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2 0 1 0 A m e r i c a n I n s ti t u t e o f
C P A s
SMALL BUSINESS TAX SAVINGS STRATEGIES
Presented by: Laura Gannon, CPA
SULLIVAN AND GANNON, LLC22 Central Square
Chelmsford, MA 01824
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
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Expenses: Bonus Depreciation
• First-year bonus depreciation allowance for eligible new 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
Employer Sponsored Plans
• Pre-tax contributions help reduce tax bill
• Employer matches and earned income – tax deferred
• $16,500 maximum contribution (younger than age 50)
• $5,500 additional catch-up contribution (age 50 or older)
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Individual Retirement Accounts (IRAs)
Two types: Traditional and Roth
• $5,000 maximum annual contribution for either
• $1,000 additional catch-up contribution (age 50 or older)
• Contribution restrictions
• Traditional IRA: deductible contributions – modified AGI and employer-sponsored plan considerations & distribution requirements
• Roth IRA: nondeductible contributions and tax-free withdrawals
• Tax-free earnings until distribution
• Open/contribution deadline: April 17, 2012
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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 costsin creating C or S corporationor partnership
- $5,000 maximum
- $50,000+ dollar-for-dollar phaseout
- Same rules as businessstart-up costs
- Certain legal and accountingfees
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
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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)
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Employee Related: Worker Retention Credit
• Worker retention tax credit for each formerly unemployed worker
- Hired after 3/18/2010 and before 1/1/2011
- Minimum one-year employment period
- Claim credit on 2011 tax return
- $1,000 or percentage of wages paid
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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 1/1/2013
- 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
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Reporting: 1099-MISC Reporting
• As in previous years, Form 1099-MISC is used to report payments for business services totaling $600 or more.
• Laws stricter every year:
- All rent payments
- All lawyers fees
- All partnerships and LLC’s
• Payments to corporations for business services do not require a 1099 – Congress repealed.
• All other reporting requirements remain
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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 andreconcile credits and returns
• Merchants will receive Form 1099-K by January 31 of each year, beginning 1/31/2012
• Businesses must provide card processing company with your TIN on a Form W-9
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• Designed to make sure merchantsare properly reporting income
• All payments made in settlement of payment card transactions (e.g., credit card);
• Payments in settlement of third party network transactions IF:-Gross payments to a participating payee exceed $20,000; AND-There are more than 200 transactions with the participating payee
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
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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
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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
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Stupid Things Business Owners do
• Don’t keep good books!
• Don’t look at their numbers! Budgets, Comparatives, Forecasts
• Drain the company of all the capital
• No plan for succession
Sullivan and Gannon, LLC22 Central Square
Chelmsford, MA 01824www.sullivangannoncpas.com
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