Hyperlink
Disclaimer
Regarding Off-Site - Live Internet Linked Pages
The
information being provided is strictly as a courtesy.
When you link to any of the websites provided herewith, you are leaving
this site. Paul M. League, League
Financial & Insurance Services, LeagueFinancial.com and Royal Alliance Associates, Inc. make no
representation as to the completeness or accuracy of information that is
provided at these sites. Nor are
the companies liable for any direct or indirect technical or system issues or
any consequences arising out of your access to or your use of third-party
technologies, sites, information and programs made available through this site.
You
are now leaving the website of LeagueFinancial.com and you assume total
responsibility and risk for your use of the site you are linking to.
Most
of the input we provide regarding tax matters is contained within the topic
itself, and is on the web site page wherein it is contained. What follows
are additional topics or tips of general interest that come to our attention, as
well as links to, or descriptions of, significant tax legislation passed
within the past 1-3 years.
Tax
Legislation:
Jobs
and Growth Tax Relief Reconciliation Act of 2003
President
Bush signed the Jobs and Growth Tax Relief Reconciliation Act of 2003 into law
on May 28.
For
individuals, the legislation reduces the capital gains tax to 15%, taxes
dividends at the capital gains rate, accelerates a number of tax reductions
previously scheduled for future years (income tax rates, expansion of the 10%
bracket, increase in child tax credit, marriage penalty relief) and provides
some AMT relief.
For
small business, the legislation increases the Section 179 deduction to
$100,000, expands the phase-out threshold and provides an increase in first-year
bonus depreciation. Consistent with recent tax legislation, the 2003 tax
act also creates a new series of retroactive, temporary and phased-in/phased out
effective dates for various provisions.
To
view a summary that puts the changes into perspective with previous tax
legislation, click HERE
.
State
Conformity to EGTRRA - AB 1122 & SB 657
On Thursday, May 8,
2002 Governor Davis signed into law AB 1122 authored by Assemblywoman Ellen Corbett (D - San
Leandro), and SB 657 authored by Senator Jack Scott (D - Altadena). The bills conform State law to changes made by the federal Economic Growth and Tax Relief Reconciliation Act ("EGTRRA") of
2001. These bills will, among other things, permit California taxpayers to increase contributions to 401(k), 457, and 403(b) retirement plans, Roth and traditional individual retirement accounts ("IRAs"), and defined benefit plans; and allow shorter vesting periods beginning in 2002 consistent with federal changes. They also conform California's tax code to other changes made in the federal tax code over the last several years.
Economic Growth
& Tax Relief
Reconciliation Act of 2001(EGTRRA)
"TAX RELIEF AND RECONCILIATION ACT OF
2001":
The huge tax cut package passed Congress on May 26, 2001 and
was signed into law by President Bush 6/2001. The legislation constitutes the largest tax cut in more than 20 years. Some of the
provisions are retroactive; some start next year; others don't take full effect until 10 years from now. Much of the tax bill
is "back loaded" for the simple reason that it's returning projected future surpluses to taxpayers (i.e., surpluses not yet
received by the government).
Before we recap the major provisions of the bill, there's an interesting provision in the
legislation...due to Senate budget rules, the provisions in the tax bill revert back to prior law after December 31, 2010 unless a future Congress
takes action to extend them beyond that date. This is a particularly worrisome provision for estate planning, since it
raises the prospect of a reinstatement of 2001 estate tax rules in 2011 unless a future Congress, perhaps operating in a
different political climate, takes action.
INCOME TAXES
==========
In 2001:
* A new 10% rate bracket is created (technically starting 1/1/02) that applies to the first $6,000 of income for singles,
$12,000 for couples and $10,000 for heads of households.
* To, in effect, accelerate the 10% rate bracket for 2001, an "advance refund check" will be mailed to every taxpayer by
October 1, 2001. The check will be for 5% of last year's taxable income, with a maximum of $300 for singles, $600 for
couples and $500 for heads of households.
* All other individual income tax rates (except the current 15% rate) are cut by 1% in 2001. Since the rate cut doesn't
become effective until July 1, 2001, however, the net effect for 2001 is a rate bracket reduction of 0.5% to 27.5%,
30.5%, 35.5% and 39.1%.
After 2001:
* For 2002 – 2007, the new 10% bracket will apply to the first $6,000 of income for singles, $12,000 for couples and
$10,000 for heads of households, increasing to $7,000/$14,000/$10,000 after 2008 and adjusted for inflation
thereafter.
* The current 28% bracket reduces to 27% through 2003, to 26% in 2004 – 2005 and to 25% beginning in 2006 and
thereafter.
* The current 31% bracket reduces to 30% through 2003, to 29% in 2004 – 2005 and to 28% beginning in 2006 and
thereafter.
* The current 36% bracket reduces to 35% through 2003, to 34% in 2004 – 2005 and to 33% beginning in 2006 and
thereafter.
* The current 39.6% bracket reduces to 38.6% through 2003, to 37.6% in 2004 –
2005 and to 35% beginning in 2006 and thereafter.
* The income limitations on itemized deductions and personal exemptions are being phased out beginning in 2006
and are completely eliminated beginning in 2010.
MARRIAGE PENALTY
=============
Relief from the so-called "marriage penalty" will not begin until 2005, at which point relief will be provided to joint filers
in two forms:
* Joint filers will receive a standard deduction twice the standard deduction received by singles, phased in beginning in
2005 with the full double standard deduction first available in 2009.
* The income falling under the 15% tax bracket for joint filers will equal twice that of singles, phased in from 2006 –2008.
CHILD TAX CREDIT
============
The $500 child tax credit is doubled, but over the next 10 years:
* $600 for 2001 – 2004;
* $700 for 2005 – 2008;
* $800 for 2009; and
* $1,000 in 2010 and later.
ALTERNATIVE MINIMUM TAX
===================
AMT tax rates remain unchanged. The new law does, however, make permanent the use of the child tax credit to offset
the AMT and repeals the AMT offsets of refundable credits. In addition, the AMT exemption is increased by $4,000 for
couples and $2,000 for singles, but only for the 2001 – 2004 period.
RETIREMENT CHANGES
===============
IRAs:
* Contribution limits for regular and Roth IRAs will increase in increments from the
current $2,000 to $3,000 in 2002 – 2004, $4,000 in 2005 – 2007 and reaching $5,000 in 2008 and thereafter.
* Contribution limits will be adjusted annually for inflation after 2008.
* Beginning in 2002, taxpayers age 50 and older can contribute "catch-ups" to their IRAs: an additional $500 in 2002 –2005, increasing to $1,000 in 2006 and thereafter.
401(k), 403(b) and salary reduction SEP's:
* Contribution limits will increase from the current $10,500 to $11,000 in 2002 and then by an additional $1,000 each
year until reaching $15,000 in 2006.
* Roth 401(k) and 403(b) plans will become available beginning in 2006.
Other qualified plans:
* Defined contribution plans – the annual limit will increase from the current $35,000 to $40,000 in 2002.
* Defined benefit plans – the annual limit on benefits will increase to $160,000 in 2002.
ESTATE TAX
========
Full estate tax repeal does not take effect until 2010 and will only be in effect until 2011 unless a future Congress takes
action to repeal the automatic reinstatement of 2001 estate tax rules in 2011. The following estate tax relief is provided
in the interim:
* The unified credit equivalent is increased in increments from $1 million in 2002 to $3.5 million in 2009.
* The top estate tax rate is reduced in increments from 50% in 2002 to 45% in 2009.
* The generation-skipping transfer tax is pegged to the highest estate tax rate during the transition period.
GIFT TAX
======
The gift tax was not repealed. Instead, beginning in 2010, lifetime gifts in excess of a $1 million exemption will be
subject to gift tax equal to the top individual income tax rate in effect at that time.
CARRYOVER BASIS
============
Things get more complicated after full repeal of the estate tax in 2010. At that time, the decedent's basis in assets will
carry over, rather than the current "stepped-up" fair market value. Two exceptions will help:
* $1.3 million of basis can be added to certain assets.
* $3 million of basis can be added to assets transferred to a surviving spouse.
EDUCATION
========
* Education IRA limits are increased from the current $500 to $2,000 beginning in 2002 and the phase-out range
increases for joint filers to double that of single filers ($190,000 - $220,000).
* Education IRA proceeds may be used to pay for elementary and secondary school tuition and expenses, in addition to
paying the costs of higher education.
* Beginning in 2002, the $2,500 limit on student loan interest deductions is repealed and the phase-out thresholds are
increased.
FOR MORE INFORMATION
=================
For more detailed information on the new tax legislation, here are some of the Internet sources we located:
* USA Today Article (good overview)
* CCH Tax Briefing (more detailed review)
* Major Retirement Savings Provisions from the American Benefits
Council...in PDF
Tax
Control Vehicles:
Many
people are searching for ways to better control their taxes. Are there
sound and legal ways to accomplish this? The answer is yes!
First,
there are several forms of tax (income, estate, investment, etc.), so it is important to specify which form of tax
you are concerned about. You then need to isolate the proper "tax
control vehicle" that can achieve the results you are seeking. Throughout this web
site each of the following "tax control vehicles" are
described, and you can find out more about them by looking for them within our Services
page.
We
offer several "tax control vehicles" that either reduce, defer, or
eliminate the various types of taxes altogether.
I.
Recommended "tax reducer" vehicles, to reduce income taxes,
include certain Real Estate Limited Partnerships, which provide tax credits
resulting in dollar for dollar reductions of income tax.
II.
Recommended "tax deferral" vehicles, to defer income taxes
on investment gain,
include non-qualified tax deferred variable & fixed Annuities. When
"annuitized" they also work as a "tax reducer", since
part of the income they generate is considered a return of principle and
therefore non-taxable ("Exclusion Ratio"). Stocks are another tax deferral
vehicle, that put off short or long term gain taxation, until the sale of the
asset which can be many years later and after the assets have gained
considerable value. Stocks can also be a source of tax reduction when
sold for a loss, as they can be used to offset capital gains on a dollar for
dollar basis, with excess loss carry forward to future tax years.
IRA's,
both ROTH and Traditional, are recommended vehicles for tax deferral
of income taxes.
In the case of ROTH IRA's, one can also achieve income tax elimination,
through qualified withdrawals.
Coverdell, Education Savings Accounts
("ESA's"), better known to many as "Education
IRA's", provide not only tax deferral of investment gains,
but also tax free
payments for eligible education expenses.
MSA's,
or Medical Savings Accounts (Health Insurance with a tax deferred
savings account), are another recommended vehicle for "tax deferral"
of investment gains.
The "savings component" of these plans can be fully funded each and
every year, through age 64, regardless of whether or not any reimbursements have
or have not been made. Some, therefore, refer to the MSA as a "Super
IRA" because not only can you put a sizable amount of money into an MSA
year in and year out, but you also have access, on a tax free basis, for
reimbursement of eligible medical expenses. Additionally, the tax free
reimbursements are based on a more broadly, federally defined, "eligible
medical expenses" definition, or listing of allowable expenses, that often
far surpass the limits of any Insurer's plan or State mandated benefits.
Finally, one does not have to first exceed 7.5% of AGI (Adjusted Gross Income)
to be able to take deductions for these eligible medical expenses, as is the case with
traditional health insurance plans.
For
businesses recommended "tax deferral", as well as tax deduction
vehicles, include Pension and Retirement Plans. There are many
versions of these suitable for various size Groups, with a few specific
offerings and plan designs especially well suited to the sole proprietor and/or
small business owner, a number of which specifically favor owner/key employees
with the lion share of plan contributions & benefits, while not violating
anti-discrimination rules and testing.
III.
Recommended "tax eliminator" vehicles, to eliminate income taxes,
include Term & Cash Value Life Insurance that provide tax free death
benefits to beneficiaries. Cash Value Life Insurance also
servers as meaningful accumulation vehicle for "tax deferral",
and, if not "over funded" (i.e. converted by over funding into a
"MEC", or Modified Endowment Contract), can also provide a tax free
income stream (under current tax law). When Life Insurance is owned outside
of an insured's Estate, as in an Irrevocable Life Insurance Trust
("ILIT"), it, as an asset, avoids taxation.
Disability/Income
Protection Insurance, when premiums are not deducted by an individual,
provide tax free income benefits that eliminate income tax.
Another
recommended tax eliminator vehicle, to eliminate income taxes, is a Municipal Bond Fund/Unit
Investment Trust, where both State
and Federal income taxes can be eliminated on all generated income.
Tax
Tips:
A Slip of the Lip May Bring on a Tax Audit
Many taxpayers have learned, to their dismay, that it generally isn't wise to talk carelessly about their taxes — especially about sensitive areas. Why? Because the wrong person overheard their careless talk and "turned informer," either for revenge or in the hope of an "informer's reward."
An informer's "tip" to the IRS will often trigger a tax audit. Even though the taxpayer has done nothing improper, he or she may have to suffer through the audit. Not only is this time-consuming, it can also result in additional taxes due to the discovery of an innocent error on the return or the disallowance of a marginal deduction.
TIP: Most informers are disgruntled employees and former spouses or lovers.
SEE
OUR SERVICES
PAGE FOR SPECIFIC TAX STRATEGIES APPLICATIONS & OTHER "TAX CONTROL
VEHICLES".
:::::::::::::::::::::
Disclaimer:
We do not provide tax or legal advice, and this section of our web site is
intended for general informational purposes only. Please consult your own
tax or legal authority for matters involving taxes and legal issues.
:::::::::::::::::::::
(-31006)
Contact Us
Today! Phone: 1.800.482.5347 /
www.LeagueFinancial.com
/ Info@LeagueFinancial.com
||
Affiliations
||
Articles
||
Contact Us ||
Financial
Tools ||
Helpful
Links ||
Home
||
Hot $ Deals
||
Principal
||
Quote
||
Reward
$ ||
Search ||
Services
||
Site Map
||
Terms
of Use ||
[Copyright © LFIS. All Rights Reserved]
|