HIRE Act Pending Tax Matters OtherActsof Congress 2010 Small Business Jobs Act of 2010 Uncertain Tax Positions

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2 HIRE Act 2010 Legislative Update Pending Tax Matters OtherActsof Congress 2010 Small Business Jobs Act of 2010 Uncertain Tax Positions

3 HIRE ACT Signed into law by President Obama on March 18, 2010 Two hiring and retention incentives Payroll Tax Exemption Retained Worker Tax Credit

4 Qualified Employer Any employer, except U.S. government State government (not including public institutions of higher education) Any political sub divisions thereof (i.e. a local government or instrumentality)

5 Qualified Employee Hired after February 3, 2010 and before January 1, 2011 Has not worked more than 40 hours in 60 days immediately prior to employment Does not replace another employee, unless the other employee quit or was terminated because of cause Must not be a related party as defined in IRC 51(i)(1)

6 Payroll tax Exemption Exempts qualified employer from their portion of qualified employee Social Security taxes (6.2% of wages) Applies to wages paid after March 18 through the end of 2010 Does not apply to employer s portion of medicare tax Eliminates ability to claim Work Opportunity Tax Credit on related wages

7 Retained Worker Tax Credit A tax credit for each employee that: Is a qualified employee for the Payroll Tax Exemption Was employed by the taxpayer on any date in the tax year Was employee for at least 52 weeks Whose wages paid for the last 26 weeks were at least 80% of the first 26 weeks The tax credit is the lesser of $1,000 or 6.2% 2%of wages paid An employee with qualifying wages over $16,129 would result in a $1,000 tax credit

8 Retained Worker Tax Credit The credit applies to any tax year ending after March 18, 2010 Due to the 52 week employment requirement, the first year to claim the credit would be 2011 Both the Retained dworker Tax Credit and the WOTC can be claimed on the same employee No portion of this tax credit may be carried back to prior year.

9 H.R HIRE Act Benefits Increased Cash Flow Potential large 2011 tax credit WOTC Opportunity (employers not currently claiming WOTC could bundle two programs by screening for both simultaneously: Both require screening of new applicants Employers are allowed either the payroll tax exemption or the WOTC

10 Challenges H.R HIRE Act Increased administrative burden More coordination with employees and payroll department Time is of the essence Employers must screen and capture documentation before the employee departs Increased compliance burden Form 941/941 X Filings

11 PENDING TAX MATTERS If no Legislative Action is Taken Top marginal tax rate raises to 39.6% from 35% Tax on long term capital gains rate raises from top rate of 15% to 20% Tax on qualified dividends raises from 15% to maximum of 39.6% Top rate for the estate tax is 55% Estate Tax lifetime exclusions $1,000,000

12 PENDING TAX MATTERS State of Washington Initiative 1098 Tax adjusted gross income above $200,000 for individuals and $400,000 for couples Rates (5% and 9%) Reduce state portion of property tax levy by 20% Eliminate B&O tax for small businesses

13 OTHER ACTS OF CONGRESS 2010 Homebuyer Assistance and Improvement Act June of 2010 Preservation of Access to Care for Medicare Beneficiaries and Pension Relief Act June of 2010 Education Jobs and Medicaid Assistance Act August of 2010 Small Business Jobs Act September of 2010

14 SMALL BUSINESS JOBS ACTS OF 2010 Signed into law by President Obama on September 27, 2010 Five year carryback of general business credit of eligible small businesses Stock is not publicly traded Partnership average annual gross receipts for the past three taxable years does not exceed $50 million

15 SMALL BUSINESS JOBS ACTS OF 2010 General business credit of eligible small business not subject to AMT Increased expensing limitations for 2010 and 2011 Sec. 179 expense limit of $500,000 for 2010 and 2011 (Phase out $2,000,000) 000) Election available for 2010 and 2011 to treat qualified real property p as Sec. 179 property p Qualified Leasehold Improvement Property Qualified Restaurant Property Qualified Retail Improvement Property

16 SMALL BUSINESS JOBS ACTS OF 2010 Additional First Year (Bonus) Depreciation for 50% of the basis of qualified property placed in service before 1/1/2011 Removal of cellular telephones and similar telecommunication equipment from listed property Information reporting for rental property expense payments

17 UNCERTAIN TAX POSITIONS Announcement is tentatively proposing the disclosure of UTP s in tax returns using UTP Schedule Five year Phase in >$100 million in assets ( ) >$50 million in assets ( ) 2013) >$10 million in assets (2014 and thereafter) Highly certain positions and financial statement materiality would apply to tax return disclosures

18 UNCERTAIN TAX POSITIONS Announcement also made some changes related to: no reporting of a maximum tax adjustment no reporting of the rationale/nature of uncertainty in the concise description of the position no reporting of administrative practice tax positions Frequency of IRS exams is increasing A clean IRS audit can serve of evidence of no UTP s

19 The material appearing in this presentation is for informational i purposes only and is not legal lor accounting advice. Communication of this information is not intended to create, and receipt does not constitute, a legal relationship, including, but not limited to, an accountant client relationship. Although these materialsmayhave may been prepared by professionals, they should not be used as a substitute for professional services. If legal, accounting, or other professional advice di is required, the services of a professional should be sought.