Tax tips If you’re considering strategies, such as a family limited partnership (FLP), that take advantage of valuation discounts, you may want to accelerate your plans. Congress may consider legislation this year that would limit the ability of families to claim these discounts. Families are often able to reduce gift and estate taxes by transferring assets — such as limited partnership interests or minority interests in a closely held business — that qualify for valuation discounts for lack of control or lack of marketability. So, for example, the total value for estate tax purposes of an FLP divided among five family members might be substantially less than the value of the FLP’s underlying assets. A report prepared last year by the Congressional Joint Committee on Taxation proposed new rules that would limit discounts by, for instance, aggregating the interests of family members under certain circumstances. Study up on 529 plans 529 plans have become one of the most popular and effective college savings tools. Contributions to a 529 plan aren’t tax deductible, but earnings can be withdrawn tax free as long as they’re used to pay qualified higher education expenses, such as tuition, fees, books, supplies and equipment. The American Recovery and Reinvestment Act of 2009 expanded this category to include computers and computer technology (for instance, Internet access); this benefit is only for 2009 and 2010. A 529 plan requirement is that contributors and beneficiaries cannot direct the investment of the funds in their accounts. Nevertheless, the IRS permits those who establish 529 plans to select from among several different investment strategies when the initial contribution is made, and to adjust strategies once each calendar year and when the designated beneficiary changes. In light of recent events in the investment markets and to give account holders greater flexibility, the IRS announced that it would allow two investment strategy adjustments in 2009. If you have a 529 plan, it’s a good idea to evaluate its recent performance and determine whether a new investment strategy would be appropriate. Expanded hiring benefit If you hire unemployed veterans and “disconnected” youth and they begin work in 2009 or 2010, you may be able to benefit from the Work Opportunity Tax credit. The American Recovery and Reinvestment Act of 2009 added these two categories of workers, which already included:
The credit is calculated based on a number of factors, such as the number of hours the employees work and first-year wages, and must be certified by a local agency. • |