June 18, 2014

Tax Tips and Traps — Temporary or Permanent


By Douglas Cushing

April 2012

The year 2012 brings more than a leap year and the 2012 Olympics. It also brings a host of new tax changes, both state and federal. Some are short-term; others span long periods, while some may sunset in the future. Some are substantive, some procedural, but all bring the potential of liability or savings.

All employed taxpayers can rest assured that the payroll tax reduction of 2 percent will remain in place through the rest of 2012. Many in Washington, D.C., believed the issue might survive as a dispute until year's end, so politics may have helped the American people on this one. Major agreements on overall tax reform present much more complicated challenges which many believe will be solved this year — if it all — only at year's end as the Bush tax cuts and other significant tax provisions sunset or require action to be extended. In addition to the income tax provisions of the Bush tax cuts, the estate and gift tax rules adopted in late 2010 will expire at the end of 2012, rolling back to 2001. The present $5 million-plus exemption for estates and gifts would fall back to $1 million, and the rates increase from 35 percent to 55 percent. Few believe this to be possible, but stranger things have happened in Congress.

On the procedural level, Forms 1099 have new prominence this year. Congress adopted changes in 2008 that require credit card sales to be reflected, unlike prior rules. Stock basis information on any sales must also be calculated and reported by brokers, which lets taxpayers not worry about record keeping, but may impose different gain calculations that individuals might have reported. This will also require reporting entities to be accurate, which may complicate life for brokers, credit card issuers, and anyone accepting payments for credit card sales. The impact of this burden on sellers remains to be seen.

State tax rules continue to change too. Oregon has modified, without major change, its inheritance tax rules. Although the basic exempt amount remains at $1 million, the tax now truly begins at that level. Rate increases demanded by the legislature to make the changes revenue-neutral mean that estates over $2 million will pay a higher tax. California has adopted rules for taxation of California-related transactions that is less rigorous than for Washington, effective only if one does more than $500,000 in California business per year. That may only suggest that further changes may follow in light of their budget demands. Washington made no major statutory changes, but taxpayers will tell you that Washington remains aggressive on many different audit reviews.

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