So read the headline of a story in The Wall Street Journal yesterday. My first thought was: No kidding.
Fall 2010 is likely to see the most significant effort to accelerate income since 1994. The common element? Big tax increases. Absent some quick and unexpected action by Congress, beginning January 1, 2011:
- the top individual ordinary income tax rate will increase to 39.6% from 35%,
- the top dividend tax rate will increase to 39.6% from 20%, and
- the long-term capital gain tax rate will increase to 20% from 15%.
Additionally, beginning in 2013, the new healthcare legislation will increase Medicate tax rate to 2.35% from 1.45% and impose a 3.8% net investment tax on unearned income.
Therefore, executives all over America are exploring all available means to accelerate income into 2010 and defer deductions into 2011 or later. Public companies seeking to preserve the deductibility of annual bonus payments to their NEOs under code Section 162(m), need to deal with requirement that the Compensation Committee certify the attainment of the performance goals before payment (in order to qualify for the performance-based compensation exception). This they should be able to do, with a little advance planning. For example, if final financial results are not available, the compensation committee could certify "near final results" and pay most of the expected annual bonus on December 31, 2010, or certify that portion of the performance goals that have been achieved, in either case, with an additional "true-up" payment to be made in early 2011. [Note that this change in bonus payment policy might require the company to file a Form 8-K.]
Next week, this blog will discuss some of the other means of accelerating income.