Author: Andrew MacLeod

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Don’t Forget Your Charitable Contributions

The CARES Act made a number of well publicized revisions to the tax code, including as to the payment of employee wages and the deduction of interest and net operating losses. Perhaps lesser known are the revisions in the CARES Act relating to charitable giving.

For non-itemizers, there is a new $300 “above the line” deduction on cash contributions made to charities (other than private non-operating foundations, supporting organizations, and donor-advised funds), that is deducted from a taxpayer’s income prior to the calculation of their adjusted gross income. For individuals that itemize deductions, the historical 50% or 60% of adjusted gross income limit on charitable deductions has been raised to 100%, so that an individual will be entitled to take a charitable deduction of up to 100% of their adjusted gross income.

For corporations, the historical charitable deduction limit of 10% of taxable income was raised to 25%.

These tax code revisions provide significant additional incentives for charitable giving in 2020.

For more information, please contact Andrew MacLeod in the Detroit, Michigan office of Dickinson Wright at 313-223-3187 or any member of Dickinson Wright’s tax team.

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Section 1202 – Qualified Small Business Stock

The tax code includes a number of provisions that benefit small businesses and small business owners. One of these provisions is contained in Section 1202 which provides for an exclusion of up to 100% of the gain realized on the sale of qualified small business stock (“QSB Stock”). The gain exclusion can provide significant tax savings for owners of small businesses when they sell their stock. In order to qualify as QSB Stock under Section 1202, a number of technical requirements must be met with respect to the ownership of the stock and as to the underlying corporation, including that the stock must be acquired by the taxpayer at original issuance, held for at least 5 years, and be issued by a C corporation that is actively engaged in business and does not have assets in excess of $50 million (at the time of the stock’s issuance).

The Section 1202 exclusion is limited, and gains excluded under Section 1202 cannot exceed the greater of: $10 million or 10 times the QSB Stock’s basis.

Historically, Section 1202 is often overlooked as most private companies have generally preferred to be organized as pass-through entities. However, the recent reduction in the federal corporate tax rate to 21% may prompt a re-evaluation of whether treatment as a C corporation makes sense.

For more information, please contact Andrew MacLeod in the Detroit, Michigan office of Dickinson Wright at 313-223-3187 or any member of Dickinson Wright’s tax team.

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Estate and Trust Planning Opportunity – The 65 Day Rule

It is not is too late to plan for 2018. Under Section 663(b) of the Code, the “65 Day Rule” provides an opportunity for estates and certain trusts to elect to treat distributions made within 65 days of year-end as if made on the last day of the prior tax year and thus to carry-out income from the estate / trust and to have the income taxed directly to beneficiaries. For 2018, the highest tax rate will apply to trusts / estates with income in excess of $12,500, while for a single individual the highest tax rate will not apply until income exceeds $500,000. In addition, income level requirements are also different for triggering the 3.8% net investment income tax (i.e. at $12,500 for estates / trusts and $200,000 for a single individual). Given these large differences, the 65 Day Rule is a useful tax planning tool that fiduciaries should keep in mind.

For more information, please contact Andrew MacLeod in the Detroit, Michigan office of Dickinson Wright at 313-223-3187 or any member of Dickinson Wright’s tax team.