Pension act masks tax rules

The new Pension Protection Act has a lot in it that has nothing to do with pensions. Buried in the 900 odd pages of the new pension law are a number of changes to the tax code that affect both individuals and businesses.

There has already been a lot of publicity about stiffened requirements for charitable contributions. Here are some other changes the new pension law made to tax law:

The new law restricts deductions for donations of artwork, jewelry and other tangible property. Often people who give tangible property to a charity keep some interest in it. But now if the tangible property does not completely pass to the charity within 10 years, the giver can no longer take the complete deduction.

The deduction limit for conservation easements has increased from 30 percent to 50 percent. A conservation easement is when a property owner agrees not to develop property to help preserve the environment. This tax break is only available through this year.

Property owners who donate buildings or parts of buildings in historic districts may find that they face stiffer rules and qualify for less of an overall tax break.

This short list only scratches the surface of the many twists and turns that the new tax law puts into figuring out taxes.

Marc Levine,
Horovitz, Rudoy & Roteman,
mlevine@hrrcpa.com

Manufacturing deduction cut

Many manufacturing companies are seeing an important tax deduction eroded, thanks to the new tax law.

It's commonly called the "Section 199 manufacturing deduction," and it enables many companies to deduct a percentage of their income that comes from qualified manufacturing activity. The percentage was 3 percent in 2006, 6 percent this year, and is rising to 9 percent in 2010.

Before the new tax law went into effect, manufacturing companies were allowed to take a Section 199 deduction equal to up to 50 percent of the W-2 wages for the company. But the new law lowers the amount of the deduction for many companies. Now, the limit is only 50 percent of W-2 wages paid to employees involved in the manufacturing activity that qualifies for the deduction.

Everything that has to do with figuring out a Section 199 deduction is very complicated. The new law and regulations only increase the difficulty in understanding if a company qualifies and how much it can deduct. For example, the new regulations give companies two entirely different methods to figure out how much of their wages they can use in computing the deduction.

Marc Levine,
Horovitz, Rudoy & Roteman,
mlevine@hrrcpa.com