Surviving the US tax cliffhanger: The importance of stock redemption in year-end tax planning

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This year may prove to be a difficult time for many large US corporations. Many tax provisions will already expire by the end of the year, and the Congress is still ambivalent on what to do with regard to the proposed changes. As pointed out by Thomson Reuters, a majority of these susceptible rules are important. For example, provisions like business research credit, bonus depreciation allowance, and Bush-era tax cuts may either be extended or vetoed should the Congress decide to. This lack of certainty makes year-end tax planning all the more crucial and challenging at this point. 

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In light of this impending dilemma, Marian Rosenberg, a senior tax analyst at Thomson Reuters cites “stock redemption” as a way by which US corporations could “lock in low tax rates for shareholders, avail themselves of the work opportunity tax credit, and secure generous depreciation and expense deductions.”

According to Rosenberg, corporations could actually qualify for a 15 percent tax rate on the distribution if they consider taking money out of the business through stock redemption before 2012 ends. If the provisions on Bush-era tax cuts expire at the end of 2012, profits will be threatened as “long-term gains will be taxed at a 20 percent rate and dividends will be taxed as ordinary income at a rate of up to 39.6 percent.” 

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As with all other cases, careful planning may save business entities from any imminent sources of loss. However, it is still important for corporations to consult with qualified tax advisors such as Hilton Sokol, Isidor Hefter, or Maryann Schugmann before enacting any major strategies to ensure higher success rates.

More tips on tax planning may be accessed at this Twitter account.