![]() “The Code provides for the taxation of the taxable income of certain personal service corporations at the highest corporate rate, thereby depriving these corporations of the benefit of lesser, graduated tax rates on taxable income not in excess of $75,000″ (Ness and Vogel, 1991). Section 11(b)(2) states that the qualified PSC will be taxed at a rate of 35%. The foregoing analysis, though, is altered when applied to a personal service corporation (“PSC”) (also known as a loan-out corporation). The §11 tax rate of 35% is applied to taxable income exceeding $10,000,000. While it may seem that the 4.6% difference in maximum taxation rates is inconsequential, the §1(c) rate of 39.6% is applied to taxable income over $250,000. Section 11, which applies to the corporate taxpayer, requires taxation at the highest level of 35%. ![]() The only difference between a corporation and an individual taxpayer is the application of the rate of tax to the taxable income.” Section 1(c) applies to the individual taxpayer and requires taxation at the highest level of 39.6%. This is the part 2 of the second section of Anker Reed HSC’s blog series entitled “To Incorporate or Not to Incorporate? That is the Question” regarding the tax benefits of incorporation to the entertainer. Contact our Estate Tax Planning Attorney in Los Angeles today.Ĭontinue reading blog series: Gift Taxes, GST and Misc Effects of The 2010 Tax Act Now is the time to take advantage of the increased exclusion amount. To preserve the first deceased spouse’s unused applicable exclusion amount, the executor for such spouse must file an estate tax return and make an election on such return, even if such an estate tax return would otherwise not be required. Special limits apply to decedents with multiple predeceased spouses. Generally, portability allows surviving spouses to elect to take advantage of the unused portion of the estate tax applicable exclusion amount (but not any unused GST tax exemption) of their predeceased spouses, thereby providing surviving spouses with a larger exclusion amount. The Act also provides for “portability” between spouses of the estate tax applicable exclusion amount for estates of decedents dying in 20 if both spouses die before 2013. The Act gives estates of decedents dying during 2010 the option to apply (1) the estate tax based on the new 35 percent top rate and $5 million applicable exclusion amount, with stepped-up basis, or (2) no estate tax and modified carryover basis rules under prior law. Leave it to Congress to create a “ginormous” loophole, a historic rift in the entire time-space continuum through which several billionaires waltzed on their way out of this mortal coil, even while TSA agents were frisking, x-raying, and imaging elderly people boarding airplanes. Under the modified carryover basis rules that applied during 2010 before the Act, executors could increase the basis of estate property only by a total of $1.3 million (plus an additional $3 million for assets passing to a surviving spouse, for a total increase of $4.3 million), with other estate property taking a carryover basis equal to the lesser of the decedent’s basis or the property’s fair market value on the decedent’s death. Property with a stepped-up basis generally receives a basis equal to the property’s fair market value on the date of the decedent’s death. The Act also eliminates the modified carryover basis rules for 2010 and replaces them with the stepped-up basis rules that had applied before 2010. However, Congress has shown that it has a difficult time generating a consensus on tax issues, so the status quo could continue beyond the next two years. Among the range of possibilities is another complete repeal (highly unlikely) or a tightening of the rules. ![]() There is no guarantee that the rules will remain in place permanently. Unfortunately, this new regime is itself temporary and will sunset on Decemand the prior estate tax regime, with a 55 percent maximum estate tax rate and a $1 million applicable exclusion amount, will be reinstated at that time. This estate tax regime continues for decedents dying in 20. The exemption will be indexed for inflation, beginning in 2012. The Act reinstates the estate tax for decedents dying during 2010, but at a significantly higher applicable exclusion amount of $5 million, and a lower maximum tax rate of 35 percent. Additional changes scheduled for years after 2010 affected the gift and generation- skipping transfer (“GST”) taxes. Prior law provided that the estate tax, with a maximum tax rate of 55 percent and a $1 million applicable exclusion amount, would be reinstated after 2010. Before the 2010 Tax Act, the federal estate tax was gradually reduced over several years and then eliminated for decedents dying in 2010. Almost every estate plan in the United States needs to be rewritten immediately.
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