Tag Tax

5 Tax Minimization Strategies to Consider

0 comments By TRMoore Filed in Tax Tagged with , , , May 26th, 2011 @ 5:07 pm

Tax minimization is consistently a top priority for the business owners with whom we work, and this rang true for attendees at our recent Business on Target workshop. Here are five tax minimization strategies discussed:

  1. Bonus Depreciation: This tax savings method grants an extra write-off to all types of businesses because it provides a 50 percent bonus incentive for new, qualified property acquired and placed in service after Dec. 31, 2007, and before Jan. 1, 2013, and a 100 percent bonus incentive for new property that is placed in service after Sept. 8, 2010, and before Jan. 1, 2012.
  2. Cost Segregation Study: Business owners who own a building worth more than approximately $1 million are encouraged to consider a cost segregation study to increase the company’s depreciation deduction. Cost segregation often allows a property owner to accelerate depreciation by 50 percent to 75 percent on qualifying property, thus reducing federal income taxes for prior years. In most cases, qualified assets include decorative fixtures, security fixtures, parking lots and landscaping. 
    • Consider this cost segregation example: A $10 million retail shopping center placed into service 10 years ago had an original depreciation method of 39-year straight line over the building. A cost segregation study resulted in $1 million in assets reclassified as five-year property and another $1.5 million reclassified as 15-year property. The tax savings? More than $475,000.
  3. Research & Development Tax Credit: Businesses can benefit from a tax credit of 13 percent to 14 percent on expenditures related to the development or improvement of a product, including its formula, invention, pilot model, process or technique. The most recent tax act extended the R&D tax credit to Dec. 31, 2011, and businesses can also file for or carry the credit back to all open tax years. Sample savings include:
    1. An oilfield service company with $30 million in annual revenues received a $300,000 tax credit.
    2. A metals manufacturer with $16 million in annual revenues received a $125,000 tax credit
  4. Domestic Production Deduction: Manufacturers producing goods in the United States are encouraged to take advantage of this deduction because the deductable amount for 2010 and beyond  is 9 percent of the lesser of taxable income or qualified production activities income. A company’s qualified production activities include any lease, rental, license, sale, exchange or other disposition made by the taxpayer.
  5. Interest Charged Domestic International Sales Corporation (IC-DISC): Consider forming an IC-DISC if you are a U.S. manufacturer that exports. An IC-DISC eliminates annual double taxation, resulting in a 15 percent to 20 percent savings on operating profits, as well as significant potential tax savings in the in the eventual sale or transition of the business. This tax savings method is valid for 2011 and 2012, and pending legislation, may get extended beyond that. 

Contact us for more information on tax savings strategies.

Tax Deposits Must Now Be Made By Electronic Funds

0 comments By TRMoore Filed in General, Tax Tagged with , January 6th, 2011 @ 5:05 pm

Beginning Jan. 1, 2011, you must use electronic funds transfer to make all federal tax deposits (such as deposits of employment tax, excise tax and corporate income tax). Forms 8109 and 8109-B, Federal Tax Deposit Coupon, cannot be used after Dec. 31, 2010. Generally, electronic fund transfers are made using the Electronic Federal Tax Payment System (EFTPS). If you do not want to use EFTPS, you can arrange for your tax professional, financial institution, payroll service or other trusted third party to make deposits on your behalf. Also, you may arrange for your financial institution to initiate a same-day tax wire payment on your behalf. EFTPS is a free service provided by the Department of Treasury.

IRS Announces 2011 Pension Plan Limitations

0 comments By TRMoore Filed in General, Tax Tagged with , , November 2nd, 2010 @ 10:27 am

The Internal Revenue Service has announced cost of living adjustments affecting dollar limitations for pension plans and other retirement-related items for tax year 2011. In general, these limits will either remain unchanged, or the inflation adjustments for 2011 will be small.

Highlights include:

  • The elective deferral (contribution) limit for employees who participate in section 401(k), 403(b), or 457(b) plans, and the federal government’s Thrift Savings Plan remains unchanged at $16,500.
  • The catch-up contribution limit under those plans for those aged 50 and over remains unchanged at $5,500.
  • The deduction for taxpayers making contributions to a traditional IRA is phased out for singles and heads of household who are active participants in an employer-sponsored retirement plan and have modified adjusted gross incomes (AGI) between $56,000 and $66,000, unchanged from 2010.For married couples filing jointly, in which the spouse who makes the IRA contribution is an active participant in an employer-sponsored retirement plan, the income phase-out range is $90,000 to $110,000, up from $89,000 to $109,000.For an IRA contributor who is not an active participant in an employer-sponsored retirement plan and is married to someone who is an active participant, the deduction is phased out if the couple’s income is between $169,000 and $179,000, up from $167,000 and $177,000.
  • The AGI phase-out range for taxpayers making contributions to a Roth IRA is $169,000 to 179,000 for married couples filing jointly, up from $167,000 to $177,000 in 2010. For singles and heads of household, the income phase-out range is $107,000 to $122,000, up from $105,000 to $120,000. For a married individual filing a separate return who is an active participant in an employer-sponsored retirement plan, the phase-out range remains $0 to $10,000.
  • The AGI limit for the saver’s credit (also known as the retirement savings contributions credit) for low-and moderate-income workers is $56,500 for married couples filing jointly, up from $55,500 in 2010; $42,375 for heads of household, up from $41,625; and $28,250 for married individuals filing separately and for singles, up from $27,750.

Employer-Provided Health Coverage Not Taxable; Reporting Optional in 2011

0 comments By TRMoore Filed in General, Tax Tagged with , , , , October 14th, 2010 @ 2:54 pm

Starting in tax year 2011, the Affordable Care Act requires employers to report the value of the health insurance coverage they provide employees on each employee’s annual Form W-2. However, to provide employers the time they need to make changes to their payroll systems or procedures in preparation for compliance with this requirement, the IRS will defer the reporting requirement for 2011, making that reporting by employers optional in 2011.

This reporting is for informational purposes only, to show employees the value of their health care benefits so they can be more informed consumers. The amount reported does not affect tax liability, as the value of the employer contribution to health coverage continues to be excludible from an employee’s income, and it is not taxable. Get more on the act and tax savings strategies, including our 2010 Tax Planning Guide.

3 Small Business Jobs Act Breaks You Should Know About

0 comments By TRMoore Filed in General, Tax Tagged with , , September 28th, 2010 @ 9:04 am

The name of the recently enacted Small Business Jobs Act is a bit of a misnomer because the legislation carries many tax provisions affecting large as well as small businesses, plus changes that affect individuals, such as eased Roth IRA rules. Below are the three breaks we feel will make the most impact on our clients. Visit our Web site for highlights of the full act.

Enhanced Expensing
To help recover the cost of certain capital expenses, small businesses can elect to write off the cost of these expenses in the year of acquisition in lieu of recovering these costs over time through depreciation. For tax years beginning in 2010 and 2011, the $250,000 limit is increased to $500,000 and the investment ceiling to $2,000,000.

The new law also makes certain real property eligible for expensing. For property placed in service in any tax year beginning in 2010 or 2011, the up-to-$500,000 of property expensed can include up to $250,000 of qualified real property (qualified leasehold improvement, restaurant and retail improvement properties).

Reduced S Corporation Holding Period
Generally, a C corporation converting to an S corporation must hold onto any appreciated assets for 10 years following its conversion or face a business-level tax imposed on the built-in gain at the highest corporate rate of 35 percent. This holding period is reduced where the seventh tax year in the holding period preceded the tax year beginning in 2009 or 2010. The 2010 Small Business Jobs Act temporarily shortens the holding period of assets subject to the built-in gains tax to five years if the fifth tax year in the holding period precedes the tax year beginning in 2011.

50 Percent Bonus First-Year Depreciation Extended
Businesses are allowed to deduct the cost of capital expenditures over time according to depreciation schedules. In previous legislation, Congress allowed businesses to more rapidly deduct capital expenditures of most new tangible personal property, and certain other new property, placed in service in 2008 or 2009 (2010 for certain property), by permitting the first-year write-off of 50 percent of the cost. The new law extends the first-year 50 percent write-off to apply to qualifying property placed in service in 2010 (2011 for certain property).

Visit our Web site for highlights of the full act.

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