McKonomics

Businesses: Big Tax Savings

 The Small Business Jobs and Credit Act of 2010, which was signed into law on September 27, contains a number of valuable tax breaks for businesses. The new law's two significant changes come in the form of more generous rules for depreciation write-offs.

1. Bigger Section 179 depreciation deductions are allowed for qualifying new and used assets that are placed in service in tax years beginning in 2010 and 2011. Under the Section 179 deduction election, many small and medium-sized businesses can instantly depreciate most or all of the cost of many assets in the year in which they are first placed in service.

In addition, qualified real property improvements placed in service in tax years beginning in 2010 and 2011 are also eligible for the Section 179 deduction. Real property costs have never been eligible before.

2. First-year bonus depreciation of an extra 50 percent is allowed for qualifying new (not used) assets that are placed in service by December 31, 2010. The bonus depreciation break had expired at the end of 2009, but the new law retroactively reinstates it for qualifying assets that are placed in service during calendar year 2010.

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. 

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.

To Forgive Is Not Always Divine – At least as it Relates to the IRS

For tax purposes, don't think that you're off the hook if another party forgives or cancels a debt. Under the "cancellation of debt" (COD) provision in the tax law, this seemingly generous act could result in an unexpected tax bill. 

 

Basic rules: If an amount you owe is forgiven or cancelled, you must generally report it as taxable income on your personal tax return. A forgiven business debt is reported as income on the appropriate form for the business entity or sole proprietorship.

For this purpose, a "debt" includes any financial obligation for which you are legally liable or which attaches to property you own.

 

Similarly, you are required to report any interest attributable to the debt that is forgiven or cancelled.

 

However, there are several notable exceptions to the taxation of cancelled debt income, including the following seven:

Get the Latest on IRS Audit Activity

There are several ways the IRS collects money after taxpayers have payroll deductions taken, make estimated payments, and file balance due amounts with their returns.

 

Of course, the IRS can assess additional taxes after auditing the tax returns of those who arouse suspicion based on what is claimed. These examinations can take place in person or through correspondence audits, where the IRS asks taxpayers to mail in proof for particular tax return entries.

 

The IRS also randomly audits returns in order to learn more about taxpayer trends. In addition, the tax agency can file liens and levies against those who become delinquent.

The 2010-2011 Pennsylvania State Budget

Less than a week after the due date, Governor Ed Rendell signed his final Pennsylvania state budget at Elmwood Elementary School in Mechanicsburg, Pennsylvania, emphasizing the Commonwealth's continued commitment to education. His budget displayed this fact in that it brought about a $250 million increase in basic education spending. However, overall spending for many programs was significantly decreased due to lower revenue expectations.

 

The 2010-2011 enacted state budget is built on a few assumptions. Pennsylvania anticipates an additional $850 million from the federal government for Pennsylvania's Medicaid program. Currently, the U.S. Congress has not yet allocated these funds. The General Assembly and the Rendell administration agreed to meet this October to pass a severance tax on the extraction of natural gas from the Marcellus Shale which would be effective January 1, 2011. 

Does Your Organization Qualify for the New Health Tax Credit?

The recently enacted healthcare legislation includes a new tax credit for qualifying small employers. The credit can cover up to 35 percent of employee health insurance costs. It is available for tax years beginning in 2010, and can be claimed for eligible costs incurred before the healthcare legislation became law.

 

Does your company qualify for the credit? As with most tax topics, there's no simple answer. Here are the qualification rules.

 

Basics About the Credit

Hiring Summer Help? Tax Breaks and Rules to Keep in Mind

With the summer now here, you may be expanding your workforce to accommodate increased seasonal demand. Fortunately, there's usually a good source of available labor, including high school and college students, workers recently laid off, and retirees looking to pick up some extra cash. You might even keep summer interns on board longer if they work out to your satisfaction.

 

Be aware that certain legal requirements apply when you add summer help to the staff. In particular, your business must comply with federal and state laws regarding minimum pay standards, workers' compensation and discriminatory practices (see right-hand article). However, if you stay within the legal boundaries, you can realize extra tax benefits for hiring certain workers this summer.

 

The three main tax breaks for employers are the Work Opportunity Tax Credit (WOTC), the payroll tax exemption for previously-unemployed workers and the new tax credit for retaining those workers:

Two Valuable Hiring Incentives

Keeping money in the family is always a worthy goal. If you're a business owner, one way to accomplish this is to hire relatives. As an added bonus, if you act quickly, you might qualify for two temporary payroll tax breaks. Here is what you need to know.

 

Social Security Tax Break for New Hires

 

The Hiring Incentives to Restore Employment (HIRE) Act grants a temporary employer Social Security exemption for wages paid by a qualified employer to an eligible new employee between March 19 and December 31, 2010. Specifically, such wages are exempt from the 6.2 percent employer portion of Social Security tax that your business pays as part of the FICA tax.