You, Your Business and Tax Law Changes

The transition from 2011 to 2013 promises to be a rocky one in the tax world, as we move through the 2012 election year with a extremely partisan debate over the future course of the federal tax system and federal budget in general.  With expiring tax provisions, new health care taxes, and estate taxes back, tax planning is highly advisable.  Here are some of the changes to be on the lookout for:

The New Hire Retention Credit was originally created as an incentive to hire unemployed workers in 2010.  Now it is to help retain the newly-hired employees for whom the hiring exemption was claimed in 2010. The new credit is allowed for such employees who remain an employee for 52 consecutive weeks.  The credit is the lesser of $1,000 or 6.2% of wages paid by the employer to the retained qualified employee.

Congress has repealed the 3% withholding requirement that was scheduled to take effect in 2013 for all payments to government contractors providing property or services to a federal or state/local government agency.  In addition, the new law extends and expands the Work Opportunity Tax Credit (WOTC) applicable to qualified veterans.  This credit applies to any veteran who served for more than 180 days. 

An employer may offer his employees a “simple cafeteria plan” for the years after 12/31/10. Such plans are granted a safe harbor for meeting non-discrimation rules that generally apply to cafeteria plans.  Remember, cafeteria plans are not available to partners, LLC members or sole proprietors.  Nor can they be offered to S corporation shareholders owning over 2% of the company.

Employers will be required to disclose the value of the employee’s health insurance coverage sponsored by the employer, starting with the 2012 W-2s. 

The American Recovery & Reinvestment Act temporarily shorted the built-in gains tax waiting period for corporations that switch from a C to S status to 7 years from 10 years.  The new law, changes the waiting period even further, providing that no BIG tax is owed on built-in-gains recognized in tax years beginning in 2011, if certain provisions are met.

100% bonus depreciation remains in effect for 2011, but drops to 50% in 2012 and is scheduled to disappear altogether in 2013, with an exception for certain “long-lived” property.

Maximum section 179 expense (for fixed assets) drops in 2011 to $139,000 (from $500,000), futher dropping to $25,000 for tax years beginning after 2012. 

For decedents dying in 2010 and 2011, the estate tax applicable exclusion amount is $5 million.  For deaths in 2012, the applicable exclusion is inflation adjusted to $5,120,000, with the maximum estate tax rate being 35%.  In 2013 and beyond, the transfer tax is scheduled to return giving us a top rate of 55% plus 5% for certain estates, and a $1 million exemption.

Phoebe Vausher-Frankeberger is a partner with Frankeberger Vausher + Company, CPAs which is located in Chino Hills.  She can be reached at 909-597-1100 or at PhoebeF@FVCPAs.com