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+++++++++++++++++++++++ NEW CLINTON TAX LAW +++++++++++++++++++++++++++++++++++
Now a little longer form, for those interested.
NOTE: anywhere four amounts are separated by slashes they refer to amounts
for married joint return, head of household, single, married separate
return, in that order.
NOTE 2: 'TY' means Tax Year; CY means calendar year; TI means taxable income
AGI is adjusted gross income.
1. Tax Rate Changes. All of these are retroactive to 1/1/93, unless noted.
a. New 36% rate for TI at levels of ($140,000/127,500/115,000/70,000).
These income levels are to be indexed for inflation, but only
starting in TY1995.
b. 10% surtax on TI above $250,000/$250,000/$250,000/$125,000). This is
computed by having a 39.6% bracket. The TI threshold is indexed starting
in TY1995.
c. Any additional tax due because of the above rate changes may be paid
in three equal installments with NO interest: April 15, 1994, 95 and 96!
d. Capital gains still taxed at maximum of 28%.
e. Alternative minimum tax rate is increased to 26% (from 24%) for AMT
income up to $175,000; 28% above that amount. (This is NOT subject to the
three installment provision above).
2. Other personal tax provisions. Most of these are for 1994 and
later, unless indicated.
a. The 1.45% (2.9% if self employed) Medicare portion of FICA no longer
a cap. (It previously was capped at $135,000.)
b. Provisional income of social security recipients is modified AGI plus
half of social security benefits. If this exceeds $44,000/34,000/34,000/
34,000 up to 85% of social security benefits, may be taxed. It's phased in
in a funny way with several variables.
c. Moving expense deductions are less generous. You may only deduct actual
cost of moving household and personal effects and travel expenses (not
including meals). Also, the move needs to be 50 miles (up from 35).
d. Any single donation of more than $250 must be substantiated in writing.
A cancelled check is NOT sufficient. Multiple donations to the same charity
that aggregate more than $250 do NOT require this substantiation, generally,
if each gift is less than $250.
e. The 100%-of-last-years-tax safe harbor for estimated tax payments is
repealed for AGI greater than $150,000. The new safe harbor is 110%.
f. The phase out of personal exemptions and itemized deductions for higher
income tax payers is made permanent. It had been scheduled to expire
at the end of 1995.
g. Several changes help people whose homes were destroyed in disasters
that were declared after August 1, 1991---you have four years to replace and
some gain is excluded.
3. Real estate provisions. Generally these are effective for TY1994.
a. Passive loss limitations may be used to offset other income if you
are actively employed in a real estate related profession. More than half
your time is spent in real estate, and this time is more than 750 hours.
b. Nonresidential property placed in service after 5/12/93 is depreciated
over 39 years (up from 31.5). If construction started prior to 5/13/93,
and it is put in service in 1993, the 31.5 year period applies.
c. Discharged real estate debt is now excluded from income if the discharged
debt plus the outstanding debt are still equal to or in excess of the
property value. The debt must be pre-1993 debt; incurred to refinance
pre-1993 debt; or acquisition debt.
4. Estates, gifts and trusts. These are retroactive to 1/1/93
a. The maximum rate is reinstated to 55% for transfers over $3 million.
The top rate on generation skipping taxes is also now 55%.
b. The rates for trusts and estates are changed:
15% up to TI of $1,500 (down from $3,750)
28% on TI between $1,500 and $3,500 (down from $11,250)
31% on TI between $3,500 and $5,500
A new 36% rate applies to TI over $5,500
The 10% surtax (resulting in a 39.6 rate) applies to TI over $7,500.
5. Transportation and other miscellanious provisions
a. 4.3 cent per gallon fuel tax, effective 10/1/93. Commercial aviation
fuel exempted for two years.
b. Diesel fuel tax extended to non-commercial boats. (20.1 cents per gallon)
c. A bunch of provisions which expired in June, 1992 are extended or
made permanent. This extension is retroactive
d. Luxury excise taxes are eliminated for boats, aircraft, jewelry and
furs. For automobiles, the threshold is increased to $32,000 as of 8/9/93.
The repeal for other items is retroactive to 1/1/93.
e. There are eight or ten provisions related to international activities
of corporations which I won't summarize.
6. Business Taxes. These are generally effective in TY1993.
a. Corporate income and capital gains is taxed at a 35% (up from 34%)
at income over $10,000,000. Additionally, there is a 3% "recapture" of
income amounts over $15,000,000.
b. Section 179 expense deduction election is increased to $17,500
(from 10K).
c. There is clear definition of intangible assets, and they are given a
15-year amortization period. There are a lot of exceptions, but the law is
specific for a change, in this area. The new rules must be used for
property acquired after August 10, 1993 (unless a binding contract was
signed prior to that date). The new rules may be used (at the
election of the taxpayer) for any property acquired after June 25, 1991.
d. There is some tax relief for capital gains on qualified small business
stock held for five years. Also, five new rules attempt to prevent the
conversion of ordinary income to capital gains.
e. Public corporations can only deduct the first $1,000,000 in compensation
paid to executives. There are exceptions, such as commissions. This
is effective in TY1994.
f. Club dues and lobbying expenses are no longer deductible. Also,
business meals are now only 50% (doewn from 80%) deductible. (TY1994)
g. Securities dealers must mark to market on December 31 of each
year. (TY1994)
7. And there a bunch of other special purpose things---entitlement zones,
indian reservation incentive, AMT depreciation, and so on, but I think I
have covered the biggies (and probably a lot of the littleies).
Hope this helps some one, and I apologize for the length (though much of
that is through the good offices of your favorite Congreeman).
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