Duvall & Associates, Inc.
BUSINESS ADVISOR NEWSLETTER
 

 Repeal of tax breaks is a debate that merits attention

- by Alan Duvall 

Published in Dayton Daily News  September 2, 2007 

“Money – we make it.  ‘Fore we see it – you take it.  Marvin Gaye 

Once upon a time – income was generally taxed at a single rate.  Ordinary income, capital gains and dividends were all treated equal by the Tax King. 

Then along came Congressional Princes who wished to bestow upon us a benefit.  So they bequeathed us a tax break for capital gains and dividends.  And looking upon their deed, these Princes saw good and gave us a veritable plethora of favorable rates. 

Dividends and gains from sale of capital assets are federal taxed at a beneficial 15% rate (or 5% if the taxpayer resides in a 10% or 15% income bracket), even if taxpayers are snagged in the Alternative Minimum Tax quagmire. 

Capital assets are defined in negative terminology – any asset not business inventory, receivables or real estate. 

Gains from sale of eligible “small business stock” may be taxed at an effective 14% rate.  “Small business” is defined as a “C” corporation with less than $50 million assets, whose stock was acquired at original issuance.  

A 28% maximum rate is applied to gains from the sale of “collectibles” which include works of art, antiques, coins, bullion and gems. 

Depreciable real estate is in a complex category of its own, wherein gains from sale are segregated and may be taxed at 3 different rates depending upon the manner of depreciation.  So long as only straight-line depreciation was utilized, real estate gains are taxed at a maximum 25% rate with the 15% rate possible if gains exceed prior year depreciation. 

The Alt Min Tax sinks taxpayers into a new world of 26/28% tax rates on ordinary income.  Congressional Princes seek repeal of this tax demon, but lost government revenues prove a daunting obstacle.   

Foreboding talk is circulating binding an Alt Min Tax repeal to an accelerated repeal of capital gains rates, set to expire of their own accord after 2010 - a debate which deserves careful attention.    

“Bad breaks – set backs.  Natural fact is – I can’t pay my taxes.”  Marvin Gaye

Alan Duvall is a certified public accountant in Dayton.  Contact him at Alan@Duvallcpa.com.  Previous articles archived at www.duvallcpa.com.