Begin Year-End Tax Planning Now: This year’s tax cut gives many taxpayers an opportunity to put tax dollars back into their pockets now, according to John Battaglia, a director in the Private Client Advisors Practice of Deloitte & Touche.
“Some individuals mistakenly think that the immediate benefits of this year’s tax changes were limited to the advanced payment of the increased child credit or changes in withholding tables,” Battaglia said. “But individuals should review their 2003 tax position now and take appropriate steps to minimize taxes. ... These steps can produce immediate reductions to estimated tax payments.”
Some points Battaglia recommends keeping in mind at estimate time include:
● Basing estimates on the current year’s liability. Battaglia advises checking whether it is more advantageous to base estimates on the projected current-year liability instead of last year’s, because the new law dropped income tax rates for this year.
● Adjusting withholding. The new federal withholding rate for bonus or supplemental payments has increased to 25 percent. “If you need additional tax withheld to avoid estimated tax penalties in the earlier quarters,” says Battaglia, “you should alert your payroll department to withhold additional tax before receiving the bonus.”
The tax law changes make it even more critical to start year-end tax planning now, said Battaglia. For example, by taking advantage of the new 50 percent bonus depreciation or the increased asset expensing, both available this year, some individuals may be able to lower their incomes enough to benefit from different types of deductions or credits, such as personal exemptions, IRAs, the child tax credit, and the Hope Scholarship and Lifetime Learning credits. Higher-income taxpayers typically lose these tax benefits as their incomes exceed certain adjusted gross income thresholds.
And some nuances of the new law may catch taxpayers by surprise. “If you plan to use capital losses to offset capital gains, make sure you check how capital transactions occurring before the law change net against post transactions,” he said.>
BUSH Credits Tax Cuts for Promising Economic Signs: In a visit to the “Show Me” state in late September, President George W. Bush claimed that the tax cuts he pushed through over the past two years are responsible for “signs of promise” in the U.S. economy.
He also took a swipe at his Democrat challengers for the presidency in 2004, many of whom have claimed that the tax cuts helped mainly the wealthy, haven’t done much to fuel the economy, and allowed the deficit to balloon to $500 billion.
“They argue we should return to the way things were in 2001. What they’re really saying is they want to raise taxes,” Bush said in a speech at the Kansas City Convention Center. “Higher taxes will not create one job. Raising taxes would hurt economic growth. Tax relief has put this nation on the path of prosperity, and I intend to keep it on the path to prosperity.”
Bush has blamed the country’s economic woes on the stock market collapse that began in 2000, the wars in Afghanistan and Iraq, and the corporate accounting scandals that shook Wall Street. He said that the tax cuts his administration pushed through Congress earlier this year have kept the recession from being longer and deeper.
Proposed Regs Cover Foreign Currency Debt Instruments: New proposed regulations from the Treasury Department provide detailed rules on the tax treatment of contingent payment debt instruments that are denominated in a foreign currency.
Existing regulations cover the tax treatment of non-contingent debt instruments denominated in foreign currency, and on contingent payment debt instruments not denominated in foreign currency. The new proposed regulations fill the gap between these two existing sets of rules.
The proposed regulations generally apply the “non-contingent bond method” under Section 1275 regulations to the debt instrument in the currency in which it is denominated.
The resulting amounts then are translated into the taxpayer’s functional currency, and gain or loss determined under rules similar to the existing rules for non-contingent foreign currency-denominated debt instruments.
