Removing the second tax on corporate profits will have other positive benefits for investors.
Posted by taxguru on March 5, 2003
Swap ‘Til You Drop
I often hear of people who think doing 1031 (aka Starker) exchanges on real estate is a waste of money because it just postpones and doesn’t actually eliminate the inevitable payment of capital gains taxes. It is not true that the tax will always eventually be due. It will be if you end up selling the property before you pass away. Likewise, if you gift the property to someone else, that person will also receive your cost basis and potential capital gain.However, if you pass away and leave the property in your estate, all of the accumulated gains are literally wiped off the books. Your heirs receive the property at a stepped up cost basis of its fair market value as of the data of death. Because inheritances are tax free to the recipients, your kids can sell inherited property and have no capital gain. In fact, they often end up with capital losses after counting the selling costs, such as Realtor commissions. We call this the ultimate escape from taxes. The phrase we like to use to describe this is “swap ’til you drop.”
This is definitely a big win-win deal for people whose estates are under the taxable threshold. For those people with estates subject to estate tax, there is room for some tax strategizing in terms of valuations to use on the 706. Since estate tax rates are higher than capital gains rates, lower values on the 706 generally reduce the overall tax hit.
There may or may not be a change in this escape from taxes. The currently phasing in changes to the estate tax is scheduled to eliminate the step-up basis in 2010 and require heirs to carry over the same cost basis as the decedents. That will only become real if our rulers in DC don’t mess with that law between now and 2010, which is not too likely to be the case.
KMK
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Posted by taxguru on March 5, 2003
Some taxes are more avoidable than others
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Posted by taxguru on March 4, 2003
IRS Increases Criminal Investigations of Tax Return Preparers
Taxpayers Advised to Use Care in Selecting Preparers
Another case of the classic “If it sounds too good to be true…”
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Posted by taxguru on March 4, 2003
This is exactly how special tax breaks find their way into our laws in the sausage factory that is our capitol. Plus the fact that none of our rulers ever actually read any of the tax bills before voting on them makes it very easy to slip all kinds of junk in there. As I’ve said on several occasions, this is also the best business investment possible in terms of profitability. Congress-critters routinely sell billion dollar tax breaks for just a few hundred thousand dollars of campaign contributions (aka bribes). 
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Posted by taxguru on March 4, 2003
Having It Both Ways
I’ve written a lot about states taxing income earned inside their borders by non-residents; what some call the jock-tax because of the many states in which professional athletes earn income. When an athlete, or anyone else, has their main tax home in a taxable state, their home state normally gives them a credit for the income taxes they have to pay to the other states in order to avoid two state income taxes on the same income. This obviously doesn’t apply to people whose main tax home is in a tax free state, such as Nevada, Texas, Florida or Washington.
While I have never been hesitant to point out how ruthless the tax collectors of the PRC are in squeezing money from every source possible, it seems that Illinois is taking things to an even higher level. They are making the ridiculous claim that Sammy Sosa is not entitled to an offsetting credit against his Illinois tax for the taxes he has to pay to other states on the same income he reports on his Illinois tax return. This is completely unfair and I’m glad to see that Sosa is contesting it.
Illinois is just like all other states, requiring people who don’t live there to pay Illinois tax on income earned there. In fact, I have a number of clients for whom I do prepare Illinois non-resident income tax returns for income that is generated up there. However, their home states do allow them the offsetting credit for the Illinois tax. Illinois should be grateful Sammy Sosa hasn’t done what many other professional athletes and entertainers have done, establishing their official tax homes in Florida. After being treated like this, I hope Sosa and his fellow athletes teach Illinois a lesson and relocate. That will end up costing Illinois much more than the Other State tax credit they want to deny Sosa.
KMK
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Posted by taxguru on March 4, 2003
Unfortunately, it doesn’t work this way with our friends at the IRS.
They dictate that we have an end at least every 12 months, with plenty of deadlines.
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Posted by taxguru on March 2, 2003
On State Tax Policy, Everyone Has a Formula for Reform
In the PRC, reform generally means higher taxes.
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Posted by taxguru on March 2, 2003
Survivor Assistance
Since I last discussed Mark Colgan’s very useful Survivor Assistance Handbook, he has prepared a new revised edition. My copy of the new version just arrived yesterday and it is very impressive. Mark has definitely made an already excellent reference work even more so. The additional information is even easier to locate, with a much more comprehensive index. Taking care of things after someone passes away is something most of us will have to deal with. Every household should have a copy of this book.
KMK
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Posted by taxguru on March 2, 2003
Articles Related to Nonprofit Law
Interesting information on how charities are supposed to work.
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