Small Business Jobs Act – Tax Planning and Preparation

SBJA creates valuable tax-planning opportunities

small-business-jobs-act

On Sept. 27, President Obama signed the Small Business Jobs Act of 2010 (SBJA), which created
$30 billion in funding for small business loans. It also provided several tax incentives for businesses — both large and small.

In light of these incentives, here are three actions you should consider in 2011:

1. Rid yourself of “built-in gain” property.

If your company converted from a C corporation to an S corporation, the SBJA may provide you with an opportunity to dispose of certain assets withouta tax penalty. Ordinarily, C corporations that convert to S status must hold appreciated assets for at least 10 years or face taxes on any gains. The act temporarily reduces the holding period to five years for assets disposed of in taxable years beginning in 2011.

2. Buy cell phones for your employees.

Recognizing that cell phones and smart phones are no longer novel or expensive, the SBJA has eliminated their “listed property” designation. This change lifts the strict substantiation requirements and depreciation limits for these devices — making it easier for businesses to deduct the cost of phones they purchase for employees — and allows an employee to exclude the value of personal use from income if the phone is used predominantly for business.

3. Review your business credits.

For businesses with average annual receipts of $50 million or less for the previous three years, the SBJA increases the carryback period for general business credits from one year to five years. This provision, which applies for both regular and alternative minimum tax purposes, offers qualifying businesses an opportunity to boost their cash flow by carrying back credits to years where they had tax liability so they can receive tax refunds.

These are just a few of the tax-saving opportunities created by the SBJA. Consult your tax advisor to discuss others that may be available to you.

Defined value gifts

limit tax exposure

If the IRS determines that you’ve undervalued assets transferred to loved ones, you can end up with unexpected gift or estate tax liabilities. One way to avoid these unpleasant surprises is
to make “defined value” gifts. Instead of transferring a specified percentage of a business or family limited partnership, for example, you transfer a specific dollar amount. If the IRS concludes that the transferred asset’s value is higher than the amount you reported on your gift
or estate tax return, the excess goes to an alternate beneficiary, such as your spouse or a charity.

Defined value clauses must be drafted carefully to ensure they’ll withstand an IRS challenge and
won’t trigger additional tax liabilities.

Check out charities before you donate. If you’re considering gifts to small charities, be sure
they’re in good standing with the IRS before you get out your checkbook. Even the smallest are now
required to file Form 990N — an “e-postcard” return. Those that fail to do so risk losing their
tax-exempt status, which can endanger your charitable deductions. The IRS website contains a list of charities in danger of losing their exemption. This “List of Organizations At Risk of Automatic Revocation of Tax-Exempt Status” can be accessed by going to irs.gov and typing “List of Organizations” into the search box.

No more paper payroll tax deposits

If your business still uses paper coupons to submit federal payroll tax deposits, you’ll need to switch to the Electronic Federal Tax Payment System (EFTPS). In proposed regulations (which likely
will have been made final by the time you’re reading this), the IRS announced plans to discontinue
the paper coupon system after Dec. 31, 2010.

EFTPS allows you to make deposits 24/7, either online or by telephone. You can schedule payments
up to 120 days in advance to ensure you don’t miss a deadline.

Certain businesses that pay a minimal amount of payroll taxes can continue to make payments
with their returns instead of using EFTPS. For more information, contact your tax advisor or
visit eftps.gov.

 

Schedule an appointment with Pappalardo & Merrill on how this effects your business taxation

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