able to employers under Code Sec. 51;
The reduction in the S corporation recognition period for built-in gain under Code
Sec. 1374(d)( 7);
Contributions of conservation real
property, food inventory, book inventory or
computer equipment to certain charities or
Basis adjustment under Code Sec. 1367(a)
to stock of an S corporation making charitable
contributions of property; and,
A variety of energy-related incentives.
Individuals looking to effectively implement
a year-end strategy should be prepared to fac-
tor in the loss of a number of tax breaks start-
ing January 2012 and accelerate expenses
connected with them into 2011 when pos-
sible. Expiration of some tax breaks, such as
the AMT exemption amount, would require
additional planning to accelerate AMT pref-
erences into 2011 if Congress fails to act. Here
is a list of the more significant benefits set to
expire at the end of 2011:
The 2010 Tax Relief Act’s reduction of
the employee share of the OASDI portion of
Social Security taxes from 6. 2 percent to 4. 2
percent for wages, up to the $106,800 taxable
The AMT exemption amount for individuals (scheduled to decrease from $74,450 for
joint filers/surviving spouses and $48,450 for
others to $45,000 and $33,750, respectively,
The personal credit offsets against regular
tax and AMT under Code Sec. 26(a)( 2).
The mortgage insurance premium deduction under Code Sec. 163(h)( 3).
The state and local sales tax itemized
deduction (in lieu of the state and local income tax itemized deduction) under Code
Sec. 164(b)( 5).
Monthly commuting fringe benefits for
mass transit at the same $230 level as parking
under Code Sec. 132(f ).
The non-business energy credit under
Code Sec. 25C for qualified energy efficiency
improvements and residential energy property expenditures.
The adoption credit’s non-refundable
aspect and $1,000 additional amount under
store to buyers nationwide?
Code Sec. 36C and 137.
IRA distributions to charity of up to
$100,000 without income consequences.
NEW RULINGS AND CASES
A handful of developments coming out of
the IRS and the courts over the past year are
relevant to particular year-end tax strategies.
While no one of these developments could be
viewed as a complete surprise, they are worth
noting because of their direct application to
the year’s end.
Broker stock-basis reporting. The Emergency Economic Stabilization Act of 2008 enacted Code Sec. 6045(g), requiring brokers
to report the adjusted basis and type of gain
from sales of a covered security, including
stock, debt and other financial instruments,
is generally applicable to stock acquired on
or after Jan. 1, 2011 (Jan. 1, 2012, for mutual
funds and dividend reinvestment plans). The
IRS continued to issue rules during 2011 that
fine-tuned this reporting requirement. For
taxpayers, this is a double-edged sword that
can be disadvantageous to year-end selling
strategies if the investor and the broker are
not “on the same page” as to the amount of
basis being factored in to a year-end sale. For
purposes of computing gain or loss before
executing year-end trade tax strategies, an
investor should confirm the amount of basis
that a broker will be reporting to the IRS for
any shares that are sold in 2011.
TD 9542: Start-up and organizational
costs. The language within final regulations
permits a Code Sec. 195 deduction for start-
up costs in the tax year “in which a taxpayer
begins an active trade or business,” in contrast
to its language for Code Secs. 248 and 709 or-
ganizational expenses pegged to the tax year
leveling the playing field between e-com-
merce and brick-and-mortar retailers, they
fail to address a critical issue that directly im-
pacts small business. If federal law does not
address these issues, the constitutionality of
requiring remote sellers to collect and remit
“in which a corporation [partnership] begins
business.” This distinction may cause a Code
Sec. 195 deduction to take place in a tax year
subsequent to that allowed Code Sec 248 or
WAITING FOR 2012
Although certain provisions are sunsetting
at the end of 2011, should year-end planning
also involve deferral or acceleration of either
income or deductions specific to taking advantage of a tax benefit or incentive that does
not begin until 2012? The jury is still out on
the answer, if only because Congress has time
before year’s end to enact stimulus measures,
tax cuts or tax increases that would provide
effective dates in 2012.
Currently, no significant provision from
past legislation carries a Jan. 1, 2012, effective date. However, the expectation that tax
increases will take place in 2013 may indicate
that a strategy that will later call for income to
be accelerated into 2012 should at this time
consider the cascading effect that deferring
income into 2012 as a 2011 year-end strategy
may have in efforts to balance overall tax liability between 2011 and 2012 to maximize
use of the current graduated rate structure.
Year-end tax planning has always involved
juggling a number of moving parts. Planning
for year-end 2011 is no exception, complicated not only by an economy that demands
consideration of loss techniques and other
“downturn” strategies, but also by expiring
provisions, upcoming changes in future
years, and the continuing flow of guidance
and case law that makes relying on the same
generic bag of year-end tricks without customization unreliable.
More in an upcoming column. AT
the taxing authorities to ensure fair policy is
implemented. A little bit of effort up front will
go a long way toward addressing the long-term considerations that will arise as sales tax
law evolves to meet the demands placed on it
by 21st century businesses. AT