Isaacson Isaacson
Sheridan & Fountain, LLP
101 W. Friendly Ave., Suite 400
Greensboro, NC 27401 
(336)  275-7626
 
 September 16, 2010
photo of Desmond
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The following alert is from Desmond Sheridan.
 

Changes to dividend and capital gain tax rates will affect transaction and dividend planning

The maximum 15% federal income tax rates on qualified dividends and long-term capital gains now in effect are scheduled to expire at the end of 2010 under the "sunset" provisions of the Jobs and Growth Tax Relief Reconciliation Act of 2003. Barring congressional and presidential action, maximum rates of 39.6% and 20% will go into effect for dividends and long-term capital gains, respectively, for 2011 transactions. (For 2011, a maximum rate of 18% on long-term capital gains rate would apply in the case of assets held more than five years.) It is also possible legislation could change rates only for high income taxpayers. 

Normally, planners try to push taxable income to future tax years.  Because of these rate changes, it may make sense to take income in 2010.  If you have a capital gain transaction pending, it will make sense to close in 2010.  Also, if you control a corporation with accumulated profits, it may make sense to distribute dividends in 2010.  Some taxpayers may even "artificially" trigger gains in 2010 by selling an asset to a related person.

The downside of a 2010 sale or dividend distribution is that it is impossible to know at present whether the 15% rates will simply expire and be replaced by higher rates in 2011, or be extended, or be replaced by another set of rates somewhere in between. We may not even know at December 31, 2010.  As a result, if the 15% rates are extended for all taxpayers, the taxpayer who accelerates income to 2010 will have paid his taxes a year early.  Also, an early transaction accelerates state taxes which may not be changing.
About the Writer

Desmond G. Sheridan is a partner in the Greensboro law firm of Isaacson Isaacson Sheridan & Fountain, LLP and is a certified public accountant.  His practice areas are business transactions, tax, corporations, limited liability companies, commercial real estate and estate planning.  Sheridan has served on the Board of Directors of the North Carolina Association of Certified Public Accountants and has been recognized as a "Best Lawyer in America," a North Carolina "Super Lawyer" and a member of the "Legal Elite" by Business North Carolina.  He has given numerous continuing education presentations to CPAs and attorneys.

Some disclaimers:  First, nothing in this email should be construed as legal advice.  Second, an attorney-client relationship may only be established by a formal engagement with our firm.  Third, this email is informational only; you should not act on any legal matters except with the specific advice of your counsel.

 
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Isaacson Isaacson Sheridan & Fountain, LLP

101 W. Friendly Ave, Suite 400
Greensboro, North Carolina 27401
336-275-7626
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