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Elements, cont. from page 13 enacted every one to two years after 2001 to provide for relatively higher levels of AMT exemptions. ATRA has eliminated the need for future patches by adopting permanently higher AMT exemptions: $78,750 for married joint filers and $50,600 for singles. Estate and Gift Taxes Estate taxes are levied on a decedent’s assets valued at date of death. Tax law permits a person to transfer a sum of property and money to heirs or other individuals. The limit has varied over the years. The limit was $675,000 before EGTRRA, increased to $1 million under EGTRRA with additional increases until reaching $3.5 million in 2009. There was no limit for persons dying in 2010 (i.e., taxpayers died tax-free). Example: an unmarried person died in 2009 with net estate of $7.5 million with no prior gifts. The sum of $4 million would have been taxed ($7.5 million net estate minus $3.5 million exemption). The $4 million is the decedent’s taxable estate. EGTRRA was supposed to sunset at December 31, 2010. Congress extended EGTRRA, implementing a $5 million tax-free transfer limit applied for 2011 and 2012, again subject to expire after 2012. ATRA extended the $5 million limit permanently, with inflation adjustment after 2011. Thus, the limit for persons dying in 2012 was $5.12 million, and is $5.25 million for persons dying in 2013. The top estate tax rate in 2011 and 2012 was 35 percent. ATRA increased that rate to 40 percent. That means, for example, that a single person dying in 2013 with $7.25 million net estate will incur $800,000 estate taxes, which is $7.25 million minus $5.25 million, or $2 million, times the 40 percent top estate tax rate. This example assumes that the decedent had made no gifts prior to death that would have reduced the lifetime exemption limit. Gift and estate taxes were “unified” in 2011 and 2012 and remain so under ATRA, meaning that a donor’s gifts during life or after death count against the lifetime exempt limit. Therefore, some donors give money and property to their heirs during their life up to a lifetime limit ($5.25 million in 2013), because: (1) of concern that the government may reduce the limit in future, and (2) any appreciation on today’s gifts escape tax at the donor’s death. effectiveness While ATRA makes the $5 million limit permanent, nothing involving tax legislation is ever really permanent inside of the beltway, and that applies to all the permanent changes noted above. Thus, clients should consider inter vivos gifts to exhaust the lifetime gift exclusion in case it disappears. s G. Scott Haislet is a CPA and tax attorney in Lafayette. He is a certified specialist in taxation law, Board of Legal Specialization of California <strong>Bar</strong>. His practice includes tax planning, preparation, controversies, real estate matters, estate planning, and 1031 exchanges. He may be reached at (925) 283-1031 or scott@ goscott.com. Palmer Madden has conducted more than 1,000 mediations since 1981. One jurisdiction reported that he has over a 90% settlement rate. experience His 25 years of experience as a trial attorney gives him an understanding about clients that has proven time and again to be critical in tough cases. efficiency He does not carry the overhead of other mediation firms (no administrative fees) - which means the price is always right! palmer brown madden 925.838.8593 | WWW.ADRSERVICES.COM Over 25 years’ experience as an ADR neutral 14 MARCH 2013
Business Tax Provisions of ATRA 2012 An extension of targeted incentives, but needed corporate tax reform must wait… When have budgetary and tax machinations in Washington generated so fertile a phrase, one so conducive to corny metaphor and other colorful figures of speech? I pledge in writing this article to avoid the use of the phrase “fiscal cliff.” Oops, I just did. Well, never again… The purpose of this article is to discuss those provisions of the American Taxpayer Relief Act of 2012 1 (the Act) of particular interest to business. The Act extends a variety of tax incentives for business, including 15-year depreciation and bonus depreciation on certain property and Section 179 expensing (essentially 100 percent depreciation on certain assets up to $500,000, subject to certain limitations). In addition, two very interesting corporate incentives were made retroactively applicable to 2012 and extended through the end of 2013. These are described and discussed in the first two sections below. The final section explores proposals for the corporate tax reform which are being seriously discussed in Washington, but which were not addressed in the Act. Qualified Small Business Stock In the June 2011 edition of CC Lawyer, this author reported on an economic stimulus provision relating to small business stock. See “Gains from Investments in Small Business Stock Acquired During 2011 May Be Tax Free” [CC Lawyer June 2011]. Section 1202 of the tax code generally provides a 50 percent exclusion of gain from the sale of “qualified small business stock.” Measures enacted in 2009 and 2010 increased the exclusion to 100 percent temporarily and thus allowed an investor to effectively pay zero percent tax on gains from QSBS purchased prior to the end of 2011 and held for at least five years before sale. QSBS is defined in Section 1202 as stock in a C corporation that: (1) has no more than $50 million in gross assets, and (2) engages in the active conduct of a qualified trade or business. 2 For a detailed description of the other qualifications and limitations of Section 1202, see “Gains.” California adopted the analogue of Section 1202 in 1993, allowing a 50 percent exclusion of gain for QSBS, but restricted eligibility to California businesses. California did not follow the federal lead in offering a temporary 100 percent exclusion. The Act extends the effective zero percent tax rate on capital gains from the sale of QSBS through the end of 2013. It provides a 100 percent exclusion of eligible gain received by an individual taxpayer from the sale of QSBS acquired after September 7, 2010, and before January 1, 2014, and held for more than five years. In addition, gain from QSBS is excluded for alternative minimum tax purposes. Note that the Act has retroactive application to 2012. The exclusion had expired at the end of 2011. The Act both extends the exclusion through the end of the 2013 but also retroactively applies it to QSBS acquired in 2012. Absent another extension, beginning by George Cabot January 1, 2014, QSBS will again be eligible for only a 50 percent exclusion and the excluded gain will be a tax preference item for alternative minimum tax purposes. That is the good news. The bad news is that California’s 50 percent exclusion has recently been found to be unconstitutional by the Court of Appeals in Cutler v. Franchise Tax Board, (2012) 208 Cal. App. 4th 1247, which held that the provision violates the U.S. Constitution by discriminating in favor of California businesses. That means that QSBS qualifying for partial or full exclusion for federal income tax purposes will still be subject to California income tax at rates up to 13.3 percent (capital gains are not eligible for preferential tax rates in California). Taxpayers who relied upon this exclusion in prior tax periods that are not closed by the statute of limitations are required to amend their returns and recompute their taxable income without the exclusion. From a planning perspective, the temporary 100 percent exclusion for QSBS makes the C corporation an interesting alternative to passthrough entities (LLCs and S corporations) for start-ups. In addition, CONTRA COSTA COUNTY BAR ASSOCIATION CONTRA COSTA LAWYER 15
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Page 3 and 4: TED AND HIS CALIFORNIA FORMS WERE I
Page 5 and 6: 2013 BOARD OF DIRECTORS Jay Chafetz
Page 7 and 8: CCCBA - It’s Your Organization pr
Page 9 and 10: erations and those concerned with g
Page 11 and 12: The California Cliff by Mark Ericss
Page 13: ATRA also retained the 25 percent r
Page 17 and 18: IRS Return Preparer Regs Derailed b
Page 19 and 20: Annual Officer Installation January
Page 21 and 22: Meet Your New Commissioner: ANITA S
Page 23 and 24: Meet Your Local Judges, Family and
Page 25 and 26: RES IPSA JOKUITOR XVIII THE JOKE SP
Page 27 and 28: Elder Abuse Litigation Will & Trust
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Page 31 and 32: Win A $100 GIFT CARD! We will be se
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Page 35 and 36: CALENDAR UPCOMING EVENTS | OVERVIEW
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