Miller, Searles, Bahr & Wills Certified Public Accountants
Lehigh Valley Certified Public Accounting Firm for 40+ Years
(We completed merger effective 8-17-09)
5235 Oakview Drive
Allentown, PA 18104
(610) 366-1400; Fax 366-9440
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New Tax LegislationSummary of the 2010 HIRE Act – What’s in it for Your Business?
Every day the headlines are ugly: unemployment, possible double dip recession and so on. Headlines such as these do little to encourage business growth because no one is willing to go out on a limb and start hiring new employees.Here is a general summary of the 2010 HIRE Act which contains several business-friendly tax provisions that may benefit you. Primarily, the Act gives employers incentives for hiring and retaining unemployed workers:
But, in March 2010 a new tax law was passed to encourage more businesses to hire employees from the large ranks of the unemployed. However, in my conversations with business owners I’ve notice that some don’t seem to be aware of passage of this law or how it could absolutely be of benefit to them. This may be especially the case if the company does it’s own payroll in house and the bookkeeper or business owner(s) have not been keeping up with payroll tax law changes as they should. For many businesses that outsource their payroll to a processing company they have probably been made aware of the potential benefit. However, just this past week during a telephone conversation with a payroll company for one of my clients I was surprised to learn that they had not made my client aware of how their business would probably have recent new hires that qualify for the credit. So, my message here is to alert business owners that they may qualify for this credit. Also, if you have your payroll done by an outsourced payroll provider make sure you initiate the conversation with that provider to insure that their payroll records on any recent new hires are carefully evaluated for eligibility. To receive the HIRE Act credit requires careful preparation of the quarterly Form 941’s. But, unless you follow up with your payroll service provider, they may not know that a particular employee(s) is eligible. Payroll Tax Forgiveness for the employer As a qualified employer, the HIRE Act effectively exempts you from paying the 6.2% OASDI Social Security tax for wages paid for any 2010 period beginning after March 18, 2010 (the date of enactment) through December 31, 2010, for new employees if certain conditions are met. Talk with your accountant and/or payroll company to help you understand what the qualifications are and assess whether or not this exemption applies to your business. The primary consideration is that the employee you hire must have previously been unemployed within specific criteria – which can also apply to seasonal employees – The employee will be required to sign a form and provide it to the employer documenting their statement of unemployment prior to hire. Business Credit Increase for Retention of Newly Hired Individuals in 2010 Taxpayers can increase their general business credit by the lesser of $1,000 or 6.2% of wages for a 52-week period for each retained worker that satisfies a minimum employment period. There are certain conditions that apply regarding the definition of "retained worker," duration of employment and number of weeks that the employee receives wages in order to realize this credit that go beyond the context of this brief overview. One thing to keep in mind is that an employer can claim both the work opportunity tax credit and the retention credit on the same qualified employee. So, be sure to discuss all of this with the accountant who prepares your taxes to make sure these valuable credits are not overlooked Summary of the Worker, Homeownership, and Business Assistance Act of 2009 (H.R. 3548) On Nov. 6, President Obama signed into law the Worker, Homeownership, and Business Assistance Act of 2009. The legislation expands both the first-time homebuyer credit and a special net operating loss carryback provision. The House voted 403-12 Nov. 5 after the Senate approved the measure Nov. 4, 98-0. The following is a summary of the tax provisions of the Act.
0.2 Percent FUTA Surtax
The Act extends from 2009 through June 30, 2011, the overall 6.2% tax on employers under the Federal Unemployment Tax Act (FUTA). This tax consists of the 6% permanent tax rate and the temporary 0.2% surtax rate. The Act delays the repeal of the temporary surtax.Effective for wages paid after December 31, 2009. Extension and Modification of First-Time Homebuyer Credit
The Act expands the first-time homebuyer credit by extending the December 1, 2009, expiration date of the first-time homebuyer credit to taxpayers who enter into a written binding contract to purchase a home before May 1, 2010, and who close before July 1, 2010. Thus, taxpayers have until April 30, 2010 (June 30, 2010 to close) to purchase a home and receive the first-time homebuyer credit.Further, the Act increases the income limitations from $75,000 to $125,000 for individuals, and from $150,000 to $225,000 for joint filers.The Act continues to allow taxpayers to elect to treat a home purchase as having occurred in the year prior to the year of purchase in order to expedite any refund.The Act also expands the first-time homebuyer definition to include homebuyers who are long-time residents of the same principal residence. The Act allows for a $6,500 ($3,250 for married filing separately) credit for homebuyers who have been in their current residence for five consecutive years out of the last eight years and who purchase another residence.The Act also places a limit on the purchase price of the home to $800,000 for either the first-time homebuyer credit or its expanded version for long-time residents.The Act places limitations on who is eligible for the credit. Pursuant to the Act, individuals who can be claimed as a dependent of another taxpayer for the taxable year that the credit is claimed are ineligible for the credit. Also, the Act requires that the taxpayer or the taxpayer's spouse be 18 or over to claim the first-time homebuyer credit.The Act also waives the current recapture rules for individuals on qualified official extended duty, including members of the military, foreign services, and intelligence community employees.The Act allows military personnel (including Foreign Service members and intelligence community members) serving outside the United States for at least 90 days in 2009 or before May 1, 2010, one additional year to qualify for the credit. Thus, pursuant to the Act, taxpayers who are members of military, intelligence community, or Foreign Service have until May 1, 2011, to purchase a house and until July 1, 2011, to close.The application of the expanded homebuyer credit, the change in the income limitations, the $800,000 purchase price limit, and the age and dependent limits are effective for purchases after Nov. 6, 2009. The extension of the credit, the binding contract exception, and the extension of the credit for military personnel are effective for purchases after Nov. 30, 2009. The recapture rules regarding individuals on official extended duty are effective for dispositions after Dec. 31, 2008.
Five-Year Carryback of Operating Losses
The Act extends the NOL carryback period from two to up to five years for tax years beginning in or ending in 2009.
The American Recovery and Reinvestment Act of 2009 (2009 ARRA) extended the NOL carryback period from two to up to five years for tax years beginning in or ending in 2008. However, the 2009 ARRA extension only applied to small businesses with gross receipts of $15 million or less.The Act allows all businesses to carryback NOLs for up to five years for losses incurred in taxable years beginning after December 31, 2007 and beginning before January 1, 2010, but can only elect for one taxable year, not two. Pursuant to the Act, businesses are able to offset 50% of the available income from the fifth taxable year preceding the loss, and 100% of all income in the remaining four carryback years.
Pursuant to the Act, eligible small businesses that previously elected to carryback an “applicable 2008 NOL” (please keep in mind that under 2009 ARRA taxpayers were given the election to carry back NOLs for taxable years that began or ended in 2008, but not both) under 2009 ARRA are allowed to elect to carry back the “applicable 2008 NOL” (under 2009 ARRA) and are not limited to the 50% limitation applicable to the fifth taxable year preceding the loss with respect to the “applicable 2008 NOL. ”The Act imposes special rules for life insurance company net operating losses, and the alternative tax net operating loss deduction. The Act also provides an exception to these provisions for TARP recipients.
Effective for net operating losses occurring after December 31, 2007.
Exclusion from Gross Income of Qualified Military Base Realignment and Closure Fringe
The Act clarifies that payments made under the Military Homeowner Assistance Program (HAP) are tax-exempt. The 2009 ARRA expanded the HAP program (which provides tax-exempt payments to military personnel who sell their home that declined in value) due to a base closure. While the 2009 ARRA expanded the program to include payments made due to permanent reassignments and certain other purposes, it did not provide that those payments are tax-exempt. The Act makes all HAP payments tax-exempt.Effective for payments made after February 17, 2009.
Delay in Application of Worldwide Allocation of Interest
The Act delays the effective date of worldwide interest allocation rules for seven years, until taxable years beginning after December 31, 2017. Pursuant to the Act, the required dates for making the worldwide affiliated group election and the financial institution group election are changed accordingly.The Act also eliminates the special phase-in rule that applies in the case of the first taxable year to which the worldwide interest allocation rules apply.
Increase in Penalty for Failure to File a Partnership or S Corporation Return
Pursuant to the Act, the amount of the penalty for a failure with respect to filing either a partnership or S corporation return is increased from $89 to $195 per partner or shareholder. The penalty applies to any partner or shareholder who held such status during any part of the taxable year.Effective for returns for taxable years beginning after December 31, 2009.
Certain Tax Return Preparers Required to File Returns Electronically
The Act requires electronic filing by specified tax return preparers. Pursuant to the Act, “specified tax return preparers” are all return preparers except those who reasonably expect to file 10 or fewer individual income tax returns in a calendar year. The Act also defines the term “individual income tax return” to include returns for estates and trusts as well as individuals.Effective for tax returns filed after December 31, 2010.
Time for Payment of Corporate Estimate Taxes
The Act increases the required payment of estimated tax otherwise due in July, August, or September, 2014, by 33 percentage points.
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