Compromise on Taxes?

December 8, 2010

Dear Clients:


You've no doubt heard stories that the Obama Administration and Republican leaders have negotiated an end-of-year tax deal which will, among other things, extend the current income tax rates for the next two years for all Americans. Capital gains and dividends would also be taxed at the current preferred (lower) tax rates.


According to published reports, the compromise measure would also reinstate the estate tax, with a $5 million exemption ($10 million for a married couple), and a top estate tax rate of 35% for amounts above the exemption threshold. 


If this estate tax measure is passed, it would fix a major source of estate planning confusion for planning professionals and our clients. As you know, there is no estate tax for persons who died in 2010; instead, heirs inherit the tax basis of the assets that they receive, which can create some extremely messy tax calculations going forward. In 2011, if no new law were passed, the estate tax exemption would have reverted to $1 million and the top estate tax rate would have moved up to 55%.


In addition, unemployment benefits would be extended, and there is talk that part of the compromise is to get Republican support for a nuclear treaty that would reduce Russian stockpiles.


From a budget standpoint, the deal will add an estimated $314.9 billion to the U.S. government's deficit over the next two years. 


There appears to be no written version of the compromise; at least nothing has been published in the media so far. We should know a great deal more in the next few weeks, as Congress hammers out the final details. Obviously, this last-minute tax measure makes precise tax planning a bit difficult. But we'll stay on top of developments, and keep you posted when we know more.


We hope you are all enjoying the holiday season!



Kohlhepp Investment Advisors, Ltd.



Estate tax provision:

Outline of tax compromise:



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Kohlhepp Investment Advisors, Ltd.
3655 Route 202, Suite 100
Doylestown, PA 18902
Phone: 215-340-5777
Fax: 215-340-5788

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