Planning for Income Taxes
in an Uncertain Time
The midterm elections have changed the Congressional landscape, with Republicans winning control of the House of Representatives. However, it’s still too early to know exactly how this will affect open tax issues for 2010 and 2011. Here are some pending issues Congress needs to vote on:
- Extending tax provisions that expired at end of 2009
- Patching the AMT system
- Extending the Bush tax cuts
- Estate taxes
CURRENT TAX TOPICS & ISSUES
Even as the year 2010 comes to an end, many tax issues effecting 2011 remain undecided and hotly debated. Whether or not the “Bush Tax Cuts” will be extended will have a widespread and material effect on nearly all taxpayers. At this point it is merely speculation as to whether all, some, or none of the “Bush Tax Cuts” will be extended. However, common belief is that at the very least, some of them will be extended. The issue continues to be debated however when it comes to those taxpayers that fall into the highest two tax brackets. Our best advice is to keep your eyes and ears open for any final decisions and to call a CPA to discuss how these changes will impact you, or your business, directly.
The other big item in a state of flux is the estate tax. If Congress does not act, the estate tax will revert to its 2001 level, a 55% tax rate for individual estates larger than $1 million. If in need of estate planning, please consult with your accountant and attorney.
In spite of this state of limbo, the tax changes noted below will definitely be in place. These changes should prove beneficial from a tax savings standpoint as long as you are well-informed of them and able to plan accordingly.
For all of 2010, and 2011, Code Section 179 has expanded the ability to completely expense the acquisition of new property in the current year (rather than depreciating it over time). Specifically, the new rules allow for a taxpayer to expense up to $500,000 of new property placed in service; with a dollar for dollar reduction to the $500,000 limit for total property placed in service over $2,000,000. This property must be new and does not include real property (buildings, land, etc.). However, an allowance has been made for some qualified leasehold improvements. These improvements must be to a property that you are the sole lessee of and the property must have been in service for at least 3 years prior to the improvement. Please discuss your particular situation with a CPA to determine your eligibility.
The Hiring Incentives to Restore Employment (HIRE) Act of 2010 carried two valuable incentives for employers who expanded their workforce. First, it created an exemption on the employers 6.2% share of Social Security employment taxes on wages paid between 3/19/2010 through 12/31/2010 to a newly hired qualified individual. Secondly, it created an up-to-$1,000 tax credit for keeping such qualified individuals on the payroll for at least one year. A qualified individual is one who:
- Begins employment after February 3, 2010 and before January 1, 2011
- Was not employed for more than 40 hours during the 60 day period prior to employment with your company
- Does not replace another employee (unless that employee left voluntarily or for cause)
- Is not related to the qualified employer
- If you have employees that met these tests, or would like further clarification please contact a CPA, or your payroll company, in order to maximize any credits you may be entitled to.
HEALTH INSURANCE TAX CREDIT
For tax years beginning after December 31, 2009 the Patient Protection and Affordable Care Act (PPACA) has created a tax credit for an eligible small employer (ESE) for nonelective contributions to purchase health insurance for its employees. The credit is up to a maximum of 35% of health insurance purchased for tax years 2010-2013 and up to 50% for 2014. An ESE is an employer with no more than 25 full time equivalent employees (i.e. 50 half time employees, 20 full time and 10 half time, etc.) whose annual full-time equivalent wages average no more than $50,000. While the credit is available to all ESEs, the full credit is only available for ESEs with 10 or fewer employees and average full time equivalent wages of less than $25,000. Talk with your CPA in order to determine the amount of credit your ESE is eligible to receive.
These are just a few of the many things to consider as you develop a tax saving plan for now and the future. If you would like to explore some alternative tax planning strategies in more depth, please contact FRANZ CPAs, Inc.
FRANZ CPAs is a full service public accounting firm, large enough to offer a full array of accounting, taxation, payroll, and consulting services, but small enough to know you on a personal level. FRANZ CPAs is dedicated to serving private businesses and individuals in the greater Cincinnati area. For additional information, please visit our website at www.franzcpas.com