Even as tax professionals begin running the numbers on the tax impact of the 2004 American Jobs Creation Act, state revenue departments are doing their own sets of numbers to calculate exactly what the new changes to the federal tax code will mean to state revenues. In Alabama, for example, state officials are modeling what the changes will do to state balance sheets. If corporations pay less federal tax, officials in Alabama say, it will boost the state taxes they owe. However, it remains uncertain if that will offset some of the tax breaks that could reduce the tax bills for many businesses. The frantic calculations now being done could result in quick legislation in January that would have states opting out of some of the new provisions. This will only increase the tax headaches for many corporations as they have to do add-backs and separate calculations for state tax purposes in all the states where they do business. Also on the state tax side of things, the Jobs Act allows individuals to deduct sales taxes paid on their federal income tax return—welcome relief in states that don’t have an income tax.

 

Travel and entertainment costs are a part of doing business. They are legitimate expenses and are acknowledged as such by the federal tax code. But they are also an area of caution and concern for the IRS in its compliance efforts. Practitioners need to make sure their clients understand how the rules for T&E deductions work to ensure returns don’t wind up in the IRS audit queue. Noted experts Sidney Kess and Barbara Weltman take a close look at the T&E minefield and how to properly treat such expenses on 1040 returns in the 2005 edition of 1040 Preparation and Planning Guide.

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In reacting to the latest tax shelter abuses, the IRS has decided to seek more transparency in corporate tax reporting. One of the first steps to ratchet up the data gathered from companies, especially on book-tax differences, is the creation of Schedule M-3, New Income (Loss) Reconciliation for Corporations with Total Assets of $10 Million or More. For example, Schedule M-1 separately identifies eight differences between book and taxable income. Parts II and III of Schedule M-3 require companies to disclose and reconcile the amounts of 67 specific components of book or taxable income. In TAXES Magazine, authors John H. Ledbetter and Lucinda L. Van Alst walk practitioners through the preparation of Schedule M-3 with specific, detailed examples.

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In many instances, wealthy individuals want to make deferred gifts to family members or others. Such gifts may come during the person’s lifetime or afterward through the estate. There are many strategies to make such gifts that can minimize the gift and estate taxes, notes author Carol Peskoe Schaner. But the charitable lead trust is an effective tool that can benefit a donor’s favorite charity while maintaining the underlying assets to revert back to either the donor or beneficiaries of the donor’s choosing. Such trusts are complex and technical, requiring sound legal advice and careful planning, but they can provide powerful tax benefits, Schaner notes.