How To Get A Small Business Tax Credit

Transcription

1 2010 FOCUS ON BUSINESS December 1, 2010 FEDERAL TAX UPDATE 2010 SMALL BUSINESS JOBS ACT & MISCELLANEOUS TAX PROVISIONS PRESENTED BY: DAVID P. VENISKEY, CPA TAX PARTNER EFP ROTENBERG, LLP

2 TAX RATES Income Tax Brackets Married Filing Jointly Tax Rate ** Standard Deduction $11,400 $11,400 $11,600 10% $0 - $6 $16,700 $0 - $6 $16,750 $0 - $68 $16,850 15% $16,700 - $67,900 $16,750 - $68,000 $16,850 - $68,400 25% $67,900 - $137,050 $68,000 - $137,300 $68,400 - $138,050 28% $137,050 - $208,850 $137,300 - $209,250 $138,050 - $232,950 33% (36% ) $208,850 - $372,950 $209,250 - $373,650 $232,950 - $375,700 35% (39.6% -2011) Over $372,950 Over $373,650 Over $375,700 ** As proposed in 2010 Administration Budget Tax Policy Center ( If proposed rates are not enacted, rates will revert back to 2001 rates. Tax brackets will be 15%, 28%, 31% 35%, 39.6%. Dividend income and Short term cap. gain rates will be taxed at ordinary rates. Long term cap. gain will increase to 10% (for those in 15% bracket) and 20% for all others. Anticipated AMT Legislation Set personal exemption for MFJ at $72,450

3 2010 SMALL BUSINESS JOBS ACT The Act was created to provide critical resources to help small businesses continue to drive economic recovery and create jobs. The act includes numerous provisions including: Expanding general business credits, section 179 expensing and bonus depreciation. Increasing deductions for start-up expenses. Limiting penalties for errors in tax reporting that disproportionately affect small business.

4 2010 SMALL BUSINESS JOBS ACT Bonus depreciation 50% Bonus extended through 12/31/10 First Year Depreciation Cap on Autos & Trucks Extends $8k increase in the first year depreciation Qualifying Autos $3,060 to $11,060 Qualifying Trucks $3160 to $11,160 Code Sec. 179 Expensing 2010 & 2011 $500K deduction max. & $2M qualifying threshold Addition of Qualified Real Property (qualified leasehold improvements) Limit $250K of $500k deduction max.

5 2010 SMALL BUSINESS JOBS ACT Cell Phones no longer listed propertyp Start-Up Expense Deduction Increased $5K ($50K) to $10K($60k) Extended Carryback of General Business Credit Carryback period for eligible small business credits- 5 years Effective for credits determined d in the taxpayer s first tax year after December 31,2009

6 2010 SMALL BUSINESS JOBS ACT General Business Credit for Small Business not subject to AMT Prior to SBJA Businesses effectively barred from taking general business credits if business owners are subject to individual AMT SBJA ends AMT bar for small businesses Not publicly traded Average gross receipts of $50 million or less in last 3 yrs Small private C Corporations also benefit

7 2010 SMALL BUSINESS JOBS ACT S Corp Built-in Gain Period Reduction ( tax on appreciation) Was 10 yrs., 2009 Act to 7 yrs., 2010 Act to 5 yrs. If 5th taxable year in holding period precedes tax year 2011 After 2011 the recognition period returns to 10 years Health Care Adjustment on Self-Employment Income Self-employed individuals allowed to deduct cost of health insurance for themselves, their spouses, dependents, and children under 27 (as of end of tax year) in calculating net earnings for purposes of SECA tax. Applies only to 1st tax year after 12/31/09 (2010)

8 2010 SMALL BUSINESS JOBS ACT Qualified Small Business Stock Exclusion from Gain Was 50%, 2009 Act 75%, 2010 Act 100% From enactment date to 1/1/2011 / AMT preference eliminated Gain capped at the greater of: 10 times the taxpayer s basis in the stock Or - $10 million

9 2010 SMALL BUSINESS JOBS ACT Code Sec. 6707A 7 Penalty Relief Failure to disclose a reportable transaction Maximum $10k - Individual ($50k all Others) Failure to disclose Listed Transaction Maximum $100k - Individual ($200k all Others) Minimum Penalty $5k - Individual ($10k all Others) Rental Income Recipients information reporting Report payments of $600 or more during the year for rental property expenses.

10 HEALTH CARE REFORM The Patient Protection and Affordable Care Act combined with the Health Care and Education Reconciliation Act seek to reform the health care system by: Providing a credit to help individuals afford health care; Impose a penalty to individuals who do not obtain health insurance; Allow a credit to those small businesses that provide health coverage for their employees; ees Impose a penalty on large businesses that provide inadequate heath coverage.

11 HEALTH CARE REFORM Small Business Tax Credit (Sec. 45R) Designed to increase levels of health insurance coverage as part of Sec. 38 general business credit Eligible Small Business: 25 or fewer full-time equivalent (FTE) employees FTE calculation may result in the ability of an employer with 46 part-time employees to qualify for credit Leased employees may be included Average annual wages that do not exceed $50,000 per FTE Tax years Indexed for inflation for tax years after 2013

12 HEALTH CARE REFORM Contribute uniform percentage of at least 50% of premium cost of qualified employee health plan , employers may purchase health insurance from any state licensed insurance company. After 2013, credit only available a ab to employers who purchase heath insurance through a state exchange Contribution cannot be the result of a salary deduction Excluded employees Seasonal employees (unless worked more than 120 days/tax year) Sole proprietors, partners in a partnership, 5% owners, 2% shareholders, self-employed individuals, and family members and dependents of those excluded. Single employer rules under section 414(b), (c), (m), and (o) apply Controlled group and Affiliated service groups taken into account for determination of eligible small business

13 HEALTH CARE REFORM Maximum Credit Tax years % of employer s premium expenses 25% for tax-exempt eligible employers Tax years beginning in % of employer s premium expenses 35% for tax-exempt eligible employers Premiums cannot exceed the average for the small group market in the employer s state Subject to phase-out

14 HEALTH CARE REFORM Credit Phase-out FTE s >10 Annual Avg.Wages > $25k Amount of Credit x (Number of FTE s >10)/15 Amount of Credit x (Amount of Wages >25)/$25k Result is subtracted from applicable credit. If both phase-outs apply, total reduction is sum of two reductions. Credit is part of General Business Credit 1 year carry back and 20 year carry forward May be used to offset AMT 1 year carry back does not apply to 2010

15 HEALTH CARE REFORM Additional Hospital Insurance Tax Tax years beginning on or after December 31, 2012 Employee portion of the hospital insurance tax part of FICA Increase from 1.45% to 2.35% On wages above threshold $250,000 MFJ or Surviving Spouse $125,000 MFS $200,000 All others Applies to Self-employed employed taxpayers hospital portion of SECA tax

16 HEALTH CARE REFORM Medicare Tax on Investment Income Tax years beginning on or after December 31, 2012 Tax imposed of 3.8% on the lesser of: Net Investment Income or The excess of Modified AGI over the threshold amount $250,000 MFJ or Surviving Spouse $125,000 MFS $200,000 All others Estates & Trusts 3.8% on lesser of: Undistributed Net investment income or AGI over the dollar amount at which the highest trust and estate tax bracket begins.

17 HEALTH CARE REFORM Additional Reporting Requirements Form 1099 information return Payments equal to or in excess of $600 in a calendar year to a single payee. Includes payments to corporations and tax-exempt organizations Effective for payments after December 31, 2011 Legislation has been introduced din both the House an Senate to repeal the new reporting requirements.

18 Federal R&E Credit

19 Federal Research & Experimentation Credit Sunset 12/31/2009, / not yet signed in effect for 2010 In early September 2010 President Obama was urging congress to expand and permanently extend the credit available to businesses Typically more businesses and expenditures qualify than most companies believe Must pass four part test for projects to qualify

20 What Qualifies as Federal Research? Permitted Purpose The activity must relate to a new or improved business component s: Function Performance Reliability Quality Elimination of Uncertainty The activity must be intended to discover information to eliminate uncertainty concerning the capability or method for developing or improving a product or process, or the appropriateness of the product design Process of Experimentation Substantially all of the activities must be elements of a process of experimentation involving: Evaluation of alternatives Confirmation of hypotheses through trial and error, testing and or modeling Refining or discarding of the hypotheses Technological in Nature The activity performed must fundamentally rely on principles of: Physical science Biological science Computer Science Engineering

21 Additional Federal Tax Credits -- Included in HIRE Act --

22 HIRE ACT The Hiring Incentives to Restore Employment (HIRE) Act provides incentives for hiring and retaining workers, an extension of enhanced Sec 179 expense, and changes to the Build America Bonds. The Act is partially offset by new foreign account tax compliance rules and further delay to the worldwide interest expense allocation rules. Additionally, for large corporations (assets of $1 billion or more) the amount of estimated tax payments is accelerated.

23 HIRE ACT Payroll Tax Exemption Exemption from the employer s 6.2 percent share of social security tax on wages paid to qualifying employees, effective for wages paid from March 19, 2010 through December 31, 2010 Does not apply to 1.45% Medicare portion Taxable businesses and tax-exempt organizations Qualified Employees February 3, 2010, and before January 1, 2011, Unemployed or employed for 40 hours or less during the 60-day period ending on the date such employment begins - FORM W-11 NEW position; unless separated from employment voluntarily or was terminated for cause & not family members May not claim Workers Opportunity Tax Credit on same qualified employee.

24 HIRE ACT New Hire Retention Credit Increased General Business Tax Credit to lesser of $1,000 or 6.2% of wages paid by the taxpayer. Does not apply to 1.45% Medicare portion Qualified Employees Hired between February 3, 2010, and before January 1, 2011 Remains employed for at least 52 consecutive weeks Wages for last 26 week period equal at least 80% of wages for first 26 week period Claim for first taxable year after March 18, 2010 May claim Retention credit and WOTC on same qualified employee.