Being in the midst of an election year, we muskkassouft look ahead for the changes that are likely to occur when the executive and/or legislative branches of the federal government shift seats from one party to another. While no one can accurately predict the outcome of the fall election, many pollsters predict a change of party in the White House in 2009. More importantly, those same pollsters predict that there will be an increase in the control of both Houses of Congress by Democrats, with some now expecting victories that could veto-proof legislation. Charles Rangel, the New York Congressman presently Chairman of the House Ways and Means Committee, introduced a bill last October to change the landscape of the Federal Tax Code. H.R. 3970 is titled the Tax Reduction and Reform Act of 2007. While the title of the bill includes the words Tax Reduction, the objective of the bill is to increase income taxes on the wealthy. The basic tax increase, by those who study proposed tax changes, have said that taxes would increase as much as one-half trillion dollars over a ten year period. Since there is a chance that the effective date of the new tax bill will be January 1, 2009, it will be important to anticipate the possible changes with proper planning in 2008. Transactions scheduled to occur in 2009 may be more tax beneficial in 2008. The proposed bills content include: Raising the Capital Gains rate on sale of assets, such as stocks and bonds, which is currently 15 percent, to 28 percent. Raising the Qualified Dividends rate of certain stocks held for investment, now taxed at 15 percent to the regular ordinary tax rate, currently 35 percent. Raising the ordinary tax rate, which is currently at 35 percent, to the pre-President Bush level, of 39 percent. Limiting the amount of itemized deductions of single filers with taxable incomes greater than $250,000 or joint filers with taxable incomes greater than $500,000. Limiting the amount of personal exemptions of single filers with taxable incomes greater than $250,000 or joint filers with taxable incomes greater than $500,000. A new surtax on the wealthy. While there is sure to be some debate of the definition of “wealthy” current pendants expect the level to be as low as $250,000 of gross income on joint income tax returns. Many feel that there is a solid backing to the $500,000 level. How can you plan? Consult with your tax advisor to determine the effect on your taxes if the proposals discussed above become law. Moving capital gains into 2008 at a 15 percent capital gains rate may provide significant tax relief over the 28 percent proposed rate. Counter to “normal” advice, you should consider holding onto stocks that have losses in them—not selling them to offset 2008 gains, but waiting until later years where they can offset gains on sales that are taxed at higher rates. Again, if you believe that the tax rates will be higher in 2009, you may want to move ordinary income, such as wage income, into 2008 to lower the burden. Corporations which are liquid and can afford to pay dividends, should consider paying special dividends during 2008. Qualified dividends are currently taxed at a 15 percent federal rate. Is there any good in the Rangel bill? Actually, the answer is yes—the bill proposes to repeal the Alternative Minimum Tax (AMT) and to reduce the corporate income tax rate from the current 35 percent to 30.5 percent. While no one has the crystal ball, we need to at least be aware that Charles Rangel’s bill will most likely be the framework that Congress will work from. Don’t be surprised in early 2009. Plan now. Gerard J. Kassouf, CPA is a director at the Birmingham, Alabama firm of L. Paul Kassouf & Co. P. C., Certified Public Accountants and Advisors--representing privately-held and family-owned businesses. Reach him at gkassouf@kassouf.com Ju;y 2008