Focus on Tax - FOT-03-10

October 2003

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This Issue Covers:

	New rules, same goals drive investment strategies
	Experts discuss avoiding state tax trouble in asset-only sale
	MACRS planning can drive equipment purchase decisions
	Getting the mechanics and documentation right critical in like-kind exchanges
	Partnering with specialized service providers can mean more clients for CPAs

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New rules, same goals drive investment strategies

Recent tax changes present many opportunities for investors looking to minimize taxes while maximizing their gains. But, as always, there are pitfalls to be avoided and careful planning and choosing is more necessary than ever. The Jobs and Growth Tax Act of 2003 presents lower tax rates for dividends and capital gains. The tax editors at CCH have looked closely at this landmark legislation in a new book, Tax Planning Strategies: New Opportunities After the Jobs and Growth Tax Act of 2003, and discovered the tax saving potential for investors. The book is loaded with tips that will help taxpayers save money and make the right moves. For example, investors planning to sell mutual funds in 2003 are reminded to add all reinvested interest, dividends, capital gains distributions and sales charges to their original cost when determining the basis. This allows gains to be reduced and losses to be maximized. Similarly, those reinvested dividends could kick in the wash sale rules if an investor is not careful about when shares are sold. To read the complete, free copy of the 15-page chapter on investment decisions from Tax Planning Strategies, click here.

To order Tax Planning Strategies: New Opportunities After the Jobs and Growth Tax Act of 2003, click here. For a detailed table of contents from the book, click here.

Related Titles to this Article:

Investments and Distributions: Working with the New Dividend Rules
Investments and Taxes: A Practical Guide for Financial Advisors
CCH Financial and Estate Planning Guide (14th Edition)

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Experts discuss avoiding state tax trouble in asset-only sale

Most states limit successor liability for taxes following an asset sale to payroll taxes and sales and use taxes. However, there are at least three states where that doesn't hold true and a company recently wound up having to pay Michigan's Single Business Tax for a company it bought even though it thought it was "in the clear" on such taxes. "It is a trap for the unwary," notes Michael Petrik, a tax partner with Alston & Bird LLP in Atlanta. Petrik and other experts told CCH editors that getting a tax clearance certificate from the state is always the best way to deal with avoiding tax issues in a sale transaction. Failing that, they suggest that some hold should be put on some of the sale price in case the seller has unknown tax liabilities lurking that can't be discovered in the often all-too-short time before a deal is closed. Michigan, Texas and Pennsylvania all have provisions in their laws that stretch state tax liabilities to successors in ways that could be a surprise to a company that used an asset sale specifically to avoid taking on any tax liabilities of the purchased company. To read the full, free copy of this article from State Income Tax Alert, click here.

To order State Income Tax Alert, click here.

MACRS planning can drive equipment purchase decisions

As we move into the final quarter of the year, it becomes more important for calendar year taxpayers to carefully consider major equipment purchases. Purchases made before that quarter begins are simplified because they are subject to the half-year convention under MACRS, the cost recovery system used to calculate the amount of depreciation deduction for tangible personal property. Once the quarter begins, however, a large purchase could subject the calculation to the mid-quarter convention and reduce the depreciation deduction the taxpayer can take in 2003. CCH's tax editors note, however, that Sec. 179 elections allow any amount expensed under Sec. 179 to be subtracted from the depreciable basis before determining which conventions apply. To read this full article from Federal Tax Weekly, including examples of how to calculate the depreciation deduction, click here.

To order Federal Tax Weekly, click here.

Getting the mechanics and documentation right critical in like-kind exchanges

Sec. 1031 like-kind exchanges are a popular transaction in today's world and many tax advisors find their clients using them as part of investment strategies and tax planning. But the structure of the exchange agreement is critical and the form and substance of the transaction must be properly done for the exchange to be recognized, according to Nancy N. Grekin, J.D., in CCH's brand-new Like-Kind Exchanges Under Code Section 1031. Focus on Tax readers this month have free access to the full chapter from this book on the mechanics and documentation necessary for a successful like-kind exchange transaction. How the documents should be worded and the critical elements that must be shown are all discussed in detail in this practice-oriented chapter. Suggested language is provided for making sure the documentation can stand up to scrutiny. To read the full, free copy of this 15-page chapter on the mechanics and documentation of exchanges, click here. For a detailed table of contents from Like-Kind Exchanges Under Code Section 1031, click here.

To order Like-Kind Exchanges Under Code Section 1031, click here.

Partnering with specialized service providers can mean more clients for CPAs

Making your CPA practice different from the one on the other side of town is vital to keeping clients and bringing in new ones. But how do you do that when it's all your firm can do to manage keeping up with taxes and auditing duties. Partnering with another firm that provides specialized services—such as business valuation, litigation support, merger and acquisition work, cost segregation studies and performance measurement studies—can make your firm stronger and more profitable. In a recent article in the Journal of Tax Practice Management, four experts from just such a firm note how firms can partner with specialized providers to extend what they offer to clients and even boost their own billings. They note areas where CPAs can be natural resources to help clients by using a trusted outside partner. In many cases, the referred work will still require the active involvement of the CPA firm, thus creating opportunities for increased billing. For example, engineers can examine a building and do a cost segregation analysis that will allow shorter depreciation of some items, which can create significant tax savings. That study can then be used to allow the CPA to prepare the schedule and Form 3115 necessary to take advantage of quicker depreciation schedules on certain property. Specialized providers that you partner with allow that service to be offered to clients without the risk of losing the client to another firm. To read the full, free copy of this 10-page article, click here.

To order the Journal of Tax Practice Management, click here.