The Small Business Jobs Act of 2010: will it help Small businesses in 2010 and beyond?

  This blog is the fifth of a five part series commenting on the practical value, if any, of this legislation enacted on September 27th, 2010.

The Eighth Provision of note relates to the increase in penalties imposed for failing to timely file correct information returns with the Internal Revenue Service, as well as the related penalty for failing to timely furnish correct payee statements.  In general, the majority of these information returns are 1099’s and W-2’s.  The penalty for each reporting failure is increased from $50 to $100, with the maximum annual combined penalty for unintentional failures increasing from $350,000 to $3 million.  In addition, the minimum penalty for each reporting failure due to intentional disregard of the reporting requirements would increase from $100 to $150. These new requirements apply to information returns required to be filed on or after January 1, 2011.

Generally speaking, most large companies have a payroll department that has enough manpower and discipline to avoid any penalties in this regard.  The companies that are potential at risk to being subject to these penalties are small and medium size companies.  Without dedicated payroll specialists either the bookkeeper and/or owner will be required to comply with these information reporting rules.  The timing of proper filing of these information reports occurs at the same time as closing your books and records in preparation to file your returns.  In general, information returns should be completed and mailed to the payee by January 31, 2011 and the corresponding information sent to the Internal Revenue Service by February 28, 2011.  Each owner should plan to review any changes to the reporting requirements on the Internal Revenue Service web site and then incorporate the information reporting criteria into the closing of the books to avoid these penalties.

Written By: Michael Janicki

www.janconsultinggroup.com

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The Small Business Jobs Act of 2010: will it help Small businesses in 2010 and beyond?

 

This blog is the Forth of a five part series commenting on the practical value, if any, of this legislation enacted on September 27th, 2010.

The Sixth Provision of note relates to the recognition of a so called”built-in gain” when a regular corporation converts to an S corporation.  This so-called “built-in gain would subject a Sub S corporation to taxation at a 35% Corporate  rate on the built-in gain beginning in the year of Sub S election over a seven year period.  The new legislation has reduced the period of recognition of this built-in gain from seven to five years.  This provision is in effect for tax years beginning after December 31, 2010. For those business owners that are beginning to plan on selling their business in the future , you should consider converting your regular corporation to a Sub S corporation since the Sub S corporation will only be subject to tax at one level.  Regarding any built-in gain, the shorter 5 year period is manageable with future planning by pursuing a sale at least five years after the Sub S election is in effect.

The Seventh provision of note involves temporary deduction for health care costs in computing self-employment income.  In general, active partners, independent contractors and sole proprietors are subject to self-employment tax on their earnings.  Under present law these individuals are entitled to a health care deduction in calculating their taxable income but not for purposes of calculating their self-employment income.  The new provision will permit health care costs to reduce the self-employment income for tax years beginning after December 31, 2009.  The amount of health care costs that may be included against the self-employment income includes the costs of health care for the self-employed and their spouses and children less than 27 years of age.

Written By: Michael Janicki

www.janconsultinggroup.com

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The Small Business Jobs Act of 2010: will it help Small businesses in 2010 and beyond?

 This blog is the Third of a five part series commenting on the practical value, if any, of this legislation enacted on September 27th, 2010.

The Fourth Provision of note relates to boosting the current deduction for so called “startup Expenses”.  Beginning in the year 2010, the tax legislation increases the amount of deductible start-up expenses from $5,000 to $10,000. While this amount is relatively modest, it does provide a new business venture an additional $5,000 of current deduction which will provide some immediate additional cash flow which is generally desperately needed by new ventures.  This would be beneficial in the year you start your business and are able to deduct these amounts from income earned in the same year.

The Fifth provision of note involves the removal of cell phones and other similar telecommunications equipment from being classified as “listed Property”.  This is an important distinction since costs for “listed properties” cannot be deducted without the use of this property being substantiated by detailed evidence and records.  Before this change for the employer to qualify for the business deduction and employees to avoid income on all of the cell phones and other mobile communications equipment treated as “listed property”, employees technically were required to track each outgoing and incoming call as business or personal.  This was obviously not practical, and few companies had a policy to satisfy those requirements.

Written By: Michael Janicki

www.janconsultinggroup.com

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The Small Business Jobs Act of 2010: will it help Small businesses in 2010 and beyond?

 This blog is the second of a five part series commenting on the practical value, if any, of this legislation enacted on September 27th, 2010. 

The Second Provision of note relates to an expansion of the carry back period for unused general business credits.  Prior to this extension of time, if a business generated unused general business credits it was able to carry them back 1 year and forward 20 years.  Under the new law any unused general business credits can be carried back 5 years and forward 20 years. While the extension of unused general business credits sounds like a favorable benefit, the fact is that unless a business has made extensive investments in 2010 this potential benefit will have little, if any, effect.

The third provision of note involves the expansion of the section 179 expensing provisions.  Under this provision a business may write-off up to 100% of the cost of an acquired asset. In general, a business was able to write-off up to $250,000 of otherwise depreciable property acquired during 2008 and 2009. For 2010 and 2011 the cap has been raised to $500,000.

In addition, the new section 179 rules include leasehold improvement made any time in 2010 as qualifying for immediate deduction up to $250,000.  The benefit of including leasehold improvements under section 179 is that typically any leasehold improvements would be amortized under the lease term which might be very long.  If any business has relocated and/or expanded their facility then this provision would be potentially beneficial in 2010.

Written By: Michael Janicki

http://janconsultinggroup.com

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When is the use of a Sub Chapter S corporation the most appropriate entity to use for a startup venture?

 

I have recently seen many questions arise both on the internet and among my clients regarding the appropriate entity to use for a new venture.  While the preferred entity is the LLC a sub Chapter S Corporation continues to have value in certain circumstances.

In general, if the founder has the intention of starting a business with his or her own capital or limited capital from friends or family and intends on raising additional capital  in the future and perhaps go public further down the road perhaps the use of the Sub S Corporation will be a better entity to commence with.

The establishment of a Sub S Corporation varies by state, however, most states will require that a founder form a regular corporation, then the corporation submits an election to be treated as a federal and state Sub Chapter S Corporation.  Once the election has been made it remains in place until it is revoked by the Company and its Shareholders.  Upon revocation, the corporation will be treated as a regular Corporation.

If we consider the financial activity of most startup entities, they usually generate losses at the inception of operations.  Having a Sub S Election in place will allow these losses to pass-through to the shareholders and be used on their individual tax returns same as an LLC.  The difference and level of complexity arises at the time the company begins to be profitable and/or wants to raise significant capital either before or at the time of going public.

If the company desires to retain the net profit in the business it can merely revoke the Sub S election and treat the entity as a regular corporation. In this scenario, the Corporation will pay tax at the entity level and retain the after-tax profits to fuel growth. This cannot be done in an LLC since it’s treated as a partnership and hence will have profits and losses distributed to the partners and taxed at the individual levels.

In addition, many states treat the formation of an LLC under separate rules and regulations so that an owner wanting to treat the entity as a regular corporation would incur significant time and effort to merge, liquidate and reform the entity as a regular corporation. This is a critical step since public markets require a regular corporation rather than an LLC to be listed.

When considering an entity to house your new venture spend the extra time and effort to project its use now and in the future to identify the appropriate vehicle.

Written By: Michael Janicki

www.janconsultinggroup.com

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