| Completax Planning, Inc. |
| 1100 Lincoln Avenue Suite 104 Napa, CA 94558 707-257-3995 800-244-3995 707-257-1306 fax |
 |
| |
 |
| |
 |
| |
 |
| SEPTEMBER 2007 NEWSLETTER |
| Previous Newsletter Issues |
Alternative Minimum Tax
The alternative minimum tax (AMT) is
sometimes referred to as a “stealth” tax
because it catches more people each
year, about four million in 2006. Unless
Congress overhauls the law the AMT is
projected to hit more than 23 million for
2007 because the exemption rate has
decreased. Consensus in the industry
is that Congress will, at a minimum for
2007, keep the exemption level the
same as 2006. In the meantime, it has
made our tax planning difficult.
Congress most likely will act earlier this
year than last so we should be able to
complete good estimates before the
final estimate is due.
Custodial Accounts
If you have a custodial account for your
child’s college expenses you should
consider taking the capital gains this
year because in 2008 the kiddie tax will
be adjusted to include children under 19
and will extend to age 24 for those who
don’t pay over half their support. Under
current law a child’s unearned income
over $1,700, including gains, is taxed at
the parent’s capital gains rate, not at
the child’s rate. Taking gains for
children 18 or older this year allows
them to be taxed at the child’s rate. If
the funds aren’t needed for college right
away, you can place them in a 529 plan.
Estate Planning
The estate tax is causing a lot of
confusion these days. For 2007 and
2008, the exclusion is $2 million and in
2009 is goes to $3.5 million. Then in
2010 the estate tax is eliminated and in
The alternative minimum tax (AMT) is
sometimes referred to as a “stealth” tax
because it catches more people each
year, about four million in 2006. Unless
Congress overhauls the law the AMT is
projected to hit more than 23 million for
2007 because the exemption rate has
decreased. Consensus in the industry
is that Congress will, at a minimum for
2007, keep the exemption level the
same as 2006. In the meantime, it has
made our tax planning difficult.
Congress most likely will act earlier this
year than last so we should be able to
complete good estimates before the
final estimate is due.
Custodial Accounts
If you have a custodial account for your
child’s college expenses you should
consider taking the capital gains this
year because in 2008 the kiddie tax will
be adjusted to include children under 19
and will extend to age 24 for those who
don’t pay over half their support. Under
current law a child’s unearned income
over $1,700, including gains, is taxed at
the parent’s capital gains rate, not at
the child’s rate. Taking gains for
children 18 or older this year allows
them to be taxed at the child’s rate. If
the funds aren’t needed for college right
away, you can place them in a 529 plan.
Estate Planning
The estate tax is causing a lot of
confusion these days. For 2007 and
2008, the exclusion is $2 million and in
2009 is goes to $3.5 million. Then in
2010 the estate tax is eliminated and in
2011 is comes back with a 55% top
rate and a $1 million exemption.
Here are three things you may
consider regardless of the outcome.
1) Make annual gifts. You can give up
to $12,000 per year per donee without
owing gift tax. These annual gifts are
not counted against the $1 million
lifetime gift-tax exemption and they cut
down your estate.
2) You can pay tuition and medical
expenses directly for donees. These
aren’t counted against the $12,000
annual exemption or the $1 million
lifetime gift-tax exemption.
3) Consider creating a family limited
partnership. These partnerships are
designed to generate estate tax
valuation discounts after the donor
dies. They must be structured
carefully so that the donor is
prevented from having too much
control which can result in the IRS
disallowing the discount for estate tax
purposes.
Sale of Residence
When reporting the sale of your
residence the amount of gain greater
than $250,000 ($500,000 if married) is
taxable. The gain is the difference
between what you paid for the home
plus any improvements and the selling
price. It is important to maintain
records to substantiate the cost of the
improvements. The FTB is auditing
basis and requiring documentation to
support the addition to basis.
rate and a $1 million exemption.
Here are three things you may
consider regardless of the outcome.
1) Make annual gifts. You can give up
to $12,000 per year per donee without
owing gift tax. These annual gifts are
not counted against the $1 million
lifetime gift-tax exemption and they cut
down your estate.
2) You can pay tuition and medical
expenses directly for donees. These
aren’t counted against the $12,000
annual exemption or the $1 million
lifetime gift-tax exemption.
3) Consider creating a family limited
partnership. These partnerships are
designed to generate estate tax
valuation discounts after the donor
dies. They must be structured
carefully so that the donor is
prevented from having too much
control which can result in the IRS
disallowing the discount for estate tax
purposes.
Sale of Residence
When reporting the sale of your
residence the amount of gain greater
than $250,000 ($500,000 if married) is
taxable. The gain is the difference
between what you paid for the home
plus any improvements and the selling
price. It is important to maintain
records to substantiate the cost of the
improvements. The FTB is auditing
basis and requiring documentation to
support the addition to basis.