Florida assesses an ad valorem tax on all tangible personal property used in a trade or business located in each Florida County. This includes furniture and furnishings in rental properties. Generally, any tagged rolling stock is exempt from this tax, but not the equipment installed thereon.
Values are not based upon fair market value but are based upon an imaginary economic use valuation model that generally amortizes the cost of the equipment over its physically useful life using straight line amortization. Courts have ruled this valuation methodology is valid.
Returns are due April 1 of each year. Taxpayers may request an extension of up to 30 days if asked of the County Property Appraisers by that due date. Each taxpayer is permitted a $25,000 exemption in each county, BUT ONLY IF the return is timely filed, including any extension period requested and granted.
Further, a delinquent return statutorily receives a penalty assessment increasing the assessment by 25%. An example of this process is as follows: A recent case study in our office reflected a small business that increased their taxable tangible property at cost from $30K to $70K during the tax year. The assessment of a timely filed return is calculated at $38,000 (90% of $70K less the $25K exemption). In this case, the return was not timely filed. By filing the $70K cost of equipment return late, the assessment goes to $78,750 (roughly 90% of the $70K times 1.25, and no $25K exemption). That is a 207% upcharge.
The moral of the story is: don’t fail to file timely. Also, if you timely file and later amend your filing resulting in an increased assessment, you are assessed the 25% late filing penalty on the increase. However, in the case study, by not filing at all, the prior year assessment of $27K (roughly 90% of $30K) is statutorily increased by 25% to $33,750, and no exemption. This is a classic demonstration of the absurdity of the Florida Statute that brings the current year assessment in $4,250 below what it would have been otherwise! Consider all your options before you file.
Preparing for next year’s liberalized IRA-to-Roth-IRA conversion rules
2010 will be a pivotal one for retirement planning, as it will be the first year in which taxpayers will be able to convert funds in regular IRAs (as well as qualified plan funds) to Roth IRAs regardless of their income level. This new conversion option poses significant tax planning challenges and opportunities for 2010 and later. This article takes a look at the new conversion option, and explains how to prepare for it.
Conversions to Roth IRAs. Prior to 2010, taxpayers (other than married persons filing separately) with modified adjusted gross income (AGI) of $100,000 or less could convert amounts in a traditional IRA to amounts in a Roth IRA. Amounts from a SEP-IRA or a SIMPLE IRA also could be converted to a Roth IRA, but a conversion from a SIMPLE IRA could be made only after the 2-year period beginning on the date on which the taxpayer first participated in any SIMPLE IRA maintained by the taxpayer’s employer. Distributions from a Code Sec. 401(a) qualified plan also may be rolled over to a Roth IRA.
For purposes of conversions to Roth IRAs, AGI is defined as it is for traditional IRA purposes except that it does not include income resulting from the conversion from a traditional IRA to a Roth IRA. AGI—for purposes of determining conversion eligibility only—does not include any required minimum distribution from an IRA.
A conversion from a regular IRA to a Roth IRA is subject to tax as if it were distributed from the traditional IRA and not recontributed to another IRA, but isn’t subject to the 10% premature distribution tax.
For tax years beginning after 2009, the $100,000 modified AGI limit on conversions of traditional IRAs to Roth IRAs is eliminated. Additionally, married taxpayers filing a separate return will be able to convert amounts in a traditional IRA into a Roth IRA (currently they are barred from doing so).
Why make a IRA-to-Roth IRA conversion? Roth IRAs have two major advantages over regular IRAs:
(1) Distributions from regular IRAs are taxed as ordinary income (except to the extent they represent nondeductible contributions). By contrast, Roth IRA distributions are tax-free if they are “qualified distributions,” that is, if they are made (1) after the 5-tax-year period that begins with the first tax year for which the taxpayer made a contribution to a Roth IRA, and (2) when the account owner is 59 1/2 years of age or older, or on account of death, disability, or the purchase of a home by a qualified first-time homebuyer (limited to $10,000).
(2) Regular IRAs are subject to the lifetime required minimum distribution (RMD) rules that generally require minimum annual distributions to be made commencing in the year following the year in which the IRA owner attains age 70 1/2. By contrast, Roth IRAs aren’t subject to the lifetime RMD rules that apply to regular IRAs (as well as individual account qualified plans).
A similar comparison could be made between distributions from qualified retirement plans and Roth IRAs.
There are other tax advantages: Because distributions from Roth IRAs are tax-free (if they are qualified distributions), they may keep a taxpayer from being taxed in a higher tax bracket that would otherwise apply if he were withdrawing taxable distributions, don’t enter into the calculation of tax owed on Social Security payments, and have no effect on AGI-based deductions. What is more, the benefits flow through to beneficiaries of Roth IRA accounts, who also can make tax-free withdrawals from such accounts (they are, however, subject to the same annual post-death minimum distribution rules that apply to beneficiaries of regular IRAs).
Who should make IRA-to-Roth IRA conversions? The consensus view is that the conversion route should be considered by taxpayers who:
… have a number of years to go before retirement, generally under age 50 (and are therefore able to recoup the dollars that are lost to taxes on account of the conversion);
… anticipate being taxed in a higher bracket in the future than they are now; and
… can pay the tax on the conversion from non-retirement-account assets (otherwise, there will be a smaller buildup of tax-free earnings in the depleted retirement account).
Complicating factor for 2010 conversions. A unique income inclusion rule will apply for IRA-to-Roth-IRA conversions occurring in 2010. Unless a taxpayer elects otherwise, none of the gross income from the conversion is included in income in 2010; half of the income resulting from the conversion will be includible in gross income in 2011 and the other half in 2012.
A major wild card in making this choice is the tax-rate picture after 2010. Absent Congressional action, after 2010 the tax brackets above the 15% bracket will revert to their pre-2001 levels. That means the top four brackets will be 39.6%, 36%, 31%, and 28%, instead of the current top four brackets of 35%, 33%, 28%, and 25%. The Administration has proposed to increase taxes only for those making $250,000, but it is difficult, at this point in time, to predict who will get hit by higher rates. What’s more, there are proposals on the table to help finance healthcare reform with a surtax on higher-income taxpayers.
Because of the uncertainty of these potential tax law changes, we suggest you hold off any 2010 contemplated conversion until later in the year when tax rates for 2010 and there after are more certain. That will also indicate if reporting the income in 2011 and 2012 is truly advantageous to electing to report the conversion income in 2010.