Duvall & Associates, Inc.
BUSINESS ADVISOR NEWSLETTER
 

Santa's got his sack filled with tax gifts

- by Alan Duvall 

Published in Dayton Daily News December 18, 2005  

Santa’s legislative elves are working diligently to construct some new tax toys for the holiday season.  Let’s take a peek to see what may be placed under the tree. 

Santa Bush has issued a tax edict with difficult parameters – elimination of the nasty Alternative Minimum Tax (AMT); permanent extension of the capital gains and dividends tax cut; tax simplification; and revenue neutrality.  Tax elves are having a tough time building a year-end bill which has enough compromises to satisfy even the most discriminating Scrooge. 

Other elves are working on a hurricane relief bill with goodies for Gulf State victims of recent natural calamities.  Grinches have hammered out provisions exempting bad little businesses such as massage parlors, hot tub facilities and gambling establishments from receipt of any tax gifts. 

New laws are increasing funding for IRS munchkins and may grant enhanced authority for undercover investigative operations.  Audits nationwide are increasing exponentially - particularly for tax shelters, Sub S corporations and wealthy taxpayers.    

Tax simplification is receiving traditional words of support.  Unfortunately, federal elves “talk the talk” but never seem to “walk the walk”.  A widely publicized tax committee explored the simplification concept but came up with nothing more than eliminating itemized deductions and the AMT.  Really – they can do much better than that. 

Recent power-bankruptcies (Delta, Enron, Delphi) have threatened to disrupt the solvency of the pension system.  A retirement funding and simplification law is in debate. Unfortunately, such bills tend to introduce additional simple pension options which predictably complicate, not ease planning.  We need fewer options – not more. 

Sub S corporations are very complex animals in line for some legal trimmings.  A Reform Act intending to soften penalties and increase shareholder options is in progress.  A huge overlooked issue lies with the calculation of shareholder basis.  Ask your CPA what your basis is – if he/she cannot quickly respond – you have a problem. 

Finally, the ghost of Christmas past is still trying to repeal estate taxes.  The issue has been tabled for 2005, expect a rebirth next year. 

So this Christmas, tip-toe downstairs and if Santa’s elves have been faithfully doing their job, hopefully you will find a nice tax present lying under the tree.  If you see no tax presents – only a lump of coal - hire new elves. 

Alan Duvall is a certified public accountant in Dayton.  Contact him at Alan@Duvallcpa.com.