MADA is thrilled to commemorate our 100 years - Media ...
MADA is thrilled to commemorate our 100 years - Media ... MADA is thrilled to commemorate our 100 years - Media ...
BY THE NUMBERS | James A. TORTORELLA, CPA & Sean C. Griffin, CPA, MBA Legacy Asset Tax Planning By Richard E. Morris, CPA, MST The largest tax hike in American history is scheduled to take effect in just a few months and will hit families and businesses beginning January 1, 2011. With only 90+ days remaining, planning and timely action are required to protect your valued legacy assets. The most far-reaching change is the expiration of the “Bush tax cuts” and the reversion of the individual income tax rates to their pre-2001 rates: • The 10% bracket rises to an expanded 15% • The 25% bracket rises to 28% • The 28% bracket rises to 31% • The 33% bracket rises to 36% • The 35% bracket rises to 39.6% There are also higher taxes in the return of the “marriage penalty” (i.e. narrower tax brackets for married couples), as well as limitations on certain itemized deductions and the halving of the child tax credit to $500 per child. Investors and savers face additional tax increases as the long-term capital gains tax rate increases from 15 to 20%; qualified dividends will no longer be taxed at the long-term capital gains tax rate but at ordinary tax rates of up to 39.6%. In order to finance health care reform, this rate increases another 3.8% in 2013 for high income taxpayers. After a one year hiatus, the 2011 estate tax comes back with a top rate of 55% on estates over $1,000,000 per individual. This is in stark contrast to the 2009 top rate of 45% on estates Maryland Automobile Dealers Association 10
Review your estate assets and estate planning to protect your intentions towards your loved ones and avoid the wealth destroying effects of the decrease in the estate exemption and the increase in the estate tax rates. over $3,500,000 per individual. Additionally there are proposals to severely restrict or curtail popular estate planning tools such as grantor retained annuity trusts (GRATS). Traditional tax planning in the face of rising tax rates and curtailment of deductions calls for accelerating income into 2010 and deferring deductions into a higher tax-rate year (e.g. 2011). However, this year has several complicating factors, the first being that the alternative minimum tax (AMT) has not yet been “set” for 2010. AMT is a parallel calculation of income tax, whereby certain items, such as the deduction for state and local income taxes, are disallowed or limited but a base amount of income is exempted. It is estimated that up to 40% of all taxpayers will be subject to AMT if Congress doesn’t act. Historically Congress has “fixed” or “patched” this exemption amount which is not indexed for inflation, thereby restoring the value of itemized deductions. A second complicating factor is legislative uncertainty, demonstrated above with the AMT but applicable to all of the scheduled tax increases noted in this article. Congress has the power to change the tax law between now and December 31st and can also change the 2010 tax laws retroactively in 2011, further complicating planning. While Congress is widely expected to allow at least the top two income tax rates and the capital gains tax to increase, failing to plan and act before year-end will cost taxpayers significant dollars. Where possible, accelerate both earnings and deductions into 2010. Closely held businesses such as C corporations, or S corporations with C corporation earnings, can generate tax savings by paying employees’ bonuses and qualified dividends to shareholders by December 31st. For example: a $100,000 dividend paid in December 2010 could save $24,600 in federal taxes over the same dividend paid January 1, 2011. A $100,000 bonus earned and paid in December 2010 could save $4,600 in federal taxes over the same bonus paid next January. Despite the sluggish economy of the past two years, many individuals still hold substantially appreciated long-term or legacy The total solution for your financing needs. M&T Bank. on-site sales suPPort Fast resPonse times ComPetitive rates and terms From ensuring you have the inventory you need to stay competitive, to delivering the right financing options for your customers – M&T is here for the Maryland Automobile Dealers Association. We have a 50-year history of providing dealerships with Floor Plan and Indirect Financing solutions. Our commitment is continued today with a team of skilled relationship managers, each averaging over 20 years’ industry experience. Call us today to put our personalized service and wide range of financial services to work for you. Floor Plan lending Donna M. Kochanski • 410-244-4962 dkochanski@mtb.com on-line aCCount inFormation www.mtb.com ©2009 M&T Bank. Member FDIC. 11 FALL 2010 | www.mdauto.org
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BY THE NUMBERS | James A. TORTORELLA, CPA & Sean C. Griffin, CPA, MBA<br />
Legacy Asset Tax Planning<br />
By Richard E. Morr<strong>is</strong>, CPA, MST<br />
The largest tax hike in American h<strong>is</strong><strong>to</strong>ry <strong>is</strong> scheduled <strong>to</strong> take effect in just a<br />
few months and will hit families and businesses beginning January 1, 2011.<br />
With only 90+ days remaining, planning and timely<br />
action are required <strong>to</strong> protect y<strong>our</strong> valued legacy<br />
assets. The most far-reaching change <strong>is</strong> the expiration<br />
of the “Bush tax cuts” and the reversion of the individual<br />
income tax rates <strong>to</strong> their pre-2001 rates:<br />
• The 10% bracket r<strong>is</strong>es <strong>to</strong> an expanded 15%<br />
• The 25% bracket r<strong>is</strong>es <strong>to</strong> 28%<br />
• The 28% bracket r<strong>is</strong>es <strong>to</strong> 31%<br />
• The 33% bracket r<strong>is</strong>es <strong>to</strong> 36%<br />
• The 35% bracket r<strong>is</strong>es <strong>to</strong> 39.6%<br />
There are also higher taxes in the return of the “marriage<br />
penalty” (i.e. narrower tax brackets for married couples), as<br />
well as limitations on certain itemized deductions and the<br />
halving of the child tax credit <strong>to</strong> $500 per child.<br />
Inves<strong>to</strong>rs and savers face additional tax increases as the<br />
long-term capital gains tax rate increases from 15 <strong>to</strong> 20%;<br />
qualified dividends will no longer be taxed at the long-term<br />
capital gains tax rate but at ordinary tax rates of up <strong>to</strong> 39.6%.<br />
In order <strong>to</strong> finance health care reform, th<strong>is</strong> rate increases another<br />
3.8% in 2013 for high income taxpayers.<br />
After a one year hiatus, the 2011 estate tax comes back with<br />
a <strong>to</strong>p rate of 55% on estates over $1,000,000 per individual.<br />
Th<strong>is</strong> <strong>is</strong> in stark contrast <strong>to</strong> the 2009 <strong>to</strong>p rate of 45% on estates<br />
Maryland Au<strong>to</strong>mobile Dealers Association 10
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