Monday, December 8, 2008

Post-Election Tax Advice

OKC Business contacted me the other day about what to expect, tax-wise, from an Obama presidency. The link should work but in case it doesn't, here's the whole thing:

"President-elect Barack Obama campaigned on the need for change. Now that the election is over, one way or another, business owners will likely see just that.

“I don’t know if it’s first on everyone’s mind, but that was one of the big differences between him and (Sen. John) McCain was their tax plans,” said Oklahoma City CPA Peter Terranova. “With Obama’s [tax plan] in place, I guess there may be some changes coming down the road. [People] think taxes will go up, and I think they will.”

Terranova said one of the first ways taxes are expected to rise is by allowing President George W. Bush’s tax cuts to expire and revert to prior rates. The cuts were part of this summer’s stimulus package.

With the national debt of the United States increasing approximately $4 billion per day to more than $10 trillion in November, the federal government will have to do something to back off the slippery slope.

“We know that our country will be looking for dollars,” said Nancy Hyde, CPA. “I think everyone is agreeing that is going to happen and that it has to happen.”

Currently, tax experts agree businesses enjoy a relatively low 15 percent capital gains rate. The rate is applied to profits arising from the sale of things such as stock and other appreciable (generally) assets.

Hyde said the rate is expected to go higher.

Another issue the new administration will be forced to deal with is the federal estate tax.

The federal estate tax is a tax on the right to transfer property at death and is reported on Form 706. The tax is applied to estates exceeding $2 million at death in 2008 and $3.5 million in 2009, according to the Internal Revenue Service.

With a top-bracket rate of 45 percent, taxable items in estates include real estate, cash, stocks, bonds, businesses and decedent-owned life insurance policies.

The Economic Growth and Tax Relief Reconciliation Act of 2001 reduced death tax rates and has increased the exemption every year, and will until the tax is repealed entirely in 2010. However, the repeal wasn’t permanent; the tax will be restored to its full 55 percent rate in 2011.

Some 90 businesses have come together to form the Family Business Estate Tax Coalition with the sole purpose of doing away with the so-called “death tax.”

Before 2009, Terranova said businesses should be taking advantage of Section 179 depreciation limits.

There is good news, however: Historically, the maximum depreciation on capital purchases – such as equipment, furniture and computers –was $150,000. In 2008, that figure has been doubled, but will expire for 2009.

“If businesses are out there contemplating purchasing new assets, they ought to be taking advantage of them by the end of the year,” Terranova sald.

The future is uncertain, but Hyde says she always has a good rule of thumb for her clients: “Taxes are always subject to change.”"

Whoops. That's not quite right about Section 179 depreciation. The limit was $125,000, increase to twice that and due to expire in 2009. I've e-mailed the reporter about it. The print version has a picture of me at my desk. If I can get a copy, I'll be sure to post it.

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