A silver lining Featured

8:00pm EDT March 26, 2009

In these current economic conditions, it’s a good time to reassess your tax and estate planning. Whether it is gifting stock and real estate to shore up your estate, or trying to make up for losses in your business, there are many ways to help make sure your finances are in order and your estate tax posture is maximized.

“Estate planning is the silver lining in the economic gloom,” says Robin Bell, a member at Brown Smith Wallace LLC. “While people always need to be cognizant of the value of their estates, you still need to do the basic blocking and tackling to make sure that your wishes are granted, and your heirs and beneficiaries are taken care of.”

Smart Business spoke with Bell about the new estate tax exemptions, how to take advantage of quick tax refunds if you have experienced a tax loss, the basics of the Section 179 deduction and new tax law changes.

How do you gift stock and real estate?

With the current value of stocks, you can gift more, and when the market does rebound, the appreciation in those marketable securities is out of the estate of the person who made the gift. Now is a good time to think about ways to reduce your estate, so in the future you can control and reduce estate tax problems.

Just as giving stock in a down market can be beneficial considering future appreciation, the same holds true with real estate, family limited partnership interests and closely held companies. You must go through the proper channels in order to benefit — have an appraisal or a business valuation conducted — but you will benefit greatly in future years by gifting these items when we are in a down economy.

What is the impact of the new estate tax exemptions?

The exemption had not increased for several years. Finally, the exemption has increased. For 2009, the exemption is $3.5 million. In 2010, estate tax totally goes away, unless we have another big tax bill in the next 10 months. In 2011, the exemption is supposed to be reset to $1 million. The general feeling is that they will probably permanently increase and index it to a level that makes sense, which could be somewhere between $2.5 and $3.5 million on a go-forward basis. However, with the latest news from President Obama, we can only plan for the laws today.

What types of quick tax refunds can you get for net operating loss years?

For companies that incur a tax loss, it can be carried back to recoup tax paid in the preceding two years. The goal would be the sooner the better, as the refund could impact cash flow planning.

Some companies may not have a net operating loss, but paid a lot in estimated taxes for 2009 based on 2008 results. If their 2009 year doesn’t look as good as their 2008 year, they can use Form 4466 for a quick refund. This can be filed before their return is filed, which is another way to impact the company’s cash flow. There are requirements — it has to be at least $500, at least 10 percent of your current estimated tax liability and the service has to act on it within 45 days.

What is the Section 179 deduction?

The Section 179 deduction is designed to help businesses that need to make investments in capital assets. For any business that places $800,000 or less of assets in service during their fiscal year, they are allowed to write off up to $250,000 immediately. Also in place is an immediate 50 percent bonus depreciation, which is for all assets placed in service for that year. This is available to everyone — some of the larger corporations that may have placed more than $800,000 of assets in service are not eligible for the entire 179 deduction, but they would be for the bonus depreciation. You can take the bonus depreciation if you have taxable income or loss. You have to have taxable income in order to take the 179 deduction. You can carry the deduction forward, but cannot create a loss with it, nor file a carry back claim.

How will the new tax law changes affect companies?

The new tax law targets individuals and small businesses. But for larger businesses, there is a work opportunity tax credit that has been expanded to include two new classes of people — unemployed veterans and disconnected youth — which might encompass more employers who qualify for that credit.

The credit is up to 40 percent of the first $6,000 of wages paid to the qualified employee. They’ve also expanded the rules for cancellation of certain indebtedness income. Consult your tax adviser on that. The rules are detailed, so make sure that you are following them correctly.

ROBIN BELL is a member at Brown Smith Wallace LLC. Reach her at (314) 983-1217 or rbell@bswllc.com.