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Changesin tax law affecting us all Press-Republican—Monday, August IX 1984 11- (EDITOR'S NOTE: This is the first part of a six-part series on the consequences to taxpayers of the new tax legislation passed in- to law 09 July 18.) By SYLVIA PORTER Less than a month ago (July 18), President Reagan signed the 1984 tax law — legislation that *m» become massive with conr-- plications as it has moved bet- ween the Senate and House. There are hundreds of changes that translate directly into gains or losses for us. Many changes are retroactive; they already are in effect. Ignorance in this case can De extremely costly. Thus, I have prepared six col- umns with the assistance of Eli J. Warach, divisional senior vice president of Prentice-Hall, to help explain the tax changes that affect you right now. 1) There are new rules for no- interest or low-interest family loans that could greatly help another family member but won't necessarily cost you a cent. The new rules: A loan from a parent is treated so that the parent is assumed to be charging the going interest rate; or the parent is deemed to give the child the money to pay the in- terest; or the child is treated as paying the interest. With these three points in mind, note that no money changes hands — except for the loan principal. Result: The parent makes a gift to the child equal to the amount of the interest. Since the child is assumed to return this amount in the form of interest, the parent must pay income tax on it. But the child actually comes out ahead. Reason: The Equipment from Gam has new uses By FRANK THORSBERG UPI Business Writer LOS ANGELES (UPI) - Some $50 million worth of sophisticated high-tech equipment used to keep track of everything from the out- come of events to relaying messages from home to the athletes contributed to the suc- cess of the Summer Olympics. \We wanted to do some things that have never been done before,\ said Jim Murray, vice president of technologyfor the Los Angeles Olympic Organizing Committee. These \things\ included an electronic mail system, an Olym- pic voice messaging system and a computer system that told the user about everything from medal counts to athlete biographies and world records. But what happens to all that high-priced hardware now that the 16-day Olympic show is over? Some of it will be staying in Los Angeles, but most of the devices brought in for the games will be rv*u i iiv U ^v 2>c^ * C\#vii%*4v*^y*** and/or sold to other customers. Miles and miles of special fiber optics cable installed by AT&T Technologies as part of the com- munications network for the Olympics — with activities spread out over a 4,500-square- mile area — will stay in place and be used by Pacific Bell to upgrade its service to customers in Southern California. The rest of the maze of AT&T equipment — including 14 com- puters, 2,000 teletype terminals. 500 printers and \ telephones — is for sale. \What is not sold will go back into AT&T for o g tions,\ said Bob Katzeff, public relations manager for AT&T Technologies in New York. \It's ail for sale. Every bit of it,\ he said. Some of the telephones, which carry the Olympic logo, are be- ing snapped up as souvenirs of the games, he said. 'The Olympic phones, as they are removed from the venues, are being offered for sale right then and there. Right now, its eminently successful/' Katzeff said. \I don't think there are any immediate plans to sell to the public.\ Motorola, which supplied more thas 10,000 pieces of electronic equipment for the Garnet, is pull- ing out all of its gear. \To give you an idea of the size of this, we have 4.500 portable radios, about 2.500 optics pagers and additional tone-only pagers/* said Motorola spokesman David Weisz. That does not include all the support equipment and technical expertise needed to make everything work. It will ail be gone within days of the end of the last event. 'The system wilh come down. The paging system wiil not stay.\ he said \Some of it is already selected for possible use by other customers It will be re- sold as recoorfioooed equip- child does not take the gift into income; yet he picks up a deduc- tion for interest he does not ac- tually pay. 2) New law exceptions: There are generous exceptions to the new rules on no-interest family loans. In general, there are no tax consequences involved in a no-interest Loan if all loans bet- ween parent and child cortie to $10,90$. And it they ex- Your Money's Worth y ceed J 10,000, the parent still may have no income tax liability if the total loans don't exceed $100,000. It is only when total loans ex- ceed 1100,000 that the parent is sure to be hit full force by the new rules. He then must declare imputed income equal to interest at the going rate on the outstan- ding loan. Effective Date: Generally, June 6, 1N4. But demand loans (the typical family loan) that are currently unpaid are exempt if they are repaid within 60 days after the new law is signed. 3) Does all this mean the end of family income splitting? No? Far from it! A long list of family income-splitting favorites are untouched by the new law. An ex- cellent example: the short-term trust. You set up a single trust, transfer money (or property) to it for at least 10 years and a day, and then get it back. How it works: You, the parent, transfer income-producing pro- perty — stock, for instance — to a trust set up for your child. The trust lasts 10 years and a day. The trust is distributed and taxed to the low-income-tax-bracket child. When the trust expires, the stock is returned to you. In ef- fect, you have split income with your child for a 10-year period. 4) Company interest-free loans get an OK under the new tax law. No-interest loans are still win- ners even under the new law. Loans can be made by the cor- poration without the actual pay- ment of interest by employees. What the new law does do is transform the no-interest loan in- to a series of bookkeeping iratt- sactions. The company \pays\ the employee added compensation equal to the interest that would be owed on the loan. That'\pay- ment\ is deductible by the com- pany as compensation. On the other side of the transaction, the employee will owe no income tax on the interest since he is entitled to an offsetting interest deduc- tion for the interest he \pays\ on the loan. Bottom Line: The only cash changing hands is the face amount of the loan. For instance, employee Seth Smith borrows $50,000 from his company for a year on a demand loan, which he repays at the end of the year. The going interest rate is 12 percent. Result: Seth avoids paying the $6,000 in in- terest that a bank would charge and he pays no more income tax than before the new law. Suppose the no-interest loan is made to a non-employee shareholder. Then under the new law, ths company \payment\ considered to be a dividend. Result: The company cannot deduct dividends, so it has phan- tom income on the loan while the borrower pays no income tax. There are no tax consequences to a no-interest loan if (a) total loans between the company and taxpayer are less than $10,000, and (b) tax avoidance is not a principal purpose of the loan. Effective Date: term loans made after June 6, 1984, and amounts outstanding on demand loans after June 6,1984. But a de- mand loan is exempt from the new law if repaid within 60 days after the date of enactment. We hove many Imitators...but Nobody matches our Values! 5M8££ EVERY WATERBED IS DRASTICALL Y REDUCED TO MAKE ROOM FOR NEW STYLES! •>*• ' - . - Modern, clean styling, Carefully finished to protect & show off the handsome grain. Includes Queen or| King size plus all the extras listed. Plain pedestal. Compare at $499.95 e CHELSEA & Luxurious shelved head- board with mirror. In- cludes Queen or King size plus all the extras Compare at $599.95 3 v<.*i.: STEAK &AI THE (You just A6 the w ater0 WHEATFIELD Ml Ml Scroll on solid pine & veneers. Protected Tops. 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