Death and Taxes

January 7, 2010

            Well, now, this is a fine mess Congress has gotten us into.

            Recall that when Bush, Jr. was in office, all the way back in 2001, the estate taxation rules were changed by cutting the rates and gradually increasing the size of estates which would be clipped. That’s the easy part. The changes enacted back then also provided for complete disappearance of the estate tax in 2010–for one year
only–with restoration of the tax in 2011 under the pre 2001 rules.
            So here we are–last month, the House of Representatives voted to make the estate tax repeal permanent, while the Senate continues to dither. Result? Nobody really knows, right now. Literally, however, it does seem that if you die today, your heirs get off scott free.
            “Not so fast,” claim the Dems–they say that upon return from vacation this month, they intend to make any extension of the 2009 rules retroactive to January 1, 2010. And recall from the not-so-good-old Clinton days, the notion of a retroactive tax increase does have some precedent, though indubitably there are already some sharp pencil legal beagles out there just waiting to pounce on any such legislation which may come forth.
            Stay tuned.
            And for those of you already planning your 2010 tax situation, beware of a few new rules which kick in this year:
  1. If you’re a gentleman or gentlelady farmer, know that for tax years beginning after 2009, any farming loss you sustain (unless you operate in C corporation mode) will be limited for any tax year in which you receive government subsidies.
  2. And if your business is a partnership or an S corporation, don’t dally when it comes time to file the annual tax return. Civil penalties have always applied to failures to file–generally those penalties have been determined by multiplying a statutory dollar amount by the number of partners or shareholders for each month that the failure continues. Starting in 2010, the base amount increases from $89 to $195 per partner or shareholder!
  3. And don’t forget the all-important standard mileage rate (the rate per mile which the Revenooers allow you to deduct for business usage of your auto.) The number in 2010 drops to 50 cents, from the grandiose 55 cents which prevailed in 2009.
  4. Starting in 2010, the maximum amount that may be expensed under IRC Section 179 is $134,000, down from the $250,000 applicable to the last two years. (This is the deduction applicable to the cost of business equipment which can be written off “up front,” in the acquisition year, as opposed being spread over the asset’s depreciable life.)
And finally, this week, cometh the Top Ten Tax Stories of the Decade from the
Tax Foundation, the tenth of which is “California’s Decade of Fiscal Decay.” The Foundation notes that even before California raised income and sales taxes in 2009, the state had the sixth highest state and local tax burden in the U.S. of A. In addition to wild spending sprees during the decade, “each year since 2001, California has avoided fundamental solutions and instead used the full spectrum of gimmicks and one-time revenues: amnesties, temporary tax increases, record borrowing, issuing IOUs, increasing withholding requirements, and shifting expenses into future years” says the Foundation.
            We’ll see what the next decade brings, but you heard it here first: the more things change, the more they remain the same.
CONSULT YOUR TAX ADVISOR – This article contains general information about various tax matters. You should consult your CPA regarding the implications to your own particular situation.
            Jeff Quinn, the author of this article, is a shareholder in Ashley Quinn, CPAs and Consultants, Ltd., with offices in Incline Village and Reno. He is also a contributor to the recently published thirteenth edition of Tax Savvy for Small Business, published by Nolo. He can be reached at 831-7288, and welcomes comments below.

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