02/14/12. Small Business Tax Saving Strategies for the 2012 Filing Season. Advice for Small Businesses from CPAs. Expenses: Section 179 Deduction

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1 Small Business Tax Saving Strategies for the 2012 Filing Season Updated December 12, 2011 Advice for Small Businesses from CPAs Tax incentive opportunities for small businesses in 2011 and 2012: - Expense-related provisions - Employee-related provisions - Reporting-related provisions - Planning opportunities Year-round tax management 2 Expenses: Section 179 Deduction Expensing provision for certain business property Maximum $500,000 first-year write-off in 2011; $139,000 in 2012 Most tangible personal property eligible Includes qualified restaurant, leasehold and retail properties in 2011 Phaseout begins at $2 million in 2011; $560,000 in 2012 Limits and exceptions 3 1

2 Expenses: Bonus Depreciation First-year bonus depreciation allowance for eligible property 100% deduction for property placed in service in 2011; 50% in 2012 Property eligibility requirements Benefits of using bonus depreciation: - Immediate tax relief - Improved cash flow - Additional reinvestment capital 4 Expenses: Start-up and Organizational Costs Start-up Costs - Deduction in year business starts/succeeding years - Can include full range of business investigatory costs - First $5,000 in expenses deducted; the remaining is amortized over 180 months - The deduction requires an election - $50,000+ dollar-for-dollar phaseout Organizational Costs - Deduction for certain costs in creating C or S corporation or partnership - $5,000 maximum - $50,000+ dollar-for-dollar phaseout - Same rules as business start-up costs - Certain legal and accounting fees 5 Employee Related: Federal Unemployment Tax (FUTA) Employers pay FUTA tax on first $7,000 of each employee s wages 6.2% tax rate through June 30, 2011 Reduced to 6.0% tax rate starting July 1, 2011 Credit against state unemployment taxes 6 2

3 Employment Related: Deduction for Health Insurance Self-employment tax rate reduced by 2% to 13.3% in 2011 If you are self-employed, you may continue to deduct health insurance costs from your business income when determining your income tax liability Deduction for business owner, spouse and dependents (and children under age 27 in certain circumstances) 7 Employee Related: Worker Retention Credit Worker retention tax credit for each formerly unemployed worker - Hired after 3/18/2010 and before 1/1/ Minimum one-year employment period - Claim credit on 2011 tax return - $1,000 or percentage of wages paid 8 Employee Related: Credit for Hiring Unemployed Veterans Special credit for hiring unemployed veterans - Component of work opportunity credit - Hired after 11/11/2011 and before 1/1/ Up to $5,600 for hiring a long-term unemployed veteran - Up to $2,400 for hiring a short-term unemployed veteran - Up to $9,600 for hiring an unemployed veteran with a service related disability 9 3

4 Reporting: Certain 1099-MISC Reporting Repealed As in previous years, Form 1099-MISC is used to report payments for business services totaling $600 or more. Payments to corporations for business services do not require a 1099 Congress repealed. All other reporting requirements remain 10 Reporting: Credit Card Transactions New reporting requirement for merchants accepting credit cards, debit cards, or gift cards Businesses will need to report income from credit card transactions separately and reconcile credits and returns Merchants will receive Form 1099-K by January 31 of each year, beginning 1/31/2012 Designed to make sure merchants are properly reporting income Businesses must provide card processing company with your TIN on a Form W-9 11 Reporting: Information Return Penalties Failure to file a correct and timely information return Penalties significantly increased by Congress - $30 per return if less than 30 days late - $60 per return more than 30 days late, but filed by Aug. 1st - $100 per return, otherwise Penalties may be waived for reasonable cause Increase penalty for intentional disregard 12 4

5 Important Tax Rule: Corporation Built-in Gains No net built-in gains tax on certain property If sold more than 5 years after conversion from C corporation to S corporation Special rule for 2011 normally 10 years Reduced taxes and additional investment capital 13 Planning for 2012 and Beyond Additional 0.9% Medicare tax on certain wages beginning January 1, 2013 New Medicare tax (3.8%) on certain investment income beginning January 1, 2013 If Bush-era tax cuts allowed to expire December 31, 2012: - Tax rates increase on regular income, capital gains, dividends - Number of taxpayers subject to Alternative Minimum Tax (AMT) rises - Certain tax credits expire 14 Planning for Net Operating Losses NOL deduction available when current year s income is less than current year s deductions NOLs can be carried back 2 years and forward 20 Planning required to maximize deduction NOL versus Section 179 deduction NOL versus bonus depreciation Many businesses have large NOLs generated during economic downturn. Proper planning will insure best tax result so that NOL benefits are not allowed to expire. 15 5

6 Planning for Retirement Variety of options, designed to fit your needs - 401(k) allows flexibility; salary deferrals and/or employer contributions - SIMPLE IRA and SIMPLE 401(k) are available only to small businesses; for SIMPLE 401(k), employer is required to contribute - SEP is simple, inexpensive 16 Planning for Business Succession Critical to start now need to have plan for unexpected events Significant impact if a principal owner/ partner suddenly leaves or dies Several strategies available to finance a smooth transition Sources of financing can include: - Life insurance - Buy-sell agreement - Grantor trust Best plan should fit structure of company, personal preferences & needs 17 Key Takeaways CPA-small business owner partnership CPA advice Year-round tax planning 18 6

7 Copyright 2011 American Institute of CPAs Copyright 2011 American Institute of CPAs 7

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