It sure looks like it will happen this year. The latest proposal we have seen is to lower the maximum capital gains tax rate to 20%, down from 28%. For people in the 15% bracket the capital gains rate would drop to 10%. There is also a proposal to increase the capital gain exclusion to $500,000 on the sale of your principal residence. For those of you anticipating the sale of securities that have a low cost basis (and a large amount of taxable gain), a short consult with BWFA will help identify the most tax-wise course of action.
Another provision of the new tax legislation that is being “discussed” (I believe there is more bickering going on than discussing) is the increase in the estate tax exemption. Currently this amount is $600,000 per taxpayer. The proposed limit might be $1 million by the year 2004. What does this mean to estate plans that you have already put in place? Does this mean your credit shelter trusts have to be rewritten? These are questions to which we can help you find answers. Please give us a call and set up an appointment for an estate plan review.
Do you know someone who is contemplating a divorce? If so, there are a host of tax issues that both parties need to know about. The pros and cons of filing separately, who qualifies to file as head of household, the advantages of “front loading” alimony payments, changing your withholding status with your employer, and especially the ramifications of selling your personal residence. We consult with clients who are going through this transition. This information is vital and you owe it to your friends to recommend a consultation with BWFA. One hour with us can reduce your income tax liability by thousands of dollars.
Are you over age 70 1/2 and still employed? As a result of the Small Business Job Protection Act of 1996, you may postpone required minimum distributions from your employer’s retirement plan until the year after you retire. This treatment does not apply to more than 5% owners of the business and it does not apply to IRA’s.
In order to reduce the amount of business paperwork that must be saved, the IRS has increased the dollar amount below which it is no longer necessary to save receipts for lodging and other business-related expenditures. Expenditures of less than $75 no longer require receipts.
If you happen to be a new tax client with BWFA and have been making nondeductible contributions to your IRA account, you might want to check to make sure that we know of any cost basis that you have built up in your IRA account. These previously taxed IRA contributions may or may not appear on the return done by your prior preparer. If you have been making nondeductible contributions to your IRA and you do not see a form 8606 in your 1996 income tax packet, give us a call and we will look into this matter for you.
The IRS has liberalized the regulations regarding the dependency exemption and the child care credit for taxpayers that have custody of children whom they intend to adopt. The IRS will allow these taxpayers to claim the personal exemption for this child and claim the child care credit during the period in which the adoptive parents are waiting for the legal process to be completed.