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Financial: Legislation and tax impacts

by Bart Basi

If you live in the U.S. you are well aware of the economic situation. According to the Beige Book published by the Federal Reserve, nearly every sector of industry in every geographical region of the country is in an economy that is essentially stuck in neutral. While some indicators suggest the recession is over from a gross domestic product (GDP) stand- point, nearly every other indicator, including employment, spending, job, security and the consumer confidence index, all suggest the populace is not in prime condition.

America’s lawmakers are working to draft policies to help us out of the current situation. There are several issues on the table that are important to us all and will be addressed in the coming months and years. Among the more important topics and well-known legislation currently being considered include income tax and estate tax.

Estate tax

Currently, the estate tax has been repealed, meaning that if a person passes away by Dec. 31, at 11:59 p.m., his or her estate will not be subject to tax by the government, no matter how large. Under the current law, the estate tax is to be rein- stated Jan. 1, 2011 with an exemption of $1 million.

While the estate tax was intended to apply to wealthy individuals, its return would affect many more middle class individuals with homes and retirement accounts. It is not the intention of Congress or the President for the middle class to have such a tax burden.

A lot of discussion has taken place in Congress. It is likely and probable that the estate tax exemption of $3.5 million will be reinstated for 2011 and subsequent years.

Income tax

There is plenty to be said about other areas of the tax code. As of the beginning of this year, the Section 179 deduction for business equipment purchases has been lowered from $250,000 to $134,000. Additionally, bonus depreciation has expired as of Jan. 1. The 15% capital gains and dividend rates are set to expire at the end of this year. The consensus is that bonus depreciation may not be re-enacted, however Section 179 deduction amounts are expected to rise back to $250,000.

As far as the capital gains and dividend rates, the capital gains tax is expected to be lower than the dividend rate, which is expected to go up a considerable amount. Certain tax planning scenarios have come about as a result of the sunset provisions of many income tax laws.

There are many laws on the table concerning tax policies to facilitate business and better the employment situation. Such areas include green jobs and other certain tax credits. From a tax-planning standpoint, it is best to keep all tax credits and deductions in mind as they are enacted into our law, so you can utilize them when the time comes. These credits include fuel efficient vehicle deductions and energy tax credits.

As individuals and business owners, we can all benefit from the tax laws passed in Washington and our state governments. It is our advice that you have your estate plan, employee benefits plan and your income tax strategies reviewed at once to reflect the current laws.