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Small Business Tax Saving Strategies for the 2012 Filing Season. Updated December 12, 2011. Advice for Small Businesses from CPAs. Tax incentive opportunities for small businesses in 2011 and 2012: Expense-related provisions Employee-related provisions Reporting-related provisions

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advice for small businesses from cpas
Advice for Small Businesses from CPAs
  • Tax incentive opportunities for small businesses in 2011 and 2012:
    • Expense-related provisions
    • Employee-related provisions
    • Reporting-related provisions
    • Planning opportunities
  • Year-round tax management
expenses section 179 deduction
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
expenses bonus depreciation
Expenses: Bonus Depreciation
  • First-year bonus depreciation allowance for eligible 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
expenses start up and organizational costs
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
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
employment related deduction for health insurance
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 fromyour business income when determining yourincome tax liability
  • Deduction for business owner, spouse anddependents (and children under age 27 in certain circumstances)
employee related worker retention credit
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
employee related credit for hiring unemployed veterans
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
reporting certain 1099 misc reporting repealed
Reporting: Certain 1099-MISC Reporting Repealed
  • As in previous years, Form 1099-MISC is used to report payments for business services totaling $600 or more.
  • Payments to corporations for businessservices do not require a 1099 – Congress repealed.
  • All other reporting requirements remain
reporting credit card transactions
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

Designed to make sure merchantsare properly reporting income

Businesses must provide card processing company with your TIN on a Form W-9

reporting information return penalties
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
important tax rule corporation built in gains
Important Tax Rule: Corporation Built-in Gains
  • No net built-in gains tax on certain property
  • If sold more than 5 years after conversion from C corporation to S corporation
  • Special rule for 2011 – normally 10 years
  • Reduced taxes and additional investment capital
planning for 2012 and beyond
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
planning for net operating losses
Planning for Net Operating Losses
  • NOL deduction available when current year’sincome is less than current year’s deductions
  • NOLs can be carried back 2 years and forward 20
  • Planning required to maximize deduction
  • NOL versus Section 179 deduction
  • NOL versus bonus depreciation
  • Many businesses have large NOLs generatedduring economic downturn. Proper planning willinsure best tax result so that NOL benefits arenot allowed to expire.
planning for retirement
Planning for Retirement
  • Variety of options, designed to fit your needs
    • 401(k) allows flexibility; salary deferrals and/or employer contributions
    • SIMPLE IRA and SIMPLE 401(k) are available only to small businesses; for SIMPLE 401(k), employer is required to contribute
    • SEP is simple, inexpensive
planning for business succession
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
key takeaways
Key Takeaways
  • CPA-small business owner partnership
  • CPA advice
  • Year-round tax planning