Matthew Jenkins, Ben Maese and Bob Anderson have a common mission: to complete financial deals before year-end, when many current tax breaks expire.
Jenkins, president of a real estate and broadcasting company in Fullerton, is increasing his charitable donations to get a higher tax deduction. Maese, a San Luis Obispo accountant, is rushing to buy a rental duplex to lock in favorable depreciation write-offs. And Anderson sold his Carson City, Nev., manufacturing business to get a lower capital gains tax on his profit from the sale.
"Firms have been pursuing buying us for some time over the last several years," Anderson said. "The tax law change was an incentive for us to get more serious about letting them catch us."
Jenkins, Maese and Anderson are among millions of companies and individuals nationwide hurrying to buy or sell assets, make charitable contributions, pay medical bills or other expenses or follow other financial strategies to take advantage of the old tax law or prepare for the new one.
Similar rushes in past year-end periods have taxed the creative efforts of businesses and individuals. But, because of the massive changes set forth by the sweeping new tax bill signed by President Reagan last month, the stakes in this year's rush may be the largest in decades.
"This isn't like any other year," William G. Brennan, publisher of a Valley Forge, Pa., tax-planning newsletter, said in a recent issue. "Massive tax reform has created an atmosphere where failure to properly plan can cost a bundle."
Thus, many businesses and individuals are trying tax-planning schemes not common in previous years. Businesses are rushing to sell office buildings or to merge before capital gains taxes rise next year. Some are changing from corporations into partnerships to lower their tax rates.
Consumers are buying cars, boats and other big-ticket items before sales-tax deductions expire. They are taking out home equity loans to pay off auto loans or credit card loans because interest deductions on those borrowings will be phased out.
Others are implementing year-end tax strategies far more extensively than in the past. Some taxpayers are boosting charitable contributions far above what they normally give or paying state and local taxes, magazine subscriptions and financial planning fees much further in advance than before. Accountants and tax attorneys say they are as busy as ever.
"We felt this would really be the year to take a big tax deduction. We are still in the 50% tax bracket," said the wife of an Encino businessman who is donating $100,000 this year to a trust for his local synagogue, far more than the $10,000 he normally gives.
However, in their haste to close transactions before New Year's Day, some companies and individuals may be getting into bad deals, financial experts say.
Those rushing to sell office and apartment buildings may drive down prices. Some individuals are investing in tax-shelter schemes that the Internal Revenue Service may nix or that may end up making them pay more taxes instead of less.
Some tax-oriented investments, such as for rehabilitation of historic buildings, may provide generous tax credits now but could produce losses later. And consumers buying big-ticket items just to save taxes may be missing out on lower prices next year when demand for those items subsides.
'May Get a 10% Drop'
"It may be better to wait until next year when prices fall," said Larry Biehl, a director of Bailard, Biehl & Kaiser, a San Mateo financial planning company. "You give up deducting the 6% sales tax but you may get a 10% drop in price."
One of the most significant new twists in year-end tax planning stems from the increase in the capital gains tax to a maximum of 28% next year from 20% now, and from various other changes in taxation of rental properties and corporations. The result: a flurry of corporate mergers and sales of stocks, buildings and other assets.
Wall Street experts say many investors sold stocks in September, when stock market averages plummeted, in part to lock in lower capital gains taxes. Several mutual funds--which have gained in value this year because of the strong stock market--are planning special payments of capital gains to shareholders so they can have them taxed at a lower rate.
"Just about all funds are doing it," said a spokesman for Los Angeles-based Capital Research & Management Co., which manages several mutual funds.
The rash of sales of office buildings and apartments also is being spurred by changes in depreciation rules that will stretch write-offs over longer periods for buildings acquired after year-end. The current 19-year depreciation schedules will be extended to 27.5 years next year for residential rental properties and 31.5 years for office rental properties.