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With the 2008 election
over and as the nation begins to prepare for the Obama presidency,
we are virtually ensured that there will be some significant changes
impacting tax law as he takes office. The question becomes what
aspects of his plan are most likely to occur and what might have the
most immediate impact.
4Throughout his campaign, President-elect Obama indicated he would push for an increase in the top marginal individual tax rate. His proposal would increase the top rate from 35 to 39.6 percent. 4It is likely the highest capital gains rate would increase from the current 15 to 20 percent. 4It had been rumored that qualified dividends would realign with the marginal tax rates. However, recent information indicates that the maximum qualified dividend rate would be 20 percent.
Minimum Distributions
4There is a potential change that could impact many retirees. Obama has suggested that the penalty for taxpayers who do not take their required minimum distributions from IRAs, 401(k)s and other arrangements be suspended. Currently, beginning at age 70-1/2, many taxpayers are required to begin taking distributions from these accounts that are taxable in nature. This would allow individuals to defer that income.
2008 Acceleration of Income or Losses
4With the prospect of increased marginal tax rates and capital gains rates, many people have questioned if it would make sense to accelerate ordinary income or capital gains or losses. - If an individual or corporation chooses to accelerate income into 2008, there is the gamble that the highest marginal tax rate will not increase. In addition, it means that funds are being paid to IRS in 2008 that could be held and used for an additional time period if the income was not realized until 2009. - For those individuals who have managed to hold onto assets with gains in 2008, the same philosophy as above applies. There is the prospect of an increase in the capital gains rate of 5 percent. However, in taking the gain in 2008, the time value of money must be weighed. - There has been much talk of harvesting capital losses in 2008 with the decline in the stock market. Many people are interested in taking a loss in 2008 but would still like to have a position in the asset sold. To sell at a loss, a taxpayer cannot directly or indirectly buy the substantially identical stock or security within 30 days before or after the sale. In addition, a contract or option to acquire the same stock cannot be put in place during that time period. It is also important to remember that the maximum Net Capital Loss an individual can use to reduce ordinary income during a year is $3,000.
Although there is no
guarantee that any component of Obama’s tax plan will make it into
law, it is very likely that some of the items mentioned above will
be in effect during 2009.
Tax Times is provided by Somerset CPAs for our clients and other interested persons upon request. Since technical information is presented in generalized fashion, no final conclusion on these topics should be made without further review. For additional information on the issues discussed, please contact your Somerset advisor or a member of our Tax Team. This document is not intended or written to be used, and cannot be used, for the purpose of avoiding tax penalties that may be imposed on the taxpayer.
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