Tax reforms seem to be a back-burner issue at this time, but we should be aware of changes that may tax place after 2012. The Federal Appeals Court judges are still in disagreement if the Health Care Reform is really “unconstitutional”, and keeping up-to-date is challenging.

Let us take a look at Estate Tax reforms, if there are any coming up pretty soon. The truth is, nothing lately has been said about its reform. What we know is that after 2012, the $5 million exemption for gift and estate taxes for each spouse is scheduled to go down to $1 million. The maximum tax rate is expected to rise again to 55% (currently it is at 35%). The transfer of the unused exclusion to the surviving spouse is set to expire after 2012. It is also likely that the 35% low tax rate could be extended but that will probably happen after the 2012 elections. The laws are still friendly to the rich, i.e., individuals can give up to $5 million of assets free of gift tax or $10 million for married couples. You and your spouse can still give $26,000 per year to any individual without affecting your lifetime gift tax exemption.

The Federal Appeals Court judges are still in disagreement if the Health Care Reform is really “unconstitutional.”  The mandatory provision in the law that required people to get medical insurance by 2014 or pay a penalty was deemed “unconstitutional” by a Florida Judge, but not the entire health care reform.  Another Judge in another circuit did not find anything “unconstitutional.”  It will take the tortoise Supreme Court to rule on its validity.  By 2014, employers may owe a “tax penalty” of $3,000 dollars per employee who buys health care coverage through an “insurance exchange.”  If Obama loses the election, the Republicans will most likely discard this Health Care Reform that will go down as an unwise use of American tax dollars in legislative exercise.

Someone borrowed funds and used his publicly traded stock as security to obtain a home loan. Yes, he wanted to boost his mortgage interest deduction beyond the mortgage loan limit of $1.1 million dollars. (Total loan was $1.6 million). The IRS disallowed the extra mortgage interest that technically was an “investment interest” even though the loan proceeds was used to buy a home.  Watch out for this loan limit the IRS is very keen about. A sole owner of an S-Corp. gave his son 95% of his stock and reported the gift to the IRS. The following year, he gave himself “cash distributions” from the S-Corp. in excess of the value of his remaining stock holding that was reduced to 5%. The IRS determined his “cash distribution” was a taxable dividend.  He should have done these two transactions the other way around and in such order to avoid being taxed.  This taxpayer relied on his own discretions without professional help like so many.

The carryback of Net Operating Losses can be waived. The carryback is allowed for two years, and then any remaining loss is carried forward for up to 20 years.  To relinquish the carryback, attach a statement to your timely filed return.  If you failed to, you can still make the election by filing an amended return within 6 months of the due date of the original return.  Some businesses find no need of a carryback since there are already losses in the past two (2) prior years.  The Net Operating Loss is much needed to reduce taxes in the next 20 years.  Our economy has produced strings of net operating losses requiring wise discretions on its use these days. You be wise folks!