Major Family Gifting Faces Headwind if Obama’s Budget Proposal Passes
On February 13th, the Obama Administration released its fiscal year 2013 budget, including various estate tax proposals that, starting in 2013, would result in:
- Reducing the lifetime gift exemption back to $1M (the 2009 level)
- Reducing the overall estate tax exemption to $3.5M (the 2009 level)
- Increasing the top estate tax rate back to 45% (the 2009 level)
- Making the trust assets in the IDGTs (Intentionally Defective Grantor Trusts) includible in the grantor’s estate
- Modifying the rules on valuation discounts
- Requiring a minimum 10-year term on GRATs (Grantor Retained Annuity Trusts)
- Making permanent the portability (carryover) of unused estate tax exemption amounts between spouses.
- Limiting the duration of the GST exemption to 90 years
Among the Administration’s various proposals on estate tax law changes, the most damaging one is the proposed reduction of the Continue reading »
Need cash? Don’t borrow from the IRS!
Many businesses and individuals are experiencing cash flow difficulties in today’s economy. To ease the cash crunch, it may be tempting to delay payment of taxes in the hope that finances will improve soon. Unlike other creditors, the IRS moves relatively slowly, lulling the taxpayer into complacency. During this time, interest and penalties accrue which, in some situations, can even exceed the original tax due. When the IRS decides to act, they often file liens, levies, and other garnishments that can cause significant and sometimes permanent economic damage. In addition to these civil penalties and collection actions, the IRS can pursue criminal charges. The failure to truthfully account for or turn over taxes is a felony, with the potential of up to five years of jail time. This applies to all taxes under the Internal Revenue Code – income tax, payroll tax, gift tax, and excise tax, to name a few. Continue reading »
Opportunity for Maryland Taxpayers: Get Credit for Taxes Paid to Other States!
Maryland taxpayers who were not permitted to claim a credit for personal income taxes paid to other states against their local income tax (i.e., City, County or Town) may still claim such a credit on a timely filed protective claim for refund for a tax year with respect to which such opportunity is still available.
Last year, the Howard County Circuit Court ruled that Maryland’s current application of the credit for taxes paid to other states is unconstitutional in so far as the credit is not allowed to offset the Maryland local personal income tax. That decision is still working its way through the appeal process and is unlikely to get to a final determination anytime soon. Nonetheless, the decision presents an opportunity for Maryland taxpayers to amend prior years’ tax returns and claim credits Continue reading »
The Total Cost of Healthcare?
Starting in tax year 2012, the “aggregate cost” of employer-sponsored health plans is required to be reported in Box 12 (Code DD) of Form W-2. This amount includes the costs paid by both the employer and employee, regardless of whether those contributions were pre-tax or after-tax. This provision, IRC §6051(a)(14), applies to employers with 250 or more employees starting in 2012 and Continue reading »
Have Foreign Bank Accounts or Other Assets? The IRS Wants to Know!
The IRS recently released a new tax form (Form 8938) that may need to be filed with your tax return this year if you have an ownership in certain “foreign financial assets.” Foreign financial assets include: foreign bank accounts; foreign broker accounts; investments in foreign bonds or securities; ownership interests in a foreign trust; certain foreign pension payments; and investments in any foreign entity which may hold such assets as real estate, a trade business, etc.
The reporting rules and filing thresholds are complex, but if the value of your foreign financial assets was in excess of $50,000 (or $100,000 if married filing jointly) at the end of 2011 or exceeded $75,000 ($150,000 if married filing jointly) at any time during 2011, and you are a United States citizen or resident alien, you are required to file the new form. These dollar thresholds are four times higher for taxpayers who lived abroad during 2011.
The penalty for failure to provide the required information with your tax returns is $10,000
The Importance of Sourcing Software License Royalty Income
If a U.S. company pays a royalty to a foreign company for the use of a software license, there is an issue regarding whether the royalty payment is considered to be U.S. source income to the foreign licensor. If the royalty is considered to be U.S. source income to the foreign licensor, there are certain reporting requirements and a nonresident tax withholding could apply at a rate of 30%. Continue reading »
A Technology Boom in the Midst of a Downturn
Although most of the country is mired in the effects of the Great Recession, the entrepreneurs in Silicon Valley seem quite unaffected. According to a recent article, “In Silicon Valley, the Night is Still Young,” http://www.nytimes.com/2011/08/21/technology/silicon-valley-booms-but-worries-about-a-new-bust.html?_r=1, it appears the outrageous optimism which is a Continue reading »
Trend in the Growth of Technology Companies: Is Software Really Eating the World?
By Alison N. Dougherty, Tax Manager, Aronson LLC
In a Wall Street Journal article dated August 20, 2011, Marc Andreessen writes that “Software Is Eating the World”. (http://tinyurl.com/6ko4as3) According to Andreessen’s perspective, we are now in the midst of an era in which the growth of software companies represents a significant and increasing share of the economy. From the growth of Apple, Microsoft, Google and Amazon to Facebook, Twitter, Skype, Groupon, Living Social, Zynga and Foursquare, there is a dominant trend in software as the core capability of major businesses and industries. Many sectors and industries from telecommunications, financial services, entertainment, retail, natural resources, automobile, health care, education and national defense are becoming increasingly software driven. Andreessen believes that obsolete technologies are being eaten by software in what he refers to as a software revolution that continues to transform many industries.
So what does this mean for new companies? New companies are at a significant disadvantage in today’s economic and regulatory environment. The new generation of technology companies needs to be even stronger and more resilient to survive. If the new technology companies can prove their worth, they are going to be “highly valuable cornerstone companies in the global economy.” The best of the new companies will be positioned for significant growth if the economy eventually stabilizes. Andreessen predicts that the cornerstone companies which evolve will have the capacity to eat even larger markets. So it may appear that software is eating the world for the time being and at least for the near future.
Roth Conversion Recharacterization Deadline
By Mark Flanagan
Taxpayers have until 10/17/2011 to recharacterize (unwind) a “failed” Roth conversion, even if their initial return was filed by April 15th. An amended return can then be filed within the three year amended filing window, with the client getting a refund.
This may be very attractive for clients that converted their traditional IRA during 2010 only to have it lose significant value since the conversion. The extension to 10/17/2011 is little known and automatic, specifically for Roth conversion recharacterization purposes. Clients that converted and filed timely likely do not realize that recharacterizing is an option.
IN SUMMARY….Recharacterizations can be done up until 10/17/2011 and the amended return must be filed within three years.
No. 1 Reason Internet Startups Fail
By Jennifer Nolan
According to a recent report from Startup Genome, the number one reason internet startups fail is premature scaling. In fact, according to the report, startups that scale properly grow 20 times faster than startups that scale prematurely. The report maintains that startups that prematurely scale lose the battle early on by getting ahead of themselves. They can do this by prematurely scaling their team, their customer acquisition strategies or by over building the product. In addition, overinvesting in the early discovery stage can also be detrimental.
If you would like to obtain a copy of the Startup Genome report or if you are a startup and would like to test whether your company is scaling prematurely, you can obtain a copy of the report and sign up for the Startup Genome Compass at http://startupgenome.cc/. The Startup Genome Compass is a benchmarking tool for entrepreneurs where they are automatically classified by type and stage and compared to other startups in the same type and stage across more than 25 key performance indicators.
