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Avoid Taxmaggedon
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Upcoming changes in both estate and capital gains taxes make 2012 tax planning critical. In this Business of Foodservice interview, Brad Saltz, Director of Restaurant Services at SS&G in Cincinnati, walks us through upcoming tax law changes and tells us of the "once-in-a-generation" opportunity that exists for the rest of 2012.

Business owners who don't plan now could be facing a 'taxmageddon' in the coming years. According to Saltz, "There are two significant changes that are going to occur at the end of this year. The first involves changes to the estate and gift tax laws and the second involves changes to income tax laws. Scheduled to take effect at the end of this year are three important changes in the estate tax area. First, estates are currently afforded an exclusion where the first $5.1 million of an estate is not subject to estate or gift tax. This is double for a married couple. That is scheduled to decrease down to $1 million dollars for a single person and $2 million for a married couple, so this is a significant change in the exclusion for taxable estates."

"Second the top tax rate on estates is scheduled to increase from 35% to 55%. And lastly, the exclusion for an estate is currently portable between spouses. So for example, if the first spouse dies and doesn't use up their all their $5.1 million and transfers all their property to their spouse, when the second spouse dies, they can take advantage of both the first spouse and second spouse's $5.1 million. All three of those things are scheduled to expire this year and estates over $1 million or $2 million for married couples will be subject to estate tax."

These changes will have a significant effect on the estate of many business owners. "While one or two million sounds like a lot of money, you throw in some life insurance, your house and whatever assets you own, in addition to your restaurant business and it's not going to be uncommon for estates to easily become taxable," says Saltz. "And while we don't know what Congress and the President will do between now and the end of the year, what we do know is that we have a window of opportunity to transfer over $5 million dollars (or $10 million if you are married) to the next generation and entirely escape gift and estate taxes. It is a once-in-a-generation opportunity to make significant wealth transfers and avoid estate and gift tax."

Saltz also contends that now isa good time to sell a restaurant from a business perspective, as there will be significant changes to the capital gains tax rates. "The top tax rate is scheduled to change from the current 35% to almost 40%, and the long-term capital gain rate will increase from 15% to 20%. The rate on qualified dividends will also increase from the current rate of 15% to 40% or more. So a business owner considering a sale has a window of opportunity to sell assets or stock and enjoy the capital gain rate of 15% and tax rates that won't increase - at least between now and the end of the year. What we have seen in our practice is that restaurant valuations have increased pretty significantly over the past 12 months or so. You have relatively low tax rates, relatively high valuations and the credit markets have improved."

Owners may also have the opportunity to write-off a significant portion of capital expenditures between now and the end of 2012. "Given that bonus depreciation is scheduled to go away next year, this gives us a window of opportunity between now and the end of the year to write-off at least 50% of certain capital expenditures. This is helpful for operators considering remodels, replacing the point-of-sale system, or replacing certain equipment."

For additional tax information or to contact Brad Saltz, visit the SS&G website at www.ssandg.com.