RSM McGladrey, Inc. is a member firm of RSM International – an affiliation of separate and independent legal entities. Tax Implications Of 2009 Stimulus Act And What Is On the Horizon In The 2010 Budget Plan Todd Jackson Jane Kuban

Who Paid The Tax In 2006

American Recovery and Reinvestment ACT of 2009 $300 billion in tax relief –Numerous provisions to provide middle income tax relief –Business Incentives focused on encouraging companies to make capital investments –Numerous incentives around alternative energy

Individual Incentives Making work pay credit $250 economic recovery payment to retired individuals First time homebuyer credit New car deduction for sales tax American Opportunity Tax Credit (education credit) Child tax credit

Business Incentives Bonus depreciation Refundable credits in lieu of bonus depreciation Increase in Section 179 expense NOL carry back increased from 2 to 5 years if average gross receipts less than $15 million Cancellation of indebtedness recognized over 5 years Qualified small business stock gain exclusion increased from 50% to 75%

Energy Incentives Residential energy credit increase to 30% and $1500 Alternative fuel pump credit increased to 50% and $50,000 Renewable electricity production credit Energy investment credit $2,500 credit available on the first 200,000 plug-in electric vehicles by a manufacturer

Obama FY 2010 Budget Proposal The bill would fulfill many of Obama’s campaign pledges Increase top individual rate from 35% to 39.6% Increase top tax rate on dividends and capital gains from 15% to 20% Permanent fix to the Alternative Minimum Tax Reduce itemized deduction for high-income individuals - not greater than 28% benefit Make many of the 2009 changes permanent

Obama FY 2010 Budget Proposal Business Tax Proposals Make the R&D Credit permanent Expand the 5 year NOL carry back provisions to all companies Eliminate capital gains for investments in small businesses Repeal the domestic manufacturing deduction and repeal the percentage depletion for oil and natural gas companies

Obama FY 2010 Budget Proposal International Tax Proposals Eliminate ability defer income recognition for income earned offshore Increase enforcement of international tax compliance

RSM McGladrey, Inc. is a member firm of RSM International – an affiliation of separate and independent legal entities. Estate Tax Now and Later Jane Kuban

Background Federal government imposes tax on wealth transfers through unified tax system Three Parts: – Estate Tax – enacted in 1916 along with income tax – Gift Tax – enacted in 1932 to prevent avoidance of estate tax – Generation Skipping Tax – enacted in 1976 on transfers to grandchildren and more distant generations Who Pays – Prior to 1976 – paid by approximately 7% of estates in any given year – After 1987 – paid by less than 1% of all estates in any year

Current Law Gift Tax – Exclusions Gift Tax Annual Exclusion for 2009: $13,000 per donee Married Couples can elect to split gifts: $26,000 per donee – Exemptions Gift Lifetime Exemption (in addition to annual exclusion) – $1,000,000 per donor; $2,000,000 between spouses – Tax Rates Gifts in 2009: 39% - 45% on amount of gifts in excess of annual exclusion and lifetime exemption

Current Law Estate Tax – Exemption $3,500,000 for 2009 deaths; no estate tax for deaths in 2010; pre 2001 law in 2011: exemption will equal $1,000,000 – Tax Rates – 2009 deaths: 39% to 45% 2010: estate tax repealed 2011: tax rates go back to pre 2001 law: 39% - 55% Generation Skipping Tax (GST) – Exclusion – similar to gift tax annual exclusion and same amount – Exemption - $3,500,000 – Tax Rate – repealed in 2010

Current Law Basis of Inherited Property – Stepped-up to fair market value at date of death – Tax break when property sold after death – taxable gain based on date of death value not lower basis of former owner – Solves dilemma of “unknown” basis – Stepped-up basis ends with repeal of estate tax in 2010

Current Law Minnesota Estate Tax Law – Exemption: $1,000,000 – Tax Rates: 5% to 16% – Trap for the unwary Many estate plans utilize the federal exemption amount “Gap” in 2009 between federal estate tax exemption $2,000,000 and the Minnesota estate tax exemption $1,000,000 MN estate tax on the “gap” is approximately $100,000; may be assessed at death of first spouse with older estate plans

Proposed Law Legislation Update – House and Senate expected to decide before summer the fate of the federal estate tax – Sen. Baucus (Chairman of Senate Finance Committee) working toward bipartisan compromise; Sen. Grassley favors permanent repeal, but realizes the legislature must come to a “bipartisan solution which provides certainty and fairness.” – New law likely: Exemption of $3,500,000 for individual; $7,000,000 for married couple made permanent Freeze tax rates at a maximum of 45% Other issues being considered: – making exemption portable – unifying the estate and gift tax – improving the installment payment program