Small businesses are being inundated with news about recent tax deductions, incentives, pending and adopted legislation, and whether or not the Bush tax cuts could expire. With such an extensive list of new legislation and laws, how can you be sure you are effectively taking advantage of those that apply to your business? Here is a list of the five most important tax concerns every business owner should be aware of now:
1. Extended and expanded rules for expenses. Under prior law, Section 179 expensing election allowed businesses with active trade or business income to immediately expense up to $250,000 of tangible personal property placed into service in the 2010 tax year. The recently passed Small Business Jobs Act enhanced the deduction for assets placed in service in tax years beginning in 2010 and 2011 and it increased the amount from $250,000 to $500,000.
2. General business credit carryback opportunities. Eligible small business (ESB) credits, for purposes of these provisions, are business credits generated in the 2010 tax year by privately held corporations and businesses with average annual gross receipts for the prior three years of no more than $50 million. One provision of the new law allows ESB credits to be carried back five years instead of one year. The second provision allows ESB credits to fully offset the alternative minimum tax.
3. Uncertain tax positions. Beginning for the 2010 tax year, the IRS will require corporations to report uncertain tax positions (UTPs) with their tax return. Reporting will apply to corporations with assets of at least $10 million that have recorded an income tax reserve on an audited financial statement under generally accepted accounting principles (GAAP) or similar standards. The IRS will require companies to report each UTP that affects their U.S. federal income tax liability. UTPs promise to be a contentious and onerous compliance issue for many businesses. Start planning now.
4. Shortened built-in gain holding period for S corps. Historically, an S corporation that converted from a C corporation was required to pay built-in gains tax on any assets disposed of within the first 10 years of converting to S corporation status. For tax years 2009 and 2010, an S corporation could sell built-in gain property without paying a corporate level tax as long as the corporation had held the property for seven years. A recently enacted law reduces the holding period on these assets in 2011 from seven years to five years. C corporations that filed Subchapter S elections effective for the 2006 tax year (or earlier) can sell built-in gain property without paying the built-in gains corporate level tax.
5. Yearend tax projections critical for taxpayers in the highest tax brackets. Reverse thinking if you’re in the top tax brackets. Yearend tax planning typically involves finding ways to defer income and accelerate deductions to reduce current year tax. However, if Congress does not act, the Bush tax-cuts will expire, causing rates to increase for all individual taxpayers, including those subject to the lowest rates. Without new legislation, beginning in 2011 capital gains tax rates will increase to 20 percent for taxpayers subject to marginal income tax rates greater than 15 percent, while dividends will be taxed at ordinary income tax rates. Accordingly, if you make over $200,000 (or $250,000 for joint filers), your tax rates could rise significantly in 2011. You must start planning now for potential changes so you can act quickly.
Want to improve the way you run your business? Entrepreneurs, academics, and consultants from diverse industries offer practical advice on a variety of topics each business day.
To submit a tip for consideration, first check our archive of previous tips to make sure you're not repeating a tip someone has already contributed. Then send the tip to Small Business channel contributor Michelle Dammon Loyalka. Because of the volume of material she receives, she may not respond to each individual.