Here’s our summary of recent items of interest.
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Top news
Congressional agenda. Congress is about to meet for a lame duck session where taxes will be high on the agenda. The biggest single issue is the extent of tax relief provided to higher-income taxpayers. President Obama and many congressional Democrats would prefer to extend the Bush tax cuts only for individuals with income below $200,000 and couples with income below $250,000; Republicans and some Democrats prefer to extend those tax cuts for all taxpayers. (We described the Obama proposal here.) A compromise may involve a temporary extension for the higher-income group coupled with a permanent extension for all others.
A higher tax rate just for people with income above $1,000,000 has been getting some discussion, but it isn’t clear this idea has legs.
Two other big tax items are on the table. One is minimum tax relief, which taxwriters on both sides of the aisle promise to provide. The other is a package of “extenders” for various popular tax breaks that expire on a regular basis. One way or another both of these will almost certainly happen, although AMT relief is getting to be a huge budget number: over $60 billion now for a single year’s relief.
Roth conversions within 401k plans. The Small Business Jobs Act, enacted in September, includes a provision that allows companies to offer a way for employees to convert a regular 401k to a Roth 401k account. However, the IRS has informally warned employers against implementing this change before receiving IRS guidance on how it works.
Capital gain rules. The rules for capital gains and losses rarely change, but recent regulations dealing mainly with the upcoming requirement for brokers to report basis on Form 1099 alter these rules in a number of significant ways. Our first article on these regulations covers changes in the rules for identifying shares.
Features
Deferred compensation plan. Some companies offer nonqualified deferred compensation plans, which provide a way to delay receiving (and paying tax on) a portion of your compensation, above and beyond whatever amount you contribute to a 401k or similar program. Here are some things to consider when deciding whether to participate.
Useful or interesting
Bigger deduction for bigger mortgages. IRS says it’s okay to treat part of a home purchase mortgage greater than $1,000,000 as a home equity loan for a larger interest deduction.
Up in smoke. The Tax Court says you don’t get a charitable contribution deduction when contributing a home to fire department so they can burn it down.
Eschew obfuscation. Congress (of all people) tells the IRS to use clear language.
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