August 1, 1994 New York State Budget Gives Tax Relief The New York State Budget which was signed June 9, 1994 contains several important but modest measures of tax relief. This is not a Christie Whitman style of bill but it will have to do: The temporary 15% Corporate Tax surcharge is reduced to 10% for 1994, 5% in 1995 and eliminated in 1996. The tax law will allow some minor modifications to the net operating loss carryforward rules. Corporate taxpayers are allowed to double weight the sales factor when determining the state allocation under the minimum income tax alternative starting in 1994. A new individual earned income credit is enacted. It equals 7.5% of the federal credit for 1994 and rises to 20% by 1997. The reduction in personal income tax rates is delayed for another year. A one time tax amnesty program is enacted. It is a three month program during the 1994-1995 state fiscal year. It affects non-resident income taxpayers, out of state banks, insurance, petroleum, franchise and business franchise taxpayers, and resident taxpayers who may be subject to use tax. Sorry-the personal income tax is not included. Vendors are granted a 1.5% credit to cover costs of collecting sales and use taxes. The credit is capped at $100 per quarter. The unified credit against the estate and gift taxes is increased to $2,950 from $2,750 effectively exempting estates worth $115,000 or less from the state estate tax. (Federal estates are exempt for at least $600,000!) New York Raises Interest Rates Effective July 1, 1994, New York has raised the interest on overpayments and underpayments of taxes by 1%. The interest rate on tax refunds rises to 7% and the rate on late payments and assessments rises to 8%. Ex Post Facto Law Held Constitutional The Supreme Court has ruled that Congress can pass retroactive tax laws if there is only a modest period of retroactivity. So now we know, you can be only a little pregnant! This also means that the Revenue Reconciliation Act of 1993, Bill and Hilary`s main claim to unconstitutional as opposed to illegal fame will survive its own test as an ex post facto law. Leasing An Automobile If you lease a car for business use you can deduct the payments pertaining to the business but you will have to add back an additional amount in inocme to offset the rental deduction (inclsuion amount). The inclusion amount is based on the fair market value of the leased car. The purpose of the income inclusion is to limt the deduction for lease payments so that it equals the depreciation deduction the taxpayer would have been entitled to if he owned the car. New IRS Audit Guide The new Passive Activity Loss Guide explains to IRS personnel 1) how to identify returns in which passive losses may have been incorrectly treated and 2) how to determine through the use of various techniques, whether the treatment is, in fact, correct. According to the Guide, potential passive activity loss issues are generally easy to spot. Other potential audit issues are indicated where no Form 8582 (Passive Activity Loss Limitation) has been filed by the taxpayer and the taxpayer`s- a) Schedule C shows equipment or vehicle rentals b) Schedule C shows Real Estate Management as the principal business c) Adjusted gross income exceeds $150,000 and rental real estate losses are claimed d) Schedule E shows large non-passive losses If you have questions about these or any other tax or financial matters, please call me.