Wednesday, September 16, 2009

Corp vs Personal Tax Rates

EQUITY INDICES CONTINUED their advance, as all three major indices were up. By the numbers, for the week ended Friday, September 11, 2009, the Dow Jones Industrial Average closed at 9605, up 164 points, or 1.7%. The Standard & Poor’s 500 closed at 1042, up 26 points, or 2.6%, and the NASDAQ closed at 2080, up 62 points, or 3.1%.

Commentators of every stripe have offered opinions about the direction of, and long and short term outlook for, the stock market. Gary Shilling is still calling for an S&P 500 of 600 by year-end. Others are suggesting the S&P 500 will end the year north of 1200.

Mark Sunshine recently suggested that the five major Wall Street firms needed to have the S&P 500 close up 10% for the year. Mark said solid returns for 09 were one way these firms could encourage trillions of dollars from the sidelines to return to the market. Much of their profitability depends on trading commissions from these currently dormant dollars, so they have a vested interest in stock prices going up.

Sir John Templeton, when asked by a reporter for his observations about the market, simply said “The market goes up, and the market goes down”.

In a recent speech before a joint session of Congress, President Obama endorsed a government run insurance plan. Steve Jobs has returned to Apple, starting with an appearance at a product event. GM is selling a majority interest in its European Opel and Vauxhall operations. Cadbury is in play, with Kraft in the hunt to make the purchase.

FedEx said first quarter profit will exceed guidance, thanks to better than anticipated international volume, lower fuel bills, and cost containment. FedEx CFO Alan Graf said demand deterioration has slowed, and that earnings for the quarter should be $0.58, compared to expectations of $0.43.

According to the Bureau of Labor Statistics (BLS), about 15 million people are out of work, with 5 million having been unemployed for six months or more. Employment opportunities abound in government services, education, and energy, though location matters. The current geographic hotspot is Washington DC, not that this is news. The federales expect to add 273,000 jobs in the next three years. Other cities that have a good openings-to-seekers ratio include Jacksonville, Salt Lake and New York City, Boston, Austin, and Oklahoma City. This according to Bao Ong, writing for Marketwatch.

Congress is hard at work, looking for new and creative ways to pick your pocket. One tax detail expected to pass – we will no longer be able to use flex spending and other such accounts to pay for over the counter medicines. Thankfully, the IRS has lost a Tax Court battle that attacked transfers of interests in one-person LLC’s. The IRS has chosen to delay imposing a seven-year recovery period for investment in ethanol plants, allowing investors to use a five-year recovery for any property placed in service before the ruling.

If you are a business owner, you would do well to watch the maximum income tax rates. It is very likely that the personal federal income tax rate will soon be close to 40%, plus a variety of surtaxes for high income earners. With the current corporate tax rate at 35%, it may make sense to use a regular corporation for business purposes. This is especially true if tax considerations play a major role in determining corporate structure.

The IRS is looking for informants to help identify those who are getting the health insurance subsidy and shouldn’t be. The IRS is also tapping state and local real estate transfer records to identify those who don’t pay gift taxes, but should be. This brings to mind images of brown shirts and black vans. Wouldn’t a national sales tax be simpler? Good grief.

States are using Facebook and MySpace to identify tax evaders. The IRS will most likely join in if the states are successful. If you are bored with downloading music onto your iPod, you can switch to tax updates, offered by the IRS.

It seems to me that at the end of the day, perhaps the biggest need is for each of us to maintain consistency and faithfulness. We can apply this to our thinking, our business and personal activities, and our relationships. Uncertainty is all around us, though often hidden when times appear to be especially good. Commitment to a cause, a person, a reason for being, that supersedes the circumstances of life, and our own needs, may allow us to have an impact, and make a difference, far beyond the span of our lives.

Quote of the week:

“When you were born, you cried, and the word rejoiced. Live your life in such a way that when you die, the world cries, and you rejoice.”
Anonymous

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