World Class Mergers & Acquisitions  |  For Companies $5 Million to $250 Million in Revenue

Pending Legislation and Its Tax Planning Impact on Business


If you live in the U.S. you are well aware of the economic situation.  According to The Beige Book, published by The Federal Reserve, nearly every sector of industry and agriculture and every geographical region of the country is experiencing an economy that is essentially stuck in neutral.  While some indicators suggest the recession is over from a Gross Domestic Product standpoint, nearly every other indicator including employment, spending, job security, and the consumer confidence index all suggest the populace is not in prime condition.

America’s leaders are at work trying to draft policies that will facilitate our way out of the current situation.  There are several issues on the table that are important to us all and will be addressed in the coming months and years.  Among the more important topics and well known legislation currently being considered include the estate tax, the income tax, and healthcare legislation.  The following is an update as to where these topics are and how they will be addressed.

Estate Tax   

Currently, the estate tax has been repealed; meaning that if a person passes away by December 31, 2010 at 11:59 p.m., their estate, no matter how large, will not be subject to a tax due the government.  Under the current law, the estate tax is to be reinstated January 1, 2011 with an exemption of $1,000,000.  While the estate tax was intended to apply to wealthy individuals, the return of the estate tax would affect many more middle class individuals with homes and retirement accounts.  It is not the intention of Congress or the President for the middle class to have such a tax burden.

A lot of discussion has taken place in Congress.  It is likely and probable that the estate tax exemption of $3.5 million will be reinstated for 2011 and subsequent years.  Congress has already taken some action on this matter and this scenario looks likely.  However, we are strongly suggesting that you review any trust documents, especially marital and bypass trusts if you have them, as well as your overall estate plan to be sure it is current and will achieve the goals you originally intended.

Income Tax

There is plenty to be said about other areas of the tax code.  As of the start of this year, the Section 179 deduction for business equipment purchases has been lowered from $250,000 to $134,000.  Additionally bonus depreciation has expired as of January 1, 2010.  The 15% capital gains and dividend rates are set to expire at the end of 2010.  The consensus is that bonus depreciation may not be reenacted; however Section 179 deduction amounts are expected to be raised to $250,000.  As far as the capital gains and dividend rates are concerned, it is expected that the capital gains tax rate will be lower than the dividend rate, which is expected to go up a considerable amount.  Certain tax planning scenarios have come about as a result of the “sunset provisions” of many income tax laws.  You are advised to address all of the issues with a competent tax planning advisor, not necessarily the individual who files your tax returns.


The healthcare debate is better known than the tax situation.  From a planning standpoint, it is our advice that you review the benefits package for your employees.  It is likely that you will want to at least be in a position where you can easily modify your benefits package as needed to provide the necessary health benefits to your employees, while not incurring large financial losses if and when a healthcare mandate becomes law.

Other Economic Legislation

There are many laws on the table concerning tax policies to facilitate business and better the employment situation.  Such areas include “green jobs” and certain other tax credits.  From a tax planning standpoint, it is best to keep all tax credits and deductions in mind as they are enacted into our law, so you can utilize them when the time comes.  These credits include fuel efficient vehicle deductions and energy tax credits.


As individuals and business owners, we can all benefit from the tax laws passed in Washington and our state governments.  While the legislative process continues to finely tune our tax laws, we must plan for the future and not wait.  It is our advice that you have your estate plan, employee benefits plan, and your income tax strategies reviewed at once to reflect the current laws.  The Center’s professionals routinely advise clients on these matters and are available to properly address your concerns.

By: Dr. Bart Basi at the Center for Financial, Legal and Tax Planning for Transworld M&A Advisors