In these current economic conditions,
it’s a good time to reassess your tax
and estate planning. Whether it is gifting stock and real estate to shore up
your estate, or trying to make up for
losses in your business, there are many
ways to help make sure your finances
are in order and your estate tax posture
is maximized.
“Estate planning is the silver lining in
the economic gloom,” says Robin Bell, a
member at Brown Smith Wallace LLC.
“While people always need to be cognizant of the value of their estates, you
still need to do the basic blocking and
tackling to make sure that your wishes
are granted, and your heirs and beneficiaries are taken care of.”
Smart Business spoke with Bell about
the new estate tax exemptions, how to
take advantage of quick tax refunds if
you have experienced a tax loss, the
basics of the Section 179 deduction and
new tax law changes.
How do you gift stock and real estate?
With the current value of stocks, you
can gift more, and when the market does
rebound, the appreciation in those marketable securities is out of the estate of
the person who made the gift. Now is a
good time to think about ways to reduce
your estate, so in the future you can control and reduce estate tax problems.
Just as giving stock in a down market
can be beneficial considering future
appreciation, the same holds true with
real estate, family limited partnership
interests and closely held companies.
You must go through the proper channels in order to benefit — have an
appraisal or a business valuation conducted — but you will benefit greatly in
future years by gifting these items when
we are in a down economy.
What is the impact of the new estate tax
exemptions?
The exemption had not increased for
several years. Finally, the exemption has
increased. For 2009, the exemption is $3.5 million. In 2010, estate tax totally
goes away, unless we have another big
tax bill in the next 10 months. In 2011,
the exemption is supposed to be reset to
$1 million. The general feeling is that
they will probably permanently increase
and index it to a level that makes sense,
which could be somewhere between
$2.5 and $3.5 million on a go-forward
basis. However, with the latest news
from President Obama, we can only plan
for the laws today.
What types of quick tax refunds can you get
for net operating loss years?
For companies that incur a tax loss, it
can be carried back to recoup tax paid in
the preceding two years. The goal would
be the sooner the better, as the refund
could impact cash flow planning.
Some companies may not have a net
operating loss, but paid a lot in estimated taxes for 2009 based on 2008 results.
If their 2009 year doesn’t look as good as
their 2008 year, they can use Form 4466
for a quick refund. This can be filed
before their return is filed, which is
another way to impact the company’s cash flow. There are requirements — it
has to be at least $500, at least 10 percent of your current estimated tax liability and the service has to act on it within
45 days.
What is the Section 179 deduction?
The Section 179 deduction is designed
to help businesses that need to make
investments in capital assets. For any
business that places $800,000 or less of
assets in service during their fiscal year,
they are allowed to write off up to
$250,000 immediately. Also in place is an
immediate 50 percent bonus depreciation, which is for all assets placed in
service for that year. This is available to
everyone — some of the larger corporations that may have placed more than
$800,000 of assets in service are not eligible for the entire 179 deduction, but
they would be for the bonus depreciation. You can take the bonus depreciation if you have taxable income or loss.
You have to have taxable income in
order to take the 179 deduction. You can
carry the deduction forward, but cannot
create a loss with it, nor file a carry back
claim.
How will the new tax law changes affect
companies?
The new tax law targets individuals
and small businesses. But for larger
businesses, there is a work opportunity
tax credit that has been expanded to
include two new classes of people —
unemployed veterans and disconnected
youth — which might encompass more
employers who qualify for that credit.
The credit is up to 40 percent of the
first $6,000 of wages paid to the qualified employee. They’ve also expanded
the rules for cancellation of certain
indebtedness income. Consult your tax
adviser on that. The rules are detailed,
so make sure that you are following
them correctly.
ROBIN BELL is a member at Brown Smith Wallace LLC. Reach her at (314) 983-1217 or [email protected].
