February 2010

Kelly Nelson, CPA                 We were very pleased to learn recently that Kelly Nelson has successfully completed the CPA exam.  Kelly joined us in December 2007 after receiving her Bachelors degree from LSUS.              We are very happy with Kelly in her success.  We are fortunate to have her services with the firm.
The High Cost of Annuities
The accompanying Tax and Business Alert includes an article on partial annuity exchanges.  We have long disagreed with articles concluding, or even implying, that investments in variable annuities are generally prudent investments.  Such products are often sold to savers, sometimes by their financial institutions that they approached to purchase other investments, CDs, etc.  In this month’s article, the authors have mentioned some of  the  tax pitfalls  and  drawbacks of  investing  in  variable		annuities. The many drawbacks mentioned in the article (ordinary income rather than capital gain, acceleration of taxable income on early withdrawal, and, not mentioned in the article, the loss of stepped-up basis and the economic and tax penalties for early redemption) weigh against such an investment.  These disadvantages and the high cost of annuity acquisition and maintenance cause us to conclude that annuities are rarely, if ever, attractive investments.
_________________________________________________________________     The Case of the Missing Law
As part of the Bush tax cuts of 2001, Congress changed the gift and death tax law to increase exemptions and decrease tax rates.  The changes lowered the death tax burden and were phased-in through 2009.  The death tax (but not the gift tax) was repealed for 2010.  The law provides for the return of the death tax on January 1, 2011 with the 2001 rates and exemptions.       Realizing that most taxes are not allowed to expire, we expected Congress to revise the gift and death tax rules before January 1, 2010.  We were wrong.  Congress did not act, and effective January 1, 2010,  the death  tax is missing  from the Internal  Revenue  Code.  The leaders of		both houses of Congress have stated that Congress will pass estate and gift tax laws retroactively effective to January 1, 2010.  (The United States Supreme Court has previously upheld retroactive tax law changes.)  Accordingly, most tax practitioners anticipate a death tax for the entirety of 2010 – we just do not know what it will be.  Congress will let us know today’s rule of law, not today, but at some time in the future convenient to them.  Fully aware of our prior invalid expectations, we continue to expect 2010 death tax rates, exemptions, etc. to be approximately those of 2009. Nonetheless, today’s death tax law is, as of today, missing in inaction.
_________________________________________________________________   Mandatory Electronic Filing for  Retirement Plans           The United States Department of Labor (“DOL”) requires an annual filing on Form 5500 by all but the smallest of retirement plans.  Until now, paper filing by calendar year plans by July 31 of the following year has been acceptable by DOL.  DOL has changed the requirement effective for calendar year 2009 and subsequent plan years to require mandatory electronic filing except for very small one-participant plans, which may continue to file Form 5500-EZ on paper.  The first mandatory electronic filing due date is July 31, 2010.           Unlike the Internal Revenue Service’s electronic filings, DOL’s electronic filings require an electronic signature.  The signer must have an e-mail address and, prior to filing, must have obtained “filing signer credentials” on-line with DOL.  Only the signer can obtain the credentials.            In late April or early May, we will be contacting those of you for whom we prepare Forms 5500 to offer assistance to you in obtaining the signing credentials.  Unfortunately, the electronic filing process, while more convenient for the Department of Labor, will be less convenient for the public.
_________________________________________________________________     Possible Reduction of Educational Expenses
In 2008, effective for expenses paid on or after January 1, 2009, the Louisiana Legislature created a deduction against Louisiana taxable income for certain educational expenses.  The deduction is available for  tuition  paid  to private and parochial schools and for expenses paid for uniforms, school supplies, and study materials for all primary and secondary school students, including  those  who are home schooled.   The deduction		is 50 percent of these educational expenses, limited to $5,000 per student.  To be eligible for the deduction, you must be able to claim the student as a dependent on your Louisiana income tax return.              We will be happy to answer your questions if you have a dependent student in public or private schools or who is home schooled and have incurred qualifying educational expenses.