2011 Tax Planning for Businesses

Submitted by Marietta Z. Courtney, CPA, MST

Q.  What is Tax Planning?

A.  An analysis with the goal of helping you keep more of your hard earned money.  It’s a tool to be used to help you make sound business decisions and minimize your taxes.

Q.  Is it something only big companies do?

A.  No. Everyone can benefit. You work hard for your money: going to trade shows, networking events, increasing your visibility, blogging, etc.  You need this information to help you decide on your action steps.  If you do nothing with it, its what the federal and state governments will tax you on and then there  will be less money available for the business.

Q.  Is it expensive?

A.  It does not have to be.  It can be as basic or detailed as you need. You can start by doing the analysis yourself. Then talk to your CPA about your results so you can decide on appropriate action steps together.

Q.  Do I wait until the end of the year?

A.  If you wait, it may be too late. The goal is to determine what you can do in 2011.

Example for a cash basis business:  For Discussion Purposes Only

1. Determine your Net Income (Profit) or Net Loss - The total income for the year of your business (example- cash received) LESS total expenses (example- cash paid out and you may also have some non- cash expenses such as depreciation). 

2 A. Are you left with a Profit ?– are there any items you’ve been meaning to buy for your business, any expenses coming due soon that you can pay before the end of the year, any groups your business was looking to join, did you want to sign up for training or conferences. Talk to your CPA to find out what additional deductions would be allowable.

2B. Are you showing a Loss? Have you had Losses in previous years and could your business be in danger of being treated as a hobby by the IRS? Talk to your CPA to find out if this is a concern for your business, what it would mean and if there is any additional income you can recognize this year.

REQUIRED DISCLOSURES: To ensure compliance with requirements imposed by the IRS, I inform you that any tax advice contained in this communication (including attachments) is not intended or written to be used, and cannot be used, for the purpose of avoiding penalties under the Internal Revenue Code.

Marietta Z. Courtney, CPA, MST

Serving Business and Individual Clients for Over 18 Years
(617) 416-2096

www.courtneycpa.com

Tax Tips from Marietta - Child Care Expenses

Qualify for the Child/Dependent Care Credit and claim summer day camp and childcare expenses.

Need to reduce the amount of tax that you owe? Well … you may be able to claim a credit if you pay someone to care for a dependent under the age of 13, or for your spouse or dependent who is not able to care for himself or herself. The credit can be up to 35 percent of your expenses. To qualify, you must pay these expenses so that you can work or look for work. Here are some things you need to know:  

·         The cost of day camp may count as an expense towards the Child and Dependent Care Credit. Keep in mind that expenses for overnight camps do not qualify.

·         You must have paid the child and dependent care expenses so that you (and your spouse, if filing jointly) could work or look for work. If you do not find a job and have no earned income for the year, you cannot take this credit.

·         You must make payments for child and dependent care to someone you (and your spouse) cannot claim as a dependent. If you make payments to your child, he or she cannot be your dependent and must be aged 19 or older by the end of the year.

·         If you pay someone to come to your home and care for your dependent or spouse, you may be a household employer who has to pay employment taxes. Usually, you are not a household employer if the person who cares for your dependent or spouse does so at his or her home or place of business.

·         If you pay expenses to a sitter at your home or a daycare facility outside the home to provide child care, you may get some tax benefit if you qualify for the credit. You will need the name of the child care provider, the address, the identification number, i.e. Social Security number or Employer Identification Number and the total amount paid.

·         If your employer provides dependent care benefits under a qualified plan, you may be able to exclude these benefits from your income. Your employer will be able to tell you whether your benefit plan qualifies. There are limits to the amount that can be excluded from your income.  

Be sure to take advantage of this credit if you are eligible. _________________________________________________
Here’s a list of helpful IRS forms and publications:

·      Form 2441, Child and Dependent Care Expenses

• Form W-10, Dependent Care Provider’s Identification and Certification

Contact me with any questions or for more information.

Marietta Z. Courtney, CPA, MST

http://courtneycpa.com

Estate Tax Relief, For Now

Submitted by Karen McSherry of The Law Office of Karen A. McSherry  

  2010 was the year without a federal estate tax; a real boon to the fabulously wealthy, but not really a concern for the rest of us. However, the reversion to the $1 million exemption, scheduled to go into effect on 1/1/11, would affect many more people. Couple that with the Massachusetts estate tax on estates in excess of one million dollars, and you could be looking at taxes taking a large bite out of your estate.

    
    Have no fear; the government is here- once again adding anything but stability and consistency to the tax code. For two years only, the federal estate tax will only affect estates over $5 million dollars. Curiously, the exemption is indexed for inflation beginning in 2012, the year before the provision is set to expire.

      The estate and gift tax exemptions are once again unified, meaning that regardless of whether you give away $5 million while living, or die with it, your tax would be the same. Last year, you could only give away $1 million dollars without incurring a transfer tax, despite the fact that there was no estate tax.

     Confused? Let’s say you had a $3.5 million estate and gave away $1.5 million in 2010 and then died later that year with $2 million dollars. You would pay no estate tax on the $2 million, but would have paid tax on the $500,000 (above the million) transferred during life. Had you died with the entire $3.5 million estate, there would also be no estate tax. Obviously, the person who chose not to gift made out better.

      Basis is Back- Last year, in a trade off to having no estate tax; the “step-up” in basis for inherited property had been eliminated. Now, once again, people receiving property from a decedent will take the date of death value as their tax cost. But, wait, there’s more. The 2010 rule of no step-up in basis was changed retroactively. Now, only for decedents dying in 2010, executors can choose to pay estate tax at the 2011 level (35% on estates over $5 million) in exchange for a step up in basis for all assets. Estates under $5 million will automatically receive step up treatment. Executors will really have to run the numbers for estates over $5 million with low basis assets to see which calculation yields the best result.

     Portability of Estate Tax Exemption - For the first time since the enactment of the estate tax, an exemption amount not used in the estate of the first spouse can be used in the estate of the second spouse. The thought of “wasting” one’s credit has led to the sophisticated trust planning that many people have. For the next two years, a married couple can transfer $10 million dollars tax free to their kids, regardless of who holds title to the property. However, in order to take advantage of this provision, both spouses must die in the next two years, and the exemptions cannot be stacked. In other words, if you were to be widowed twice in the next two years and then die, your executor can only use the exemption of your last spouse. The government wanted to be sure that the wealthy were not killing off spouses in order to receive multiple tax exemptions. You are perhaps thinking that the chances of someone going through two spouses in two years and dying themselves would be slim, but who are we to second guess the government?

   
All of the scrambling to stop the so-called “Bush Era” tax cuts from expiring on 1/1/11 has led to a reprieve of two years only. Chances are, as December 2012 approaches, we will again have to deal with the uncertainly of whether the current changes will be extended, or will the estate tax exemption revert to one million dollars.

Given the government’s track record, 2012 will be another interesting year. Stay tuned.

Karen McSherry 

The Law Office of Karen A. McSherry