McKonomics

New Small Business Law Provides Tax Incentives

 After several failed attempts to arrive at a consensus, Congress finally passed the Small Business Jobs and Credit Act on September 23, 2010. This new legislation, which President Obama signed into law on Monday, provides various tax incentives targeted to small business owners.

Here are several key provisions in the new law:

Enhanced Section 179 depreciation deductions: Under Section 179 of the Internal Revenue Code, a business can currently deduct the cost of qualified property placed in service during the year, within an annual limit. Prior to the new law, the limit for 2010 was $250,000, although the maximum deduction was subject to a phase-out for annual purchases above $800,000. The new law increases the maximum deduction to $500,000 for 2010 and 2011 with a phase-out threshold of $2 million. Eligible assets include computers, office equipment, and furniture. Certain real estate improvement costs now qualify for Section 179 deductions of up to $250,000.

"Bonus depreciation" is back: The new law also restores the bonus depreciation tax break, which expired after 2009. A business may claim a deduction equal to 50 percent of the cost of qualified assets, which include vehicles. (An additional year of bonus depreciation through 2011 is allowed for property with a cost recovery period of ten years or longer and certain transportation property.)

How to Benefit Tax-Wise From a Home Office

Today's technology makes it possible for more people to work from home. Companies benefit from the reduced overhead, while individuals avoid the hassles of commuting and enjoy a more relaxed work environment. In addition, a person who works from home -- either employed or self-employed -- might be able to claim tax deductions for maintaining an office there.

 

But simply working from home isn't enough to make you eligible for the tax break. To qualify, you must meet these two IRS guidelines.

 

1. Regular and Exclusive Business Use

 

Your home office can be a room in your house or a separate, detached structure, such as a garage or freestanding building on your property.

 

But it must be used regularly and exclusively for business. In other words, you can't simply set up a computer in a corner of your family room to occasionally print invoices, while the rest of the time, the kids use the computer for e-mailing and homework and your spouse uses it for family finances. 

Reducing Your Workforce? Don’t Forget Your 401k Plan

In today's economic climate, many companies have taken, or are planning to take, steps to reduce payroll costs including layoffs. Most employers are aware that they may fully terminate a 401k plan at their discretion; however, layoffs or other employer initiated actions may trigger a partial plan termination. Upon the full termination of a 401k plan, all affected participants become fully vested in their account balances. The same is true for a partial plan termination.

 

A partial plan termination typically occurs when an employer reduces its workforce and related plan participation by 20%. The timeline to consider the reduction will depend on specific facts and circumstances. However, in general the reduction rate is determined by dividing the number of participating employees who were affected by an employer initiated reduction by the number of all employees participating in the plan at the beginning of the applicable period (generally the plan year). This means that all matching contributions and other employer contributions become fully vested for all affected participants, regardless of a vesting schedule.

Pennsylvania Unclaimed Property Holder Amnesty Program

The Pennsylvania Department of Treasury has initiated an Unclaimed Property Holder Amnesty Program that will run through October 31, 2010 for businesses that have either missed the annual April 15th reporting deadline or have never filed or have gaps in their reporting history. As an incentive to enter the Amnesty Program, no penalties or interest will be assessed.

 

Simply stated, abandoned and unclaimed property is any asset that has become dormant for a given period of time (usually between 2-5 years depending on the asset type). An asset is dormant if there has been no contact with the owner over that given period of time.

 

Some examples of unclaimed property include bank accounts, uncashed payroll checks, accounts payable or receivable checks, credit balances, stocks and bonds, escrow accounts, gift cards or certificates that have expired, and insurance proceeds. In addition to intangible property, the Treasury also accepts a wide array of tangible personal property such as jewelry, musical instruments, and video games.