In recent years, the president and congressional leaders have threatened tax hikes continuously.  At the end of 2012,  most speculated that dividend and capital gains taxes would skyrocket.  While new health care taxes will hit business owners and retirees hard, the dividend and capital gains tax hikes were stopped by the Congress at the last minute. These tax hikes plus the ObamaCare taxes could have increased the cost of selling a company by more than 50%. With that being said, the government now has a short-term influx of tax payments.  It is speculated that the higher tax revenue receipts were generated  from the last minute tax-avoidance sales.   For example, companies such as Current TV were probably sold at the last minute in December 2012 to avoid major spikes in capital gains taxes.

In the meantime, the S & P 500 companies are still doing 40-50 percent of their business offshore. These US companies doing business offshore are reinvesting much of  their profits outside of the US to target the global customers which represent over 90 percent of the world’s buyers outside of the USA.

The point of this article is that the government should not get to excited about a one-time mass influx  of capital gains  and income taxes for 2012. These temporary flows of tax payments are because people are trying to avoid taxes and not  necessarily because the domestic economy is doing better.

And don’t forget, every 5-6 years, retirees and now baby boomers are “GOING TO CASH” particularly when the stock market is reaching new highs.  Not only is it a strategy, but licensed professionals are required to advise retirees about their time horizon and suitability as they get older. This means that retirees with savings  must sell some stocks or capital assets to generate income.  Moreover, the global investor follows value too and will move out of the USA when things get into technical bubble range for the DOW and S&P.

In the end, there are many US companies citizens that are still carrying forward major losses over the last 3 years along  with many working families that are under water with their house value.

In closing, the only way to solve the fiscal problems would be to use the 4FP “Four Fold Path”.   1) Grow the Economy and Tax Payments 2) Create a Fair Tax System which Incentivizes Productivity 3) Reduce Spending, Corruption and Waste 4) Augment Global Investment into Your Country Though a Fair Regulatory and Tax System.

In the end, keep a keen eye out for big shots at Goldman Sachs or other banks to start putting their clients into some cash if the Dow hits 15500. Even Time Magazine says, “Don’t Fight The Fed but Be Afraid”.

With all of the being said, I may recommend a few companies related to taxes, tax strategy,  and credit.  Intuit (NASDAQ:INTU), Paychex (NASDAQ:PAYX), Equifax (NYSE:EFX)

Lawyer  and Counselor  George Mentz, JD, MBA, CILS, CWM  is a world recognized management consulting commentator and award winning professor who has authored several revolutionary books. Prof. Mentz, an international attorney, has been a keynote speaker globally in Asia, Arabia, USA, Mexico, Switzerland, and in the West Indies. Mentz can be contacted for speaking engagements at www.gmentz.com or www.managementconsultant.us  *No counseling, tax investment or legal advice provided herein.  Please consult with a licensed professional in your jurisdiction before making any important career, financial or legal decision.  All rights reserved by George Mentz, Esq.

The United States population is about 311 million people which represents about 4.5 percent of the worlds’ 7 billion viable consumers. For the United States to remain a world leader in business, it must remain competitive on a global level with regard to government effectiveness, economic development for entrepreneurial growth, and the costs of doing business.

Because of globalization, people and business no longer need to be based in the USA for success or even rely on the US for survival. Businesses and people in the USA can move out of the country and become successful in many regions of the world including: Latin America, Russia, Arabia, India, Asia, Africa, the West Indies, and specifically city states such as Dubai or Singapore. Many of the reasons people go offshore are for logistics, to sell to the global customer, and to take advantage of favorable business environments. Some countries even offer the ability for retained earnings enabling tax-deferred reinvestment and capital growth offshore. Allowing retained earnings lets companies to grow and reinvest rapidly and locally without ongoing tax regulation and filings, and seems to keep more money flowing in local regions. In countries like the USA, you must pay taxes and fees as you go either quarterly or at the end of each year, but there is no way to retain the revenues past fiscal year-end and invest it without involving complex tax regulations, filings, disclosures, or penalties.

Within the jurisdictions of the USA, the same holds true, people and business go to where there is the least friction and lower: red tape, regulation, litigation, fees, waste, corruption, and other economic costs. And guess what, if a business is relocating in one of the 50 US states or territories, there is competition between the jurisdictions. Any relocating company can freely ask the state officials the question, “what can you do for us”, and the state economic development folks will begin dancing, singing, and offering tax and other incentives for the company and its’ employees to move into their jurisdiction.

The point is that the United States will need to engage the same economic development both internally and externally to make our federal environment more fair and friendly to insiders and outsiders who want to invest in America. The dirty secret is that people from inside the USA and outside in developed countries want a token of good faith, a fair system, investor protection, and a good legal system. Moreover, they want to have confidence in America, it’s leaders and the system of business law. However, if the structure smells like a costly bureaucratic shakedown, then international investors will not invest in the USA.

To compare tax rates, in the USA, you pay federal income tax, state income tax, sales taxes, and also corporate taxes. Keep in mind, these taxes are paid before the individual can invest the money in their local or regional community where it would also be taxed.

The federal tax rate in the United States for corporations is 35% plus potential state taxes which is higher than most countries around the world. Higher than Indian’s 33% base rate, and China and Brazil’s initial corporate income tax of 25% and higher than Russian corporate tax which is 20%. See KPMG Tax Table. Whereas, there are countries with extremely competitive rates, safe jurisdictions, and available talent in the region. Various examples would be: Singapore, Czech Republic, Lithuania, Bermuda, Bahrain, Montenegro, Macau, Qatar, Paraguay and others.

In contrast, Dubai which is a major city state government and emirate within the United Arab Emirates allows for a corporate styled LLC Limited Liability Company which has no corporate taxes, no income tax and no retained earnings taxes. Much of Dubai’s government revenues come from annual fees for services and the expatriates & foreign companies that locate there.

The focus of this analysis is not just corporate tax rates, but the TBDB Total Burden of Doing Business versus total benefits for member loyalty. As with any credit card , if you do not like their fees and rewards, you can dump them for a better card with better rewards such as Visa, MasterCard American Express and Discover. VISA (NYSE: V[FREE Stock Trend Analysis]) MasterCard (NYSE: MA) American Express (NYSE: AXP) and Discover (NYSE: DFS). The same value proposition will draw the creators, producers, and contributors to the best service provider.

Going forward, it is my view that the most successful economies in the world will have strategies to provide benefits to those who locate in their country to do business. In the end, the citizens of these forward-thinking countries or jurisdictions will reap the benefits of such international respect and good will. During this political season, we hear reporters asking generic tax reform questions such as “Show Me the Math; yet, there is an incredibly simple answer that was provided to me by a old farmer with a 4th grade education. The answer is that, “50% of nothing is still nothing”, and the countries that promote good will and economic incentives will be rewarded with 10 or even up to 20 percent of the revenues from top companies including much of world investment and trade.

With all of this being said, volume businesses such as WalMart (NYSE: WMT) or Amazon (NASDAQ: AMZN) create vast revenues based in incentives, pricing, customer satisfaction and value. As such, the centers which promote economic fairness, freedom and security will become super-hubs of free markets, prosperity, and success for the long-term. This is just one more reason why management consulting firms such as Booz Allen Hamilton (NYSE: BAH) and international law and accounting firms such as Accenture (NYSE: ACN) will continue to flourish while international online education such as law schools for tax and finance such will also expand enrollment. See TJSL Online Graduate Tax Program

In the end, strategic government policy is the key to developing GCA or “Global Competitive Advantage” and also the secret to bringing new business into your country where relocated or new companies hire more local people, create local and national economic activity, and ultimately the key to revenue generation.

About the Author: Dr. George Mentz JD, MBA, CWM – Mentz is a world recognized Certified Chartered Wealth Manager and award winning professor who has authored several revolutionary books. Prof. Mentz, an international attorney, has been a keynote speaker globally in Asia, Arabia, USA, Mexico, Switzerland, and in the West Indies. Mentz can be contacted for speaking engagements at www.gmentz.com or www.managementconsultant.us or www.selfhelpbook.org  Mentz is a licensed attorney and CWM Chartered Wealth Manager

Mentz is part of the National Underwriter Panel of Experts for Advisor FX and FYI http://www.advisorfyi.com/expert/

*No tax investment or legal advice provided herein. Please consult with a licensed professional in your jurisdiction before making any important financial or legal decision.
References:
TJSL Thomas Jefferson School of Law Graduate Tax and Finance http://llmprogram.tjsl.edu
Global Tax Table from KPMG http://www.kpmg.com/global/en/whatwedo/tax/tax-tools-and-resources/pages…
IRS http://www.irs.gov/Businesses/Corporations
AAFM American Academy of Financial Management

Starting in 2013, federal and state taxes hikes are set to hit many of the nations hardest working families and retirees. If you have a company or appreciated asset that you are planning to sell, you may want to do it before the end of the year. Beginning in 2013, the cost and taxes on selling any tangible asset or your business may go up by a whopping 60 percent.

The established tax rates on long-term gains and qualified dividends will expire on December 31, 2012. Starting 2013, the federal tax rate on long-term gains will go up to 20% (or up to 10% if a taxpayer is in the fifteen percent tax bracket). In addition to this tax hike, the state income tax is added to the 20 percent. Thus, if you live in New York for instance, your federal and state combined tax to sell an asset for a profit would be about 28% if you add the 8 percent New York state income tax. But wait, there is more. Beginning in 2013, you will also be hit with another new tax on long-term capital gains and dividends where you get whacked with an additional 3.8% “Medicare contribution tax.

Also starting in 2013, the distinction between ordinary and qualified dividends will disappear, and all dividends will be subject to the ordinary tax rates. Thus, the maximum rate on dividends is scheduled to increase from 15 % to max out at 39.6% as the Bush Taxpayer Relief Act provisions expire. Thus, taxes on fixed income dividend assets will go over 100%. I would only assume that these new taxes may hurt the share price and demand for dividend yielding stocks.
To sum it up, if you have worked for 30 years in New York to build a company and you sell your small business for $500 thousand dollars, your federal taxes will go up on that retirement sale from about 15% to a whopping 23.8 percent in federal taxes plus state tax. And yes, you then would owe on top of that another 7 or 8 percent to the state of New York to bring you up to well over $150,000 dollars or 30% percent of your retirement being gobbled up by the state and federal governments.

To make a comparison, there may be some folks in a (state with no income tax) such as: Texas or Florida right now who have recently established residency. By the end of the 2012 year, they can sell their stock or company in a long-term capital gain transaction with the tax rate at a flat rate of 15% or only $75,000 dollars. This is 100% less than what the New Yorker or Californian might pay in 2013. “Viva el la Estado de Texas y la Florida” …..

From a philosophical standpoint, the less federal tax on capital gains, the more money that goes into a local economy where the seller resides. In the end, high capital gains rates tend to freeze up assets, constrict the sale of property, and the middle class generally end up waiting till they die to sell a company so as to avoid the capital gains taxes. Overall, if a taxpaying citizen does not receive a reasonable majority of the proceeds from the sale of a business or property, they will not sell or spend or circulate the money in local communities. Further, if people don’t sell things, taxes are not generated.

This whole capital gains tax debate brings me back to a vivid but real experience. I remember as a teenager reading the list of the Forbes 400 richest people in the world. The list in the 70′s was primarily people who inherited money, businesses, assets, or trusts. This list made me believe that being rich may be just luck and inheriting a 2nd or 3rd generational business. However, after the tax rates were lowered in the 80′s, the list changed quickly over the next few years to be comprised mostly of hard working folks who were “self-made”. Thus, my personal belief in the possibility for all Americans to become prosperous changed. The moral of the story is that lower tax rates helps create new wealth and new abundance. In sum, the incentives for hard work are directly correlated to the potential rewards, and everyone benefits from creativity and inventions in the form of cures, technology, and even tax receipts. And of course, higher taxes reduces global investing into new American ventures that may grow the economy.

For instance, even if you read the self-help book, Super Rich, by the famous music mogul Russell Simmons, you will see that even Mr. Simmons claimed to have used the favorable capital-gains rates to sprinkle around the vast proceeds from the sale of one of his businesses and share some of his good fortune with his workers who loyally invested their energy into his company over the years. I personally commend Mr. Simmons for rewarding his people for their contributions.

In the end, we must continue to think of ways to incentivize the hardest working and provide reasonable benefits for those who contribute with great creativity and effort.
Some Ideas for our Readers to Avoid Undue Tax:
1. Subchapter S Corporations may be more useful going forward to mitigate self-employment taxes or other taxes. However, dividend rates are going up if nothing is done by the administration.
2. The Purchase of ETFs, Funds or Stocks that do not produce interest or dividends may be a better investment for long term growth. iShares S&P 500 Growth Index Fund (NYSE: IVW) and WisdomTree LargeCap Growth Fund (NYSE: ROI) Read more: http://www.benzinga.com/analyst-ratings/analyst-color/12/02/2320350/growth-etfs-for-all-seasons#ixzz20LhXdkeF
3. Use of Tax Deferred Variable or Fixed Annuities or Self Directed 401Ks or IRAs may also become even more popular.
4. Read my previous article on Estate Tax Adjustments in 2013 and learn to prepare for those tax hikes and changes.
5. Consider donating appreciated assets to charity rather than cash to avoid undue taxes.

Dr. George Mentz is a world recognized wealth management commentator and professor who has authored several revolutionary books. Prof. Mentz, an international attorney, has been a keynote speaker globally in Asia, Arabia, USA, Mexico, Switzerland, and in the West Indies. Mentz can be contacted for speaking engagements at www.gmentz.com  or www.managementconsultant.us  To become a Chartered Wealth Manager please contact the AAFM

*No tax investment or legal advice provided herein. Please consult with a licensed professional in your jurisdiction before making any important financial or legal decision.

http://www.irs.gov/taxtopics/tc409.html

http://www.benzinga.com/personal-finance/financial-advisors/12/06/2691411/new-tax-rates-and-adjustments-for-2012-income-and-

http://www.smartmoney.com/taxes/income/what-obamacare-may-mean-for-taxes-1335896160486/

http://www.thestreet.com/story/11598139/1/time-to-avoid-2013-capital-gains-hike-is-now.html

http://businesscertification.org

In 2012, Many Tax Benefits Increase Due to Inflation Adjustments

USA — For tax year 2012, personal exemptions and standard deductions will rise and tax brackets will widen due to inflation, the Internal Revenue Service announced today.

By law, the dollar amounts for a variety of tax provisions, affecting virtually every taxpayer, must be revised each year to keep pace with inflation. New dollar amounts affecting 2012 returns, filed by most taxpayers in early 2013, include the following:

The value of each personal and dependent exemption, available to most taxpayers, is $3,800, up $100 from 2011.

The new standard deduction is $11,900 for married couples filing a joint return, up $300, $5,950 for singles and married individuals filing separately, up $150, and $8,700 for heads of household, up $200. Nearly two out of three taxpayers take the standard deduction, rather than itemizing deductions, such as mortgage interest, charitable contributions and state and local taxes.

Tax-bracket thresholds increase for each filing status. For a married couple filing a joint return, for example, the taxable-income threshold separating the 15-percent bracket from the 25-percent bracket is $70,700, up from $69,000 in 2011.

Credits, deductions, and related phase outs.

For tax year 2012, the maximum earned income tax credit (EITC) for low- and moderate- income workers and working families rises to $5,891, up from $5,751

in 2011. The maximum income limit for the EITC rises to $50,270, up from $49,078 in 2011.The credit varies by family size, filing status and other factors, with the maximum credit going to joint filers with three or more qualifying children.

The foreign earned income deduction rises to $95,100, an increase of $2,200 from the maximum deduction for tax year 2011.

The modified adjusted gross income threshold at which the lifetime learning credit begins to phase out is $104,000 for joint filers, up from $102,000, and $52,000 for singles and heads of household, up from $51,000.

For 2012, annual deductible amounts for Medical Savings Accounts (MSAs) increased from the tax year 2011 amounts; please see the table below.

The $2,500 maximum deduction for interest paid on student loans begins to phase out for a married taxpayers filing a joint returns at $125,000 and phases out completely at $155,000, an increase of $5,000 from the phase out limits for tax year 2011. For single taxpayers, the phase out ranges remain at the 2011 levels.

Estate and Gift

For an estate of any decedent dying during calendar year 2012, the basic exclusion from estate tax amount is $5,120,000, up from $5,000,000 for calendar year 2011. Also, if the executor chooses to use the special use valuation method for qualified real property, the aggregate decrease in the value of the property resulting from the choice cannot exceed $1,040,000, up from $1,020,000 for 2011.

The annual exclusion for gifts remains at $13,000.

Other Items

The monthly limit on the value of qualified transportation benefits exclusion for qualified parking provided by an employer to its employees for 2012 rises to $240, up $10 from the limit in 2011. However, the temporary increase in the monthly limit on the value of the qualified transportation benefits exclusion for transportation in a commuter highway vehicle and transit pass provided by an employer to its employees expires and reverts to $125 for 2012.

Several tax benefits are unchanged in 2012. For example, the additional standard deduction for blind people and senior citizens remains $1,150 for married individuals and $1,450 for singles and heads of household.

However, the totality of taxes from: State, Federal, City, Utilities, Real Estate, Gasoline, Luxury Taxes and the rest of personal and business taxes are still putting many Americans in the 50% or higher tax rates.

Details on these inflation adjustments can be found in Revenue Procedure 2011-52, which will be published in Internal Revenue Bulletin 2011-45 on November 7, 2011. http://www.irs.gov/newsroom/article/0,,id=248485,00.html

Dr. George Mentz is a world recognized wealth management commentator and professor who has authored several revolutionary books. Prof. Mentz, an international attorney, has been a keynote speaker globally in Asia, Arabia, USA, Mexico, Switzerland, and in the West Indies. Mentz can be contacted for speaking engagements at www.gmentz.com or www.managementconsultant.us

The IRS has dropped the second shoe, giving taxpayers guidance through the complex procedural machinations they must follow to avoid the 2010 estate tax.

The IRS released two pieces of guidance for estates of 2010 decedents. Advisor’s Journal covered Notice 2011-66 in a previous edition [see IRS Finally Issues Guidance on 2010 Estate Tax (CC 11-160)]. Today we discuss the second component, Revenue Procedure 2011-41, which provides a safe-harbor for executors of estates of 2010 decedents and beneficiaries of those estates. If the safe-harbor procedure is followed and the executor doesn’t take a contradictory position on a return, the IRS will not challenge the election against the estate tax or the basis allocations made by the executor.

Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

For previous coverage of estates of 2010 decedents in Advisor’s Journal, see IRS Finally Issues Guidance on 2010 Estate Tax (CC 11-160), What Next? ILITs and Estates under 5MM (CC 11-114), & Does the New Estate Tax Make the Bypass Trust Obsolete? (CC-10-122).

For in-depth analysis of the estate tax, see Advisor’s Main Library: Estate, Gift and GST Taxes

When an estate is facing a liquidity crisis, why not tap the family limited partnership (FLP) for cash? After all, the decedent was a partner in the partnership and the partnership can make distributions to the estate, which is now a partner in the FLP.

No so fast. Although an FLP may look like a prime source of cash for paying an estate tax bill, the move can come back to bite the estate in a big way. Done the wrong way, it could jeopardize the valuation discounts and estate planning objectives your clients and their estate planning professionals worked so hard to secure.

The IRS is perpetually on the lookout for new weapons to use against FLPs, but Section 2036 of the Internal Revenue Code has been the IRS’s weapon of choice against FLPs over the past decade.

Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

For previous coverage of family limited partnerships in Advisor’s Journal, see Use Charitable Giving to Enhance Family Business Succession Planning (CC 10-76) and
Practical Succession Planning for the Family-Owned Business (CC 08-22).

For in-depth analysis of family limited partnerships, see Advisor’s Main Library: FF—Family Limited Partnership.

A charitable freeze technique that used a complex contribution formula was considered by the Ninth Circuit Court of Appeals in Petter v. Commissioner, No. 10-71854 (2011). The charitable freeze is a technique that readjusts a simultaneous gift/charitable contribution combo if the IRS successfully challenges a valuation of the gift, shifting additional value from the gift component to the charitable contribution component to eliminate any gift taxation resulting from the challenge.

Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

For previous coverage of estate planning in Advisor’s Journal, see What Next? ILITs and Estates under 5MM (CC 11-114).

For in-depth analysis of estate freeze techniques, see Advisor’s Main Library: E—Estate Planning For The Family Business.

Estates of decedents who died in 2010 finally have guidance from the IRS on how to opt out of estate tax treatment and allocate carryover basis to estate property. The guidance is long overdue, and leaves little time for estates to make decisions that could have a massive tax impact.

Under the guidance, Notice 2011-66, to opt out of the estate tax and apply the new carryover basis rules, an executor must file Form 8939, Allocation of Increase in Basis for Property Acquired From a Decedent. The due date for the form is November 15, 2011. But despite the November deadline, Form 8939 and its instructions will not be available until early this fall. The IRS has, however, released a draft version of the form.

Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

For previous coverage of the new estate tax in Advisor’s Journal, see What Next? ILITs and Estates under 5MM (CC 11-114), Does the New Estate Tax Make the Bypass Trust Obsolete? (CC-10-122), 2010 Estates: To Elect or Not to Elect (CC 10-124) & Obama Tax Agreement Passed by House (CC 10-117).

For in-depth analysis of the estate tax, see Advisor’s Main Library: Estate, Gift and GST Taxes.

The IRS has released guidance [Rev. Proc. 2011-38] that substantially liberalizes the rules for partial exchanges of annuity contracts.

Section 1035 allows a tax-free exchange of an annuity contract for another annuity contract. Congress introduced the tax-free exchange because it recognized that the needs of life insurance and annuity owners change over time and that it would be unfair to tax them when they switched policies to better meet their needs.

Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

For in-depth analysis of Section 1035 exchanges, see Advisor’s Main Library: E – Non-Taxable 1035 Exchange of Contracts. See also, Advisorfyi.com, Income Tax: Partial Annuity Exchanges Under Section 1035

Short-term gains carry an additional 20% tax cost over long-term gains, motivating the manufacturing of transactions designed to convert short-term to long-term gains. But as you’d expect, these transactions attract undue attention from the IRS and are often disregarded by the Service. The IRS recently considered the tax treatment of one of these gain-recharacterization schemes, a basket option contract, in a generic legal advice memorandum (AM 2010-005).

The IRS recharacterized the contract, viewing it as if the investor purchased the securities in a margin account, paying cash equal to 10% of the value of the securities and borrowing 90% of the value from the investment bank. Just as was the case with the “option,” the investor had almost total control over investment of the securities and would reap all appreciation and income from the securities, less interest and brokerage fees.

Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

For in-depth analysis of options, see Advisor’s Main Library: G—Options and Futures.