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September 3, 1996

New Tax Legislation

          Congress passed three significant tax laws in the summer which were signed by President Clinton. The tax package includes portions of the Small Business Job Protection Act, the Kennedy Kassenbaum Health Bill and the Welfare Reform Act. The following is a summary of relevant provisions:

  • The annual expensing limit for equipment is to rise to $25,000 from $17,500 over 7 years.
  • Restaurant employers may claim a tax credit for certain FICA taxes paid on tip income of employees.
  • Home office deduction is allowed for business expenses relating to space within a home regularly used to store inventory or product samples if the taxpayer is in the trade or business of selling products at retail or wholesale and the home is the only fixed location of that trade or business.
  • Safe harbor provisions created as to worker vs. independent contractor issues.
  • Employer provided educational assistance retroactively extended for taxable years beginning after 1994.
  • S Corporations can own 80% or more of the stock of a C Corporation 
  • Any S Corporation that terminated its S status in a taxable year beginning before January 1, 1997 may reelect S status without the IRS` consent.
  • 5 year forward tax averaging will no longer be available for lump sum pension distributions effective for taxable years beginning after 1999.
  • $5,000 Death Benefit exclusion eliminated
  • Medical Savings Accounts on limited experimental basis are allowed.
  • Self employed Health Insurance Deduction increases from 30% to 80% over a 10 year period.
  • Penalty free IRA withdrawal exception extended to distributions to pay medical expenses that exceed 7.5% of adjusted gross income but excluding medical insurance premiums. 
  • Electronic transfers of Employment Tax Deposits exceeding $50,000 per annum are delayed until July 1, 1997 as a start date.
  • $5,000 per child tax credit adopted. Qualifying expenses include all reasonable and necessary adoption costs including legal fees

          But there are some insidious nontax provisions in these bills. For example, in the Kennedy Kassenbaum bill, Senator Kennedy and Hillary Clinton insisted upon all information on medical procedures should be sent to a national clearinghouse to develop statistical information on what procedures are being done and their cost. It seems to me the government is violating the doctor/patient privilege because they will know what your medical history is. It seems to be a back door method for Hillary to get her socialized medicine plan. Beware of the loss of your freedom!

 AT&T- A Savvy Villain

          We all remember the doom and gloom that surrounded the announcement of 40,000 people to be laid off, of which 17,000 would be in New Jersey. It seemed as if everybody wanted to castigate AT & T. That was then. Now for the update and reality. In New Jersey, 17,000 people did have voluntary buyouts and its subsidiary Lucent Technologies shed another 6,000 jobs. But with all that, AT & T added more than 17,000 jobs in the New York region and Lucent Technologies another 5,900 jobs. A reality check, maybe all that happened was that older, less technologically competent employees were exchanged for younger, more motivated and technologically savvy ones! Not politically correct, but probably necessary in order for AT & T and Lucent to survive in these uncertain times.

Love Those Texas Women

          I loved Texas Governor Ann Richards at the 1992 Democratic Convention with her acidic comments about George Bush. Well, I also loved another Texan, Senator Kay Bailey Hutchinson, in her description of President Clinton, "high-taxing, free-spending, promise breaking, Social Security-taxing, health-care-socializing, drug-coddling, power-grabbing, business-busting, lawsuit-loving, U.N.-following, F.B.I.-abusing, I.R.S.-increasing, 200 dollar-hair-cutting, gas-taxing, over-regulating, bureaucracy-trusting, class-baiting, privacy-violating, values-crushing, truth-dodging, Medicare-forsaking, property-rights-taking, job-destroying friends".

          If you have any questions about this or any other financial matters, please call me.