Dear Friends of RC Jones & Associates
If you’re getting ready to retire, you may be receiving a big payout from your company retirement plan. That is especially true for successful small business owners who have invested in their own company’s stock.
Surprisingly, it’s what you take out of a retirement plan, not necessarily how much you take out, that counts most for tax purposes. Following are some of the details.
Absent any special circumstances, a lump-sum distribution from a qualified retirement plan is taxed as ordinary income, at individual tax rates reaching as high as 35%. That can put a big tax dent in your nest egg for retirement. However, there’s a giant loophole in the tax law for payouts in the form of company stock. In that case, your taxable gain is figured on the plan’s original cost of the stock.
In other words, you don’t have to pay any tax on the distribution of company stock. The payout is 100% tax-free until you actually sell the stock!
To sweeten the deal even further, your taxable gain from the stock sale will be treated as a favorably-taxed capital gain. Currently, the maximum tax rate on long-term capital gain is only 15%. So, you’re a tax winner twice -- once at the time of distribution and once upon the sale of the company stock.
Naturally, you face several critical decisions as you near your expected retirement date and you can literally save thousands of tax dollars by making the right tax choices for your particular situation. For example, one possible alternative is to roll over funds into an IRA to continue tax deferral. We would be happy to provide whatever assistance you require in these matters even refer you to qualified investment professionals. Don’t hesitate to give us a call at (816)792-9966.
Very Truly Yours
Robert C Jones
Tuesday, June 23, 2009
PRODUCE BIG MANUFACTURING DEDUCTIONS
Dear Friends of RC Jones & Associates
The so-called "manufacturing deduction" isn't just limited to companies that manufacture products in the traditional sense of the word. It's available to a wider range of business operations than you might think.
What's more, the maximum deduction is increasing to 9% of qualified production activity income (QPAI) in 2010. If your company is in the top 34% tax bracket, this effectively amounts to a 3.15% tax cut.
Here's some background information. Under Section 199 of the tax code, a qualified domestic producer can currently deduct 6% of the lesser of its QPAI or its taxable income. The maximum deduction was initially doubled from 3% after 2006.
Production activities must be performed in whole, or in significant part, on U.S. soil. The annual deduction is limited to 50% of the W-2 wages.
Obviously, the deduction is fair game for traditional manufacturers of goods, but it also applies to farmers, fishermen, miners and a variety of businesses in the construction field. In fact, IRS regulations single out construction activities for special treatment. For instance, a qualified company doesn’t actually have to construct buildings. The deduction may be extended to certain taxpayers in the business of painting, drywalling and landscaping.
Similarly, the deduction is generally available to engineers and architects. As long as the services are related to construction, the costs qualify for the deduction, even if no actual construction takes place. The deduction may also be claimed by businesses conducting feasibility and environmental impact studies.
Don’t make any snap judgments if your business operation appears to fall outside the scope of a traditional manufacturing activity, we can you make a definitive assessment of your situation. Call us at (816) 792-9966 to schedule a review of your situation today.
Very Truly Yours
Robert C Jones
The so-called "manufacturing deduction" isn't just limited to companies that manufacture products in the traditional sense of the word. It's available to a wider range of business operations than you might think.
What's more, the maximum deduction is increasing to 9% of qualified production activity income (QPAI) in 2010. If your company is in the top 34% tax bracket, this effectively amounts to a 3.15% tax cut.
Here's some background information. Under Section 199 of the tax code, a qualified domestic producer can currently deduct 6% of the lesser of its QPAI or its taxable income. The maximum deduction was initially doubled from 3% after 2006.
Production activities must be performed in whole, or in significant part, on U.S. soil. The annual deduction is limited to 50% of the W-2 wages.
Obviously, the deduction is fair game for traditional manufacturers of goods, but it also applies to farmers, fishermen, miners and a variety of businesses in the construction field. In fact, IRS regulations single out construction activities for special treatment. For instance, a qualified company doesn’t actually have to construct buildings. The deduction may be extended to certain taxpayers in the business of painting, drywalling and landscaping.
Similarly, the deduction is generally available to engineers and architects. As long as the services are related to construction, the costs qualify for the deduction, even if no actual construction takes place. The deduction may also be claimed by businesses conducting feasibility and environmental impact studies.
Don’t make any snap judgments if your business operation appears to fall outside the scope of a traditional manufacturing activity, we can you make a definitive assessment of your situation. Call us at (816) 792-9966 to schedule a review of your situation today.
Very Truly Yours
Robert C Jones
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