualifies as a "Small Captive," as described above.
Please note that the IRS position is that the new proposed regulation is not a change in law but merely a clarification of existing law.2 As such, you may want to consider converting your S corporation to another flow-through entity, such as a limited partnership.
If adopted, the new proposed regulation will take effect for taxable years beginning on or after the date on which the Treasury decision adopting these rules as final regulations is published in the Federal Register. Since final regulations will most likely not be issued during the remainder of 2009 (if at all), these rules will probably take effect for calendar year taxpayers no earlier than January 1, 2011. Please note that a regulation carries significantly more weight on an issue than an IRS position.
Action Plan: If you have a §501(c)(15) captive and your operating entity or any other entity that you control is an S corporation, you will need to review this issue carefully to determine its possible effect on the current tax-exempt status of your captive.
We will be happy to assist you in taking corrective action, if any, needed on your part so that your captive will not violate the annual $600,000 "gross receipts" test. Please contact Steve Cohen, Tom Foster, or me if you have any questions. Thank you for your attention to this matter.
___________________________
1 Treasury Decision 9304, 71 FR 76904-76913, December 22, 2006.
2 The Firm's experience in this regard has been to the contrary, having received "no change" determinations for four IRS audits involving small captives which included controlled S corporation operating entities.
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Re: "State Tax Rates On The Rise"
States hungry for revenue are turning to taxpayers to make up the shortfall as they deplete rainy-day and economic-stimulus funds and exhaust other accounting gimmicks to meet constitutional requirements to balance deficits. Many states are resorting to a so-called "millionaire's tax," which puts the burden on a smaller group of individuals. A flurry of rate increases occurred in 2009, and we expect this trend will accelerate in 2010.
State Income Taxes: California, which has a top individual rate of 10.55% on income over $1 million, actually dropped below Hawaii, Oregon and New Jersey last year on the list of places with the highest individual tax rates. Hawaii enacted a top individual rate of 11% on income over $200,000, Oregon has a new 11% rate on income over $250,000, and New Jersey enacted a 10.75% rate on income above $1 million. More states are expected to follow suit with rate increases this year.
In the process, many businesses are taking the extraordinary step of moving their corporate headquarters to states offering a more tax friendly domicile. Northrop Grumman recently announced that it is abandoning its California corporate headquarters in favor of a Washington, D.C. region headquarters, setting off a new round of competition among the several nearby states for the jobs that follow the prestigious relocation. Years ago, Boeing left Washington State in favor of Illinois, and BankAmerica moved from California to North Carolina. Another notable example is TransAmerica leaving its famed San Francisco landmark building in favor of a joint Cedar Rapids, Iowa/Louisville, Kentucky presence.
In calculating the taxable base, most states start with federal taxable income and then make various adjustments. As such, efficient state income tax planning usually starts with federal tax planning concepts, such as utilizing captive insurance companies and/or IC-DISCs to reduce taxable income.
The issue of high state tax rates is highlighted by the sale of a business or a similar significant economic event. When the tax bill could be cut by as much as 40%, it is tempting to relocate to Florida, Texas, Wyoming or another state with low (or zero) personal income tax. However, changing domiciles needs careful thought and planning, as states have become increasingly aggressive about tracking and pursuing former residents for taxes, even after they have moved.
Sales Taxes: At a time when state governments could use more revenue, Amazon.com is required to collect sales taxes in only five states (it has a presence in nineteen states). How does it do this? Amazon's lawyers found a way to isolate portions of its business into states that do not require it to collect sales tax (1) (click here for article). By creating wholly owned subsidiaries for the parts of its business that are treated separately for tax purposes, Amazon is under no obligation to collect sales tax. This legal technique is sometimes referred to as "entity isolation."
Employment Taxes: Now currently before Congress is the proposed new health care legislation. Various proposals include either an income tax surcharge on incomes over $1 million (House version) or in the Senate, an increase in the employment tax rate on so-called high income taxpayers (that is, those having incomes of over $250,000 per year). It is a safe bet that the bill's final version will contain various tax increases to pay for the anticipated legislation.
Our Firm specializes in tax and business planning for closely held businesses and their owners. If we can assist you with these planning opportunities, please contact Steven D. Cohen, Thomas O. Foster, or Stewart A. Feldman.
_______________________________________
1 See Sorry, Shoppers, but Why Can't Amazon Collect More Tax?, New York Times, Business, December 27, 2009.
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Income Tax Hikes Coming
Re: "Taxorama: 7 Changes on the Docket" published on CNNMoney.com
This year is shaping up to be a virtual roller coaster for tax legislation. The Obama Administration and Congress are currently fueling populist fury in an attempt to punish the banks for expected record bonuses on Wall Street. Managers of hedge funds and private equity funds are again under attack as Congress seeks to raise their taxes by converting their capital gain into ordinary income. The thought of eliminating the estate tax is gone. The only question is the form in which it will be continued.
A shotgun hits a broad target. Also on the radar screen are the so-called "high income" individuals who are facing the impact of increased income taxes and Medicare taxes on multiple fronts. In this regard, see the recent article in CNNMoney.com as one of many publications anticipating adverse tax legislation in 2010 affecting high-income individuals and owners of closely-held businesses.
To learn more, please contact Steven Cohen at WEB_TEL.