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Paul H. Roskoph Professional Corporation

August 2015

Part I: Lease Status

I previously announced that I would transition my practice ("retire") at the termination of our lease at 550 Hamilton Avenue, Suite 100. Without going into all the details, the lease could terminate as early as October, 2015 and as late as October, 2016. I am pleased to announce that our lease will continue until at least April, 2016. After that, we will have a month-to-month lease extension which can be terminated either by the landlord or by us. If neither side takes any action, our lease terminates September 30, 2016. The landlord must give us six months advance notice to terminate our lease April 1, 2016 or any month thereafter. Therefore, we will know sometime in October 2015 whether the landlord has exercised his right to terminate our lease April 1, 2016.

Please continue to watch the web page at www.roskoph.com for announcements.

Part II: Possible Income Tax Law Changes

THIS IS NOT LAW!

There are always proposals from Congress, the President or presidential candidates suggesting alternative approaches to our complicated income tax structure. Although some candidates continue to suggest a flat tax (one rate for all income), that approach has never gained support, presumably because there is less flexibility in Congress to support their projects. NO TAX LAW CHANGE OCCURS WITH CONGRESSIONAL ACTION!

Hillary Clinton, a leading Democratic party candidate, has proposed a new and sliding-scale capital gains structure for federal income taxes. She does not propose any modification in the current ordinary income tax rate, but does direct a new capital gains structure that will raise capital gains rates for the wealthiest _ of 1% of households (by her estimates). Far from following the cry of "simplicity," this new capital gain structure adds numerous stages and complications.

Remember, this is not even proposed in Congress but is a statement that may or may not make it to the platform if she is the Democratic candidate. It is however, a look into a future tax approach. I think it is worth discussing.

Summary:

The general plan outline would raise capital gains tax rates on assets with a holding period by the owner (or its prior owner if it is received as a gift) for less than six years (as opposed to the one year currently in effect). You may remember that long term capital gain taxation previously required a holding period of only six months. The one year duration entered our tax code decades ago.

Her proposal would apply a six year holding period for taxpayers in the top tax rate bracket.

In today's structure, it would hit single individuals with more than $413,000 in adjusted gross income (not taxable income) and couples with more than $465,000 of adjusted gross income. It is estimated that this group comprises approximately 1/2 of 1% of all taxpayers.

Even today, capital investments that are held for less than 1 year are treated as "short term" for capital gain/loss and are taxed at ordinary income tax rates. Long term (more than one year) holdings are taxed at a more favorable 15% or 20% depending upon the taxpayer's tax bracket so we already have a staged rate of tax, but a stable one-year holding requirement.

The new proposal would create 5 separate holding periods for people in the top ordinary income tax bracket. This group would pay the top ordinary income tax rate (presently 39.6%) for assets held less than two years. For assets held more than two years, a 36% rate would apply with the rate dropping to 32% for holdings of longer than three years, 28% for investments four years or more, 24% for those held five years or more and, finally, the current capital gain rate of 20% if they are held more than six years. Remember, this is the capital gain rate; there is also under the current tax law an additional 3.8% medicare surcharge on investment income. Thus, the so called "day traders" would be subject to ordinary income tax rates for their capital transactions. Of course many of those are short term gains anyway. This tax rate would appear to apply to all investments, not just stocks. Therefore, investments in real estate that are held less than six years would similarly be subject to this graduated tax rate system.

It is a long way between campaign rhetoric and approval by Congress. Nevertheless, you should keep aware of a potential change in the capital gains rates and holding periods.

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© 2013 Roskoph Associates
Paul H. Roskoph
Paul H. Roskoph Prof. Corp.
550 Hamilton Ave. #100
Palo Alto, CA 94301


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