McKonomics

Uncle Sam and States Look for Revenue in Worker Classification

Businesses that treat workers as independent contractors face an increasing risk that state and federal agencies will contest the classification of some of these individuals. Although independent contractor relationships have long been an audit target, governments experiencing deep financial pressures are scrutinizing them with new fervor.

 

Latest example: In his fiscal 2011 budget, President Obama proposes to focus more on employers using independent contractors. For the next fiscal year, the budget allocates $25 million to the Department of Labor for a joint effort with the IRS that includes hiring investigators to find workers who can be re-categorized as employees.

 

The result for Uncle Sam will be increased revenue. The Obama budget states the initiative will bring in an additional $7 billion over 10 years.

Income Tax : One-Year Repeal Could Mean Tax Savings For You

For years, higher-income taxpayers have worried about their itemized deductions and personal exemption write-offs being phased out. This means that they didn't get the full benefit of the most popular itemized deductions such as mortgage interest, state and local taxes, charitable contributions, and miscellaneous deductions.

 

Thankfully, these "phase-out" rules have been getting phased out since 2006, as part of the "Bush tax cuts."

 

The good news: For 2010, the phase-out rules are gone. The bad news: It's only a one-year reprieve. The rules are scheduled to reappear in 2011 with sharper teeth as the Bush tax cuts expire.

No Estate Tax is a Good Thing...Right?

Generally speaking, the fact that we currently have no federal estate tax is a good thing. However, the unprecedented temporary repeal may cause problems for some estates.

Most advisors assumed the Senate would extend the 2009 estate tax exemption and rate structure through 2010. Little did we know, the healthcare reform battle would be at the forefront of our legislator's minds and the looming estate tax repeal would go unchanged. Here we are, roughly a month into 2010 and no word on if and how Congress will fix this mess. Will new legislation be passed during 2010? Will it be retroactive? How do we deal with basis step-up? We will save those debates for another time. For now, we want to focus on a simple, yet BIG issue that the current repeal may cause for many estates.

Generation Skipping Transfer Tax Is Gone Too (for Now) But the Gift Tax Lives On

As part of the one-year repeal of the federal estate tax, the generation skipping transfer tax (GSTT) was also repealed for 2010.

The GSST is a super-confiscatory extra tax that is added on top of the "regular" gift or estate tax bill when generation-skipping transfers in excess of the exemption amount are made.

Generation-skipping transfers are those made via gifts while alive or as part of bequests after death to individuals who are deemed to be two or more generations below the giver. For 2009, the GSTT exemption was a relatively generous $3.5 million, and the maximum tax rate was 45 percent. Next year, the GSTT is scheduled to come roaring back with an exemption of only $1 million, and the maximum tax rate is scheduled to go up to 55 percent.

Estate Tax Is Dead (For Now): What to Do?

It unexpectedly happened: Congress let the federal estate tax die for 2010. Lots of people are confused about what it all means. It's no wonder ... the current situation is a huge mess that creates uncertainty for those with large estates.

 

Here is a brief discussion of how the United States arrived at this strange destination along with some ideas to discuss with your estate planning professional.

 

Repeal for 2010 but the Story Is Not Over

 

Ever since the Economic Growth and Tax Relief Reconciliation Act of 2001 became law, the estate tax has been a two-party story:

Important Tax Figures for 2010

The following table provides some important federal tax information for 2010, compared with 2009. Many of the dollar amounts are unchanged or have changed only slightly due to low inflation. Other amounts are changing due to legislation.

Feeling Generous? Follow These Tax Rules to Ensure Deductions

To help taxpayers plan their holiday-season and year-end giving, the IRS offers the following guidelines and reminders about the rules:

Guidelines for Monetary Donations

To deduct a monetary charitable donation, regardless of the amount, a taxpayer must have a bank record or a written communication from the charity showing the name of the charity and the date and amount of the contribution.

H.R. Bill 436: The Storm That Could Destroy Your Estate Plan

Now is the time to proactively implement your estate plan! Why now you ask? Our answer is this....would you consider a potential increase in the value of assets that you intend to transfer to your next generation of up to 40% or more to be important to your estate plan?

Interested? Read on.

Year End Tax Planning - Businesses: Smart Moves To Take Before December 31

As December 31st approaches, where does your business stand on taxes? By making timely moves, you might be able to put a sizeable dent in your 2009 business tax bill. Here are some strategies to consider.

 

Unpack new equipment. This year's economic stimulus law extended the enhanced Section 179 deduction for another year. The maximum deduction in 2009 for business assets is generally $250,000. In addition, you may be able to claim a 50 percent "bonus" depreciation deduction on any excess cost.

 

Reminder: To qualify for either tax break, you must "place the property in service" before 2010.

Year End Tax Planning - Individuals: Mix Old Strategies With New

Tax planning can be critical at the end of the year. Here are some new ideas to contemplate, along with tried-and-true year-end tax techniques.

 

Get a new set of wheels. Under this year's economic stimulus law (the American Recovery and Reinvestment Act of 2009), you can deduct the sales and excise taxes attributable to the first $49,500 of the price of a new vehicle purchased before 2010. However, this deduction begins to phase out if your modified adjusted gross income (MAGI) exceeds $125,000 for single filers and $250,000 for joint filers.

 

Give to charity. If you donate to a qualified charitable organization, you can generally deduct the full contribution amount on your 2009 tax return. Note that donations made by credit card are deductible for this year even if you don't pay the bill until next year. Be aware you must observe strict recordkeeping requirements for all donations.