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
- Planning opportunities
• Year-round tax management
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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
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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
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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 costs
in creating C or S corporation
or partnership
- $5,000 maximum
- $50,000+ dollar-for-dollar
phaseout
- Same rules as business
start-up costs
- Certain legal and accounting
fees
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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
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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 from your business income when determining
your income tax liability
• Deduction for business owner, spouse and dependents
(and children under age 27 in certain circumstances)
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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
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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
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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 business services
do not require a 1099 – Congress repealed.
• All other reporting requirements remain
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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 and
reconcile credits and returns
• Designed to make sure merchants
are properly reporting income
• Businesses must provide card
processing company with your
TIN on a Form W-9
• Merchants will receive Form 1099-K
by January 31 of each year,
beginning 1/31/2012
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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
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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
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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
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Planning for Net Operating Losses
• NOL deduction available when current year’s income 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 generated during economic downturn.
Proper planning will insure best tax result so that NOL benefits are not
allowed to expire.
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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
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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
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Key Takeaways
• CPA-small business owner partnership
• CPA advice
• Year-round tax planning
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Copyright © 2011 American Institute of CPAs
Copyright © 2011 American Institute of CPAs