More On Tax Planningfrom The Advisor's Professional Library
- Annuities: Estate Tax The value of certain types of annuities may be included in an estate’s value. Understanding the intricacies of these inclusions is a critically important aspect of estate planning.
- Annuities: Variable Annuities Annuities are hot. The tax rules vary with the circumstances. Advisors must be aware of these intricacies when discussing annuities with clients.
We are in discussions with clients to consider, based on their objectives and decision, to accelerate taxable income and taxable gifts into 2010, as the certainty of retaining a 35% tax rate (for ordinary income and taxable gifts, and GST, and also the 15% dividend and long term capital gain rate) in 2011 is not free from doubt, despite the White House and Republican agreement announced Monday night.
Late on Dec. 6 a tentative agreement was reached (see major provisions below), however as we observe, it remains to be seen whether a majority of the House and Senate will ultimately concede to the agreement and enact it before the end of the year. Further, the agreement has not been scored by the Joint Committee on Taxation and there is no cited estimate of the cost of the agreement. (See related news: "Bush Tax Cut Deal: Obama Extends Cuts, Unemployment Benefits.")
1. The 2001 and 2003 tax cuts would be extended at all income levels for two years (2011 and 2012), with a top rate of 35% on ordinary income, and 15% rate on qualified dividends and long-term capital gains.
2. Employees would receive a 2 percentage point Social Security payroll tax cut in 2011, reducing the rate to 4.2% from 6.2%.
3. The Making Work Pay tax credit would be allowed to expire.
4. Reinstatement of the estate tax for 2011 and 2012, with an exemption level of $5 million and a top rate of 35%. There is no cited provision as to whether the estate tax would be made retroactive for 2010.
5. "Traditional" tax extenders—including the research credit—would be extended for two years retroactively to 2010 and through the end of 2011. The agreement would also include a one-year, 100% accelerated deduction proposal.
6. A two-year extension of some middle-income tax relief enacted in the American Recovery and Reinvestment Act of 2009, such as the expanded child tax credit, the expanded earned income tax credit, and the American opportunity tax credit for college tuition.
7. A two-year alternative minimum tax patch would apply retroactively to 2010, and through the end of 2011.
8. The agreement would not repeal a controversial expansion of Form 1099 reporting requirements.
9. Unemployment benefits would be extended for 13 months.
U.S. Treasuries did fall on the news of the December 6 tax agreement and rates cut retention.
The strength of the U.S. dollar could be viewed as weakening if it can be demonstrated credibly that U.S. deficits will rise; conversely the Euro could rise comparatively, however the EU has its hands full with financing costs related Ireland and Greece, and potentially Spain and Portugal; we see no dramatic negative USD impact tied to this legislation.
We continue to monitor ongoing developments.