Masonry Magazine August 1971 Page. 17
TAXES
By MIRIAM McD. MILLER
TAX RATES
Although Secretary of the Treasury John Connally has recently stated that the President would not recommend a tax cut at the present time to stimulate the economy, there is a tax cut in store (so to speak) for certain individuals in 1971.
As a result of the Tax Reform Act of 1969 there will be lower rate schedules for both single taxpayers and those who qualify as head of household. And, these new rates can amount to a substantial cut in the amount of tax to be paid.
Unfortunately, married taxpayers whether filing separately or jointly will not benefit from lower tax rates but, like all other taxpayers, they will be eligible for higher exemption amounts ($650 in 1971 as opposed to $625 in 1970) and also a higher standard deduction. As you will recall the standard deduction has been 10% of adjusted gross income with a maximum deduction of $1000. However, for 1971, the standard deduction goes to 13% with a maximum deduction of $1500.
And, finally, remember the 2.5% surcharge that we had to pay in 1970 no longer exists in 1971.
EMPLOYEE PLANS
In a small company one of the employees, who was also an officer-stockholder, received 80% of the total compensation being paid by the company. A pension plan was adopted by the company that provided a retirement benefit of 50% of the career average compensation of each participant.
Under such a plan the employee who receives 80% of the current compensation would naturally be expected to receive a substantial portion of the total pension benefits that will be paid under the plan. The company asked the IRS whether the tax laws require a limitation on the portion of the benefits from a qualified pension plan that may be used for an officer-stockholder.
The IRS explained that the Code requires that a qualified plan not discriminate in benefits in favor of employees who are officers, stockholders, supervisors or highly compensated. However, a plan is not considered to be discriminatory merely because the benefits of the plan bear a uniform relationship to the total compensation, or the basic or regular rate of compensation, of such employees. Here such a uniform relationship exists.
Therefore, the IRS ruled that there need be no limitation on the portion of the benefits that may be used for the officer-stockholder who receives 80% of the total compensation paid. Rev. Rul. 71-255.
Pension Plan. In another small company that had only thirteen regular salaried employees, a pension plan was created for salaried employees only. There was no pension plan for hourly employees. It seems that the hourly employees were unionized and had bargained for but failed to press their demand for a plan of their own, presumably because the union preferred to get higher wages and other fringe benefits.
The Tax Court ruled that this pension plan could not qualify as it violated the income tax statute requirement.
CASUALTY LOSS
If you have ever wondered whether the cost of renting an automobile to replace the one damaged in an accident while the latter is being repaired can be added to the amount of the casualty loss the answer is: No. Such rental costs are not to be deducted as part of the loss sustained. Feissman v. Commissioner, TC Memo, 1971-137.
SELF-EMPLOYED OBJECTS
A self-employed electrician objected to the payment of the self-employment tax on two grounds. He explained to the Tax Court that he was opposed to the social security program stemming from his own conscientious belief as a member of the individual Christian faith based upon the Bible as he applied it to his daily life. A second argument advanced by the electrician was that he had attained "fully insured status" under the social security program, and that any further collection of social security taxes would be taking of private property for public use without just compensation in violation of his constitutional rights.
In ruling against the taxpayer the Tax Court found that no exemption from the self-employment tax is granted in the statute because of the conscientious beliefs of a taxpayer as a member of the individual Christian faith. The facts revealed that the electrician had been a member of the Methodist Church or Christ's Church of Westminster all his life. Neither church, said the Court, at any time had established tenets or teachings opposed to the acceptance of death, disability or retirement benefits under a private or public insurance program.
And, finally, the Court held that there was no taking of the taxpayer's private property in an unconstitutional manner. Klamm v. Commissioner, T.C. Memo, 1971-108.
GROUP-TERM LIFE INSURANCE
For insurance coverage (that does not exceed $50,000) that is paid for by an employer, an employee does not have to pay any income tax. If this were not so it would be necessary to include the amount of the premiums paid for by the employer in the income of the employee.