2005 Lane Reports

'TIS THE SEASON: A Flurry of Recent Tax Developments

Saturday, January 1, 2005

Beginning in October, 2004, and extending into 2005, new federal tax laws, regulations and rulings impact a broad variety of taxpayers.

The American Jobs Creation Act of 2004 and the Working Families Tax Relief Act of 2004 contain comprehensive legislation affecting your personal and corporate tax concerns, including the following:

Selected Personal Tax Provisions

Extending the $1,000 per child tax credit through 2010.

Expanding the 10% tax bracket extended through 2010.

Expanding the 15% tax bracket and extending the standard deduction through 2010.

Aggressively challenging abusive tax shelters through enhanced penalties and disclosure requirements.

Excluding certain stock options from employee wages for FICA/FUTA withholding purposes.

Permitting an election to deduct state and local sales tax instead of state income tax.

Extending relief from the alternative minimum tax.

Making it more difficult to defer tax on nonqualified deferred compensation.

Selected Business Tax Provisions

Accelerating Code Section 179 expensing so that qualifying businesses can immediately expense over $100,000 (with indexing) of new investments through 2007.

Creating a separate 15 year write-off on a straight line basis for qualifying leasehold improvements and restaurant property.

Enacting ten provisions that make it easier for businesses to qualify and operate as S corporations, including raising the maximum number of shareholders from 75 to 100 and allowing family members to be counted as one shareholder. Not only will a husband and wife be treated as one individual, but so will descendants of a common ancestor for six generations, if any family member so elects.

Repealing the exclusion for extraterritorial income. The repeal is phased in over three years.

Creating an election permitting businesses to deduct start-up or organizational expenses of up to $5,000.

The IRS Rules

The Internal Revenue Service issued recent regulations and rulings impacting individuals. A few for our clients to consider include decisions that:

A taxpayer who sells more than one home in a two-year period cannot exclude gain from both sales, even if the cause of the second move is marriage, adoption, improvement in financial circumstances or a preference for a different residence, since these are not circumstances which a taxpayer "could not reasonably anticipate."

A financial analyst was denied a deduction for pursuing an MBA degree to attain a promotion to investment banker, since the MBA was deemed necessary to meet the minimum educational requirements for the job to which she sought promotion.

Income received from an employer paid disability insurance policy is only tax free if the employer premium contributions are currently taxable to the employee and the employee-recipient has made an irrevocable election to have the employer pay the premiums on an after-tax basis prior to the beginning of the plan year in which the disability occurs.

As we speak….

Shortly after winning re-election, President Bush renewed his call for tax reform during his second term. President Bush said the Tax Code needs to be simplified but did not indicate specific reforms. A special tax reform commission, still to be named, is likely to make recommendations in 2005.

Summary

Recent changes in the law, only some of which are highlighted above, coupled with the effective dates of implementation and/or expiration, make it a good time to consider new opportunities, as well as needed changes, in your business and personal tax matters. If you would like to review them with us, please do not hesitate to call us.

 

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The Lane Report is a publication of The Law Offices of Marc J. Lane, a Professional Corporation. We attempt to highlight and discuss areas of general interest that may result in planning opportunities. Nothing contained in The Lane Report should be construed as legal advice or a legal opinion. Consultation with a professional is recommended before implementing any of the ideas discussed herein. Copyright © 2007 by The Law Offices of Marc J. Lane, A Professional Corporation. Reproduction, in whole or in part, is forbidden without prior written permission.

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