In the aftermath of the presidential elections, the payroll tax cut appears to be one of the likely casualties of the scramble to resolve questions over expiring tax cuts and the looming fiscal cliff during the lame-duck session of
"Even before knowing the election results, there didn't seem to be any support on either side of the aisle for extending the payroll tax cut,"
Dillon pointed out that "health care [reform] is going to stand, and the 2.9%
Dillon added: "Obviously we still have divided government. Getting more tax revenue and the rates going up are going to happen just because the tax increase can happen by the current operation of the law. If a compromise can't be reached, and if the President wants to, he can allow the Bush tax cuts to expire without congressional action, so there's obviously an increase there. Hopefully that will lead to some kind of compromise, but I think we'll see rates somewhere between where they are now and where the Bush tax cuts would take them back to."
One approach for tax planning purposes could be accelerating income into the remainder of this year, Dillon advised.
"If you have capital gains, you want to take advantage of it because the capital gains rate will go up from 15% to 20% absent any action," Dillon said. "But on top of that, if you keep the thresholds, you would also be paying the increased
Dillon noted that "the standard advice has always been to defer, defer, defer, but now I think people are going to look into accelerating income this year," he added.
Dillon recommended that clients and their accountants try to do a three-year tax projection and make their best estimates. "We'll have to see what compromises start to come out of the lame-duck
Dillon noted that there are many tax provisions expiring at the end of this year as well as an alternative minimum tax (AMT) patch that needs to be put in place. "That's not the tax increase anybody has been talking about, but they will probably kick the can down the road for three to six months," he suggested. "That's one guess."
"With the payroll tax cuts, there was a two-month extension so they could take it up in full once they got back in January," he recalled. "I think you will see something like that either tied to a March deadline or when we're expected to reach the borrowing limits. An extension of the debt limits may have to be tied to it, and they may possibly push it back to June to give
Estate and gift taxes are another important component, Dillon said. "This year the lifetime exemption is currently
Accountants and estate lawyers will probably be very busy helping people with gift planning between now and the end of the year, Dillon said. "If you're going to give cash or marketable securities that you own outright, that's easily done quickly if you're inclined to do so," he said. "But if you're trying to get the partnership interest to a family member, for example, that could take some time. You would need an appraisal and possibly need to get the other partners' approval. Depending on the deal, you would need the lenders' approval if the partnership has been borrowing.
"Those who advise wealthy clients need to help them act quickly because if they make the decision to make a gift like that on
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