Plans to Avoid Higher Income Taxes under Way
NEW YORK (AP) _ The new year brings a new fear for companies, executives and other big earners.
Anticipating higher personal income taxes and reduced corporate deductions under the Clinton administration, individuals and companies are finding ways to cash in now to avoid a bigger tax bite in 1993.
The moves range from accelerated year-end bonuses to the exercise of stock options by CEOs to multimillion-dollar signing bonuses for baseball free agents.
President-elect Clinton has backed raising personal income taxes to 36 percent from 31 percent for individuals earning $150,000 or more and families earning $200,000 or more. He has also endorsed a 10 percent surtax on income above $1 million.
Clinton has supported eliminating corporate tax deductions for executive pay exceeding $1 million. All compensation currently can be deducted from corporate taxes as a normal business expense.
Further complicating matters, new accounting rules could take effect in 1993 requiring companies to deduct the value of employee stock compensation from profits. Stock compensation currently isn't considered an expense.
All of that means a busy season for tax planners, financial consultants and accounting departments. Though tax law changes are only a possibility, the impending arrival of Democrats in Washington has prompted a rush of planning.
"The level of year-end planning activity is the highest it's been in years," said William J. Goldberg, national director of personal financial planning services at KPMG Peat Marwick, a big accounting firm.
"Everybody feels with a Democratic president and a Democratic Congress the likelihood of enactment (of tax increases) is extremely high," he said. "Consequently, people have felt confident to go ahead and accelerate income into 1992 and delay deductions until 1993."
Baseball's stars were prominent tax strategists. Pitcher David Cone received a $9 million signing bonus to join the Kansas City Royals _ half the value of his three-year contract.
First-baseman Mark McGwire and outfielder Ruben Sierra received signing bonuses of $7 million and $6 million, respectively, in their matching five-year, $28 million contracts with the Oakland Athletics.
(Tax considerations, however, weren't the only issues for baseball players. Agents said bonuses could ease the pain of lost pay in the event of a work stoppage next spring, which is considered possible.)
On Wall Street, virtually all firms have accelerated year-end bonus payments into December from the traditional January or February to ease employees' tax bite.
The changes are especially noteworthy because 1992 was a banner year in the securities industry. …