November 21, 2012
Joseph Perry, Partner-in-Charge, Tax & Business Services & Robert Spielman, Tax & Business Services Partner, Featured in Long Island Business News Article "Dividend Payment Strategy Avoids Fiscal Cliff"
By Claude Solnik
First of Long Island Corp., a Glen Head-based bank, a few weeks ago moved its fourth-quarter dividend up one month – from Jan. 13 to Dec. 7 – in anticipation of a hike in the tax rate on dividends, a move likely to save shareholders hundreds of thousands of dollars collectively.
And on Monday, Wal-Mart Stores Inc. announced it was moving its dividend of 39.75 cents a share from Jan. 2 to Dec. 27, averting the dividend fiscal cliff for shareholders.
Wal-Mart attributed the decision to the complex tax issues that may not be resolved quickly "despite the ongoing good-faith negotiations between the administration and Congress to resolve details related to the fiscal cliff."
With dividend tax rates set to vault from 15 percent to 43.4 percent Jan. 1, in the last weeks of the year corporations are cautiously accelerating fourth quarter dividend payments.
Accountants said paying dividends early is a gesture of good will to shareholders, if firms can afford to do so.
"This is the most attractive and accessible option available to public companies looking for shareholder-friendly programs." said Robert Spielman, a partner in Marcum's tax and business services division. "We're recommending that all our publicly traded clients move their fourth quarter dividend pay dates into 2012."
The decision to accelerate dividends could provide a windfall if the tax rate increases.
Wal-Mart Stores stockholders – including the Walton family, which owns about half the outstanding shares – will pay $138.3 million in taxes on $922 million dividends at the 15 percent rate, according to Robert N. Gordon, president of Twenty-First Securities Corp., a Manhattan-based brokerage firm. Wal-Mart shareholders would pay $400.1 million at the 43.4 percent rate in 2013.
"By rolling their dividend pay date back by just 48 hours, Wal-Mart alone could save shareholders $261.8 million," Gordon said. "Multiply that by all the companies that issued prior quarter dividends in just the first two weeks of this year, and the tax savings are in the billions."
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