TAX PLANNING TO PREPARE FORTODAY AND TOMORROWPresented by Plante & Moran’s Tax Team                                       ...
Tax Planning to Prepare for Today and TomorrowToday’s Presenters  Mark Jolley, Tax Partner  Ann Arbor, MI  734.302.6923  m...
Housekeeping ItemsAbout Today’s Webinar Slides are available for download from your  webcast console. A recording of toda...
Tax Planning to Prepare for Today and Tomorrow            Agenda State of the Current Tax                    Year-end Ta...
State of the Current Tax Environment           General   Uncertainty   Penalties   Information reporting   Closing “lo...
State of the Current Tax Environment (cont.)           Pending Legislation on the Congressional Agenda   Estate tax refor...
State of the Current Tax Environment (cont.)             Pending Tax Legislation – Estate Tax Reform 2010 rules     No e...
State of the Current Tax Environment (cont.)             Pending Tax Legislation – Tax Extenders Provisions to be extende...
State of the Current Tax Environment (cont.)             Pending Tax Legislation – Bush Tax Cuts Provisions expiring    ...
State of the Current Tax Environment (cont.)          Pending Non-Tax Legislation Medicare “doc fix”    23% fee cut for ...
State of the Current Tax Environment (cont.)         Congressional Calendar Congress returned to Washington on November 1...
State of the Current Tax Environment (cont.)          Expectation on Enactment of Tax Legislation Scenario 1 (Ideal)    ...
Tax Planning in the Current Environment                Maximum Future Tax Rates                                  2010     ...
Tax Planning in the Current Environment (cont.)         Considerations in Tax Planning Traditional planning    Accelerat...
Tax Planning in the Current Environment (cont.)          Rate of Return from Accelerating Ordinary Income The return on i...
Tax Planning in the Current Environment (cont.)           Rate of Return from Accelerating Capital Gains The return on in...
Tax Planning in the Current Environment (cont.)          Rate of Return from Accelerating Dividend Income The return on i...
Tax Planning in the Current Environment (cont.)Rate of Return from Accelerating Income                    18             w...
Tax Planning in the Current Environment (cont.)          Accounting Methods – One Year Items Delay payment of certain lia...
Tax Planning in the Current Environment (cont.)        Accounting Methods – Multi-Year Items Depreciation    Elect slowe...
Tax Planning in the Current Environment (cont.)         Other Tax Planning Ideas Defer recognition of capital losses    ...
Tax Planning in the Current Environment (cont.)         Other Tax Planning Ideas (cont.) Convert regular retirement accou...
Tax Planning in the Current Environment (cont.)             Choosing a Form of Doing Business                        C    ...
Tax Planning in the Current Environment (cont.)         Choosing a Form of Doing Business (cont.) Corporation can be bene...
Tax Planning in the Current Environment (cont.)         Choosing a Form of Doing Business (cont.) There is no single answ...
Year-end Tax Planning         Consent Dividends & Bypass Elections Strategy accelerates dividends into 2010 that would ha...
Year-end Tax Planning (cont.)          Consent Dividends & Bypass Elections (cont.) Strategy applicable to both situation...
Year-end Tax Planning (cont.)          §1202 Small Business Stock 100% of the gain from the sale of eligible small busine...
Year-end Tax Planning (cont.)          §1202 Small Business Stock (cont.) While the application of this rule may be limit...
Year-end Tax Planning (cont.)          Roth IRA Conversions Certain retirement accounts can be rolled over into Roth IRAs...
Year-end Tax Planning (cont.)         Interest Charge Domestic International Sales Corporation (IC-DISC) Converts ordinar...
Tax Legislation Enacted in 2010           Summary of Major Legislation Hire Incentives to Restore Employment Act (“2010 H...
Tax Legislation Enacted in 2010 (cont.)         2010 HIRE Act 6.2% employer OASID payroll tax abatement    Abated for wa...
Tax Legislation Enacted in 2010 (cont.)         2010 HIRE Act (cont.) Extended increased §179 expensing levels through De...
Tax Legislation Enacted in 2010 (cont.)          Health Care Act Health Care Act reaches far outside of just tax     Vis...
Tax Legislation Enacted in 2010 (cont.)         Health Care Act (cont.) 2010 – Codified economic substance doctrine    R...
Tax Legislation Enacted in 2010 (cont.)           Health Care Act (cont.) 2012 – 1099 reporting requirement     Requires...
Tax Legislation Enacted in 2010 (cont.)           Education Jobs Act of 2010 Includes a variety of international tax and ...
Tax Legislation Enacted in 2010 (cont.)           2010 Small Business Act Extends bonus depreciation into 2010 Increased...
Tax Legislation Enacted in 2010 (cont.)          2010 Small Business Act (cont.) Eligible small businesses (or their owne...
Other Current Developments         Uncertain Tax Position Reporting Schedule UTP now requires corporations which have rec...
Other Current Developments (cont.)         Domestic Production Activities Deduction Deduction based on a percentage of qu...
Other Current Developments (cont.)         International Tax Issues IRS has reorganized its Large & Mid-Size Business Uni...
Other Current Developments (cont.)         International Tax Issues (cont.) Report of Foreign Bank and Financial Account ...
Q&A      webinars.plantemoran.com
Tax Planning to Prepare for Today and TomorrowToday’s Presenters  Mark Jolley, Tax Partner  Ann Arbor, MI  734.302.6923  m...
THANK YOU!   plantemoran.com                     webinars.plantemoran.com
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Tax Planning To Prepare For Today and Tomorrow

  1. 1. TAX PLANNING TO PREPARE FORTODAY AND TOMORROWPresented by Plante & Moran’s Tax Team webinars.plantemoran.com
  2. 2. Tax Planning to Prepare for Today and TomorrowToday’s Presenters Mark Jolley, Tax Partner Ann Arbor, MI 734.302.6923 mark.jolley@plantemoran.com Kurt Piwko, Tax Manager Macomb, MI 586.416.4948 kurt.piwko@plantemoran.com Michael Petersmark, Tax Manager East Lansing, MI 517.336.7527 michael.petersmark@plantemoran.com webinars.plantemoran.com
  3. 3. Housekeeping ItemsAbout Today’s Webinar Slides are available for download from your webcast console. A recording of today’s webinar will be added to our website in a few days. We will allow time at the end of the presentation to respond to your questions, but please feel free to submit questions at any time. This is a CPE-eligible webinar. Throughout the webcast participation, pop-ups will appear on your screen. Participants must respond to at least 75% of these pop-ups in order to receive CPE credit. 3 webinars.plantemoran.com
  4. 4. Tax Planning to Prepare for Today and Tomorrow Agenda State of the Current Tax  Year-end Tax Planning Environment  Consent Dividends  General  §1202 Stock  Pending Legislation  Roth IRA Conversions  Congressional Calendar  IC-DISC  Expectation of Enactment of  Tax Legislation Enacted in 2010 Tax Legislation  2010 HIRE Act Tax Planning in the Current  Health Care Act Environment  Education Jobs Act of 2010  Maximum Future Tax Rates  2010 Small Business Act  Considerations in Tax Planning  Other Current Developments  Rate of Return on Tax Planning  Uncertain Tax Position  Accounting Methods Reporting  Other Tax Planning Ideas  Domestic Production Activities  Choosing a Form of Doing Deduction Business  International Tax Issues 4 webinars.plantemoran.com
  5. 5. State of the Current Tax Environment General Uncertainty Penalties Information reporting Closing “loopholes” Enforcement 5 webinars.plantemoran.com
  6. 6. State of the Current Tax Environment (cont.) Pending Legislation on the Congressional Agenda Estate tax reform Tax extenders Sunset of Bush tax cuts in 2011 Medicare “doc fix” Annual appropriations Other 6 webinars.plantemoran.com
  7. 7. State of the Current Tax Environment (cont.) Pending Tax Legislation – Estate Tax Reform 2010 rules  No estate tax  Decedents receive a carryover basis in property inherited 2011 rules (current law)  55% tax rate  $1 million exemption Proposals  45%, $3.5 million exemption  35%, $5 million exemption  Infinite other variations Priority  Likely last tax item on the agenda 7 webinars.plantemoran.com
  8. 8. State of the Current Tax Environment (cont.) Pending Tax Legislation – Tax Extenders Provisions to be extended  AMT patch  Research and development credit  State and local sales tax deduction  Shorter depreciation for leasehold and restaurant improvements  New markets tax credit  Tuition and fees deduction Proposed revenue raisers  Assess self-employment tax on professional S corporations and partnerships  Tax carried interest as ordinary income Proposals  Extend most items 1 year  Extend most items 2 years  Extend “desirable” provisions permanently and let the rest expire Priority  More important than estate tax, less important than Bush tax cuts 8 webinars.plantemoran.com
  9. 9. State of the Current Tax Environment (cont.) Pending Tax Legislation – Bush Tax Cuts Provisions expiring  Ordinary income, capital gain, and dividend tax rate decreases  Personal exemption phase-out elimination  Itemized deduction phase-out elimination  “Marriage penalty” relief  Increased child tax credit, dependent care credit, and adoption credit  Increase of §179 immediate fixed asset expensing  Employer provided tuition assistance non-taxable Proposals  Permanently extend everything  Permanently extend cuts for “middle class” only  Extend all tax cuts for 2 years Priority  Top tax priority but behind “doc fix” and appropriations 9 webinars.plantemoran.com
  10. 10. State of the Current Tax Environment (cont.) Pending Non-Tax Legislation Medicare “doc fix”  23% fee cut for Medicare service providers  Takes effect on December 1, 2010  Proposal exists to extend through the end of 2011 Annual appropriations  Government currently operating without a 2011 fiscal year budget  Operating on a “Continuing Resolution” expiring on December 3, 2010 Other 10 webinars.plantemoran.com
  11. 11. State of the Current Tax Environment (cont.) Congressional Calendar Congress returned to Washington on November 15  Week largely filled with party issues and organizing Congressional leadership when the new Congress reconvenes in January Began a one week recess on November 22 for Thanksgiving Lawmakers returned to Washington on November 29  Intended to be beginning of actual work period  “Doc fix” and appropriations bill likely taken up first Lawmakers intended to recess for the year on December 3  Staff have indicated that this is no longer realistic and Congress will stay in session for an unspecified period 11 webinars.plantemoran.com
  12. 12. State of the Current Tax Environment (cont.) Expectation on Enactment of Tax Legislation Scenario 1 (Ideal)  All legislation passed before year-end Scenario 2 (Possible)  Extenders and Bush tax cut legislation passed before year-end to allow for necessary income tax planning Scenario 3 (Unfortunately Realistic)  Some legislation impacting 2010 gets deferred until early 2011 Scenario 4  Who knows 12 webinars.plantemoran.com
  13. 13. Tax Planning in the Current Environment Maximum Future Tax Rates 2010 2011 ‐ 2011 – 2013 Current Obama Law ProposalMaximum marginal  35.0% 39.6% 39.6% 43.4%*income tax rateMaximum long term  15.0% 20.0% 20.0% 23.8%*capital gain rateMaximum qualified  15.0% 39.6% 20.0% 23.8/43.4%*dividend rateC‐Corporation 35.0% 35.0% 35.0% 35.0%* Includes 3.8% unearned Medicare contribution tax 13 webinars.plantemoran.com
  14. 14. Tax Planning in the Current Environment (cont.) Considerations in Tax Planning Traditional planning  Accelerate deductions  Defer income Tax planning with looming tax rate increases  Accelerate income  Defer deductions Uncertainty  Whether the tax rate increases will get postponed or eliminated by Congress  If the tax rates get postponed or eliminated, will it occur prior to the end of 2010  Even the best planning strategy can be derailed if Congress retroactively changes the rules Value of planning ideas involving timing can be more valuable  Should think of tax planning as investment opportunity 14 webinars.plantemoran.com
  15. 15. Tax Planning in the Current Environment (cont.) Rate of Return from Accelerating Ordinary Income The return on investment from accelerating the tax on ordinary income is more than 13%  Ignores the consideration of state taxesOrdinary Income 2010 2011Taxable Ordinary Income 1,000,000 1,000,000Tax Rate on Ordinary Income 35.00% 39.60%Income Tax on Ordinary Income 350,000 396,000Tax Savings by Accelerating Income                 46,000Investment Made               350,000Tax-Free IRR from Accelerating Income 13.14% 15 webinars.plantemoran.com
  16. 16. Tax Planning in the Current Environment (cont.) Rate of Return from Accelerating Capital Gains The return on investment from accelerating the tax on capital gain income is more than 33%  Ignores the consideration of state taxesCapital Gain Income 2010 2011Taxable Capital Gain Income 1,000,000 1,000,000Tax Rate on Capital Gain Income 15.00% 20.00%Income Tax on Capital Gain Income 150,000 200,000Tax Savings by Accelerating Gain                 50,000Investment Made               150,000Tax-Free IRR from Accelerating Income 33.33% 16 webinars.plantemoran.com
  17. 17. Tax Planning in the Current Environment (cont.) Rate of Return from Accelerating Dividend Income The return on investment from accelerating the tax on capital gain income is 164%  Ignores the consideration of state taxesDividend Income 2010 2011Taxable Dividend Income 1,000,000 1,000,000Tax Rate on Dividend Income 15.00% 39.60%Income Tax on Dividend Income 150,000 396,000Tax Savings by Accelerating Income               246,000Investment Made               150,000Tax-Free IRR from Accelerating Income 164.00% 17 webinars.plantemoran.com
  18. 18. Tax Planning in the Current Environment (cont.)Rate of Return from Accelerating Income 18 webinars.plantemoran.com
  19. 19. Tax Planning in the Current Environment (cont.) Accounting Methods – One Year Items Delay payment of certain liabilities deductible only if paid within 2 ½ or 8 ½ months of year-end  Income & property taxes  Compensation  Retirement plan payments Delay filing an accounting method change for one time deduction accelerations  Prepaid insurance  Property taxes  Self-insured health insurance accruals  Depreciation corrections or cost segregations Cash method taxpayers can accelerate cash receipts and defer payment of expenses 19 webinars.plantemoran.com
  20. 20. Tax Planning in the Current Environment (cont.) Accounting Methods – Multi-Year Items Depreciation  Elect slower depreciation methods  Elect longer depreciation periods  Elect out of bonus depreciation or §179 expensing Elect to amortize research and development expenses Advisability of any multi-year planning item must be weighed against the rate of return provided over that period  If cost of capital/opportunity cost is greater than the rate of return, the planning idea may not be worth the investment  Risk of uncertainty of future tax law is magnified when multiple years are at issue 20 webinars.plantemoran.com
  21. 21. Tax Planning in the Current Environment (cont.) Other Tax Planning Ideas Defer recognition of capital losses  If future appreciation potential on various investments are similar, sell the investment with the lowest basis first Accelerate recognition of capital gains  If the asset is intended on being held for only a relatively short period of time, selling and rebuying to harvest gain at a lower rate may be advisable  Consider existing capital loss carryforwards Accelerate payments of dividends from related corporations Defer payments of state and local income taxes, property taxes, or charitable contributions  Consider itemized deduction phase-out that may be reinstated in 2011 as well as AMT implications 21 webinars.plantemoran.com
  22. 22. Tax Planning in the Current Environment (cont.) Other Tax Planning Ideas (cont.) Convert regular retirement accounts to Roth accounts  May be even more advantageous if net operating losses exist so that itemized deductions would otherwise go unused Elect to carryforward net operating losses instead of carrying back Alternative Minimum Tax (AMT)  There is no proposed increase in AMT rates  Increase in regular tax rates will cause a larger gap between regular tax and AMT which will pull more taxpayers out of AMT  Getting pulled out of AMT may allow for increased tax planning related to AMT limited deductions (e.g., state and local tax deductions) or AMT limited credits (e.g., research and development credit) 22 webinars.plantemoran.com
  23. 23. Tax Planning in the Current Environment (cont.) Choosing a Form of Doing Business C Flow- Cost/ 2013 Tax Rate 2010 Tax Rate Corporation Through (Savings) Differential DifferentialTax on Operations 340,000 434,000 (94,000) -9.40% -1.00%Tax on Dividends 157,080 - 157,080 15.71% 9.90%Total Tax 497,080 434,000 63,080 6.31% 8.90%Effective Rates 49.71% 43.40% 6.31% Double tax generally makes a C corporation structure more expensive overall (even if tax rates do increase) The exit strategy from the business is also a critical factor with significant tax consequences Net present value of all cash flows throughout the life of the business, including on disposition, must be evaluated to determine ideal structure State taxes can have a significant impact on any analysis 23 webinars.plantemoran.com
  24. 24. Tax Planning in the Current Environment (cont.) Choosing a Form of Doing Business (cont.) Corporation can be beneficial if:  Income can be controlled to take advantage of lower tax brackets  Dividends can be limited over time  If all shareholders are also employees, cash flow needs can be satisfied with wages instead of dividends  The business is held for a very long period of time  The business does not appreciate in value over time  Tax attributes such as net operating losses or credit carryovers already exist  The business has significant current cash flow needs so that lower current tax rates supersede all other considerations 24 webinars.plantemoran.com
  25. 25. Tax Planning in the Current Environment (cont.) Choosing a Form of Doing Business (cont.) There is no single answer for all business The choice must be made on a holistic basis Converting a business from a pass-through entity to a C corporation, or vice versa, may have its own advantages and disadvantages Any evaluation involves a significant amount of projections and assumptions which may prove to be inaccurate Risk of projecting future tax law exists in this area more than others 25 webinars.plantemoran.com
  26. 26. Year-end Tax Planning Consent Dividends & Bypass Elections Strategy accelerates dividends into 2010 that would have been paid in a later year Applies to S corporations that have accumulated earnings from a period when it was taxed as a C corporation  A dividend is deemed paid to the shareholder and deemed contributed back into the S corporation  Shareholder taxed on the dividend but receives basis in their stock for the same amount 26 webinars.plantemoran.com
  27. 27. Year-end Tax Planning (cont.) Consent Dividends & Bypass Elections (cont.) Strategy applicable to both situations where tax rates are rising and where tax rates remain the same Consent dividends are best utilized in the following situations  Suspended losses exist  Tax basis or at-risk basis limitations  Immediate cash flow needs exist  Ownership is shifting to other related parties  Shareholder is elderly  Sale of the company may occur in the near future  Excess net passive income tax may be assessed at some point in the near future 27 webinars.plantemoran.com
  28. 28. Year-end Tax Planning (cont.) §1202 Small Business Stock 100% of the gain from the sale of eligible small business stock can be excluded from income  Applies only to stock issued between September 27, 2010 and January 1, 2011  Gain excluded from income not subject to AMT Requirements  Issuer of the stock must be a C corporation  Stock must be issued for money, property or compensation for services  Business must have assets less than $50 million  Business cannot be in an ineligible business such as financial services, farming, professional services, hotel, restaurant and others  Stock must be held for at least 5 years to qualify Excluded gain may not exceed the greater of $10 million or 10 times the original investment in the corporation 28 webinars.plantemoran.com
  29. 29. Year-end Tax Planning (cont.) §1202 Small Business Stock (cont.) While the application of this rule may be limited, there may be opportunities to take advantage of it where it may not otherwise be apparent  Form corporations in 2010 with an intent to acquire a qualifying business at a later date  Capitalize new corporations with partnership interests  Business economics may stay the same but new form may eliminate future tax on the sale of the business  May be able to take advantage of lower corporation income tax rates in the meantime  Transfer existing C corporation to a new holding company in a taxable transaction  Have a new C corporation acquire certain assets from related companies Little guidance exists on these rules so caution is urged with any planning strategy implemented 29 webinars.plantemoran.com
  30. 30. Year-end Tax Planning (cont.) Roth IRA Conversions Certain retirement accounts can be rolled over into Roth IRAs  Includes traditional IRAs, nondeductible IRAs, and certain pension and profit-sharing plans Beginning in 2010, no income limitations exist to be eligible for rollovers Rollovers are generally taxable  For rollovers occurring in 2010, income from rollover is treated as follows:  Default: Income spread evenly between 2011 and 2012  Election: Income taxed entirely in 2010  Consider impact of future tax rates on when rollovers occur and which income recognition method is selected Can be a powerful planning technique when NOLs exist from business losses 30 webinars.plantemoran.com
  31. 31. Year-end Tax Planning (cont.) Interest Charge Domestic International Sales Corporation (IC-DISC) Converts ordinary income into qualified dividends  Can provide benefits if the ordinary income tax rates are higher than dividend tax rates  Most indications suggest that this will continue to be the case at least for another 2 years Benefits based on goods manufactured in the U.S. and exported to foreign countries  Benefits can be based on either taxable income or sales from exports  Example  $1 million of export sales could result in a $40,000 commission  Company would deduct commission at ordinary tax rates  Shareholder of IC-DISC records commission income as a dividend  Tax rate differential results in an overall $8,000 tax savings in 2010 31 webinars.plantemoran.com
  32. 32. Tax Legislation Enacted in 2010 Summary of Major Legislation Hire Incentives to Restore Employment Act (“2010 HIRE Act”)  Signed March 18, 2010 Patient Protection and Affordable Care Act & Health Care and Education Reconciliation Act of 2010 (“Health Care Act”)  Signed March 23, 2010 and March 30, 2010 Education Jobs and Medicaid Assistance Act (“Education Jobs Act of 2010”)  Signed August 18, 2010 Small Business Jobs Act of 2010 (“2010 Small Business Act”)  Signed September 27, 2010 14 other tax bills were enacted (so far) that impact 2010 taxes  Most provisions in this legislation had only minor impacts on tax law or major impacts but to very narrow areas 32 webinars.plantemoran.com
  33. 33. Tax Legislation Enacted in 2010 (cont.) 2010 HIRE Act 6.2% employer OASID payroll tax abatement  Abated for wages earned from March 19, 2010 to December 31, 2010  Maximum benefit of $6,622 per employee hired  Applies only to unemployed individuals hired after February 3, 2010  Cannot have been employed for more than 40 hours during the 2 months prior to hiring Business tax credit for hiring unemployed individuals  Credit is the lesser of $1,000 or 6.2% of the employees wages over a 52-week period  Applies to same employees described above  Only eligible if employee is retained for 52 consecutive weeks 33 webinars.plantemoran.com
  34. 34. Tax Legislation Enacted in 2010 (cont.) 2010 HIRE Act (cont.) Extended increased §179 expensing levels through December 31, 2010  2010 Small Business Act increased this even further Created a number of new disclosure and withholding requirements for interests in foreign financial assets and foreign entities  Rules are very complicated and IRS has yet to provide detailed guidance on their implementation  Penalties for failure to provide required disclosure face stiff penalties  Usually begin at $10,000 but can be significantly larger for some issues  Any taxpayer who holds foreign assets or investments should consult their tax advisor to determine 34 webinars.plantemoran.com
  35. 35. Tax Legislation Enacted in 2010 (cont.) Health Care Act Health Care Act reaches far outside of just tax  Visit the following link for several webinars sponsored by Plante & Moran dedicated to the tax and non-tax implications of this new law  http://www.plantemoran.com/perspectives/webinars/Pages/tax- webinars.aspx 2010 - Small employer health care tax credit  Credit equal to 35% of health care costs paid but only if the employer covers at least half the cost of coverage  Employers with less than 10 employees and annual wages of less than $25,000 may qualify for the full credit  Credit phases out for employers with up to 25 employees and up to $50,000 of annual compensation  In many cases, the cost to comply with and calculate the credit may exceed the credit itself 35 webinars.plantemoran.com
  36. 36. Tax Legislation Enacted in 2010 (cont.) Health Care Act (cont.) 2010 – Codified economic substance doctrine  Requires transactions to meaningfully change the taxpayer’s economic position and requires that the taxpayer have a substantial purpose for engaging in the transaction  Federal tax benefits generally do not count  20%-40% strict liability penalty applies if transactions do not meet requirements 2011 – Reporting of health benefit value on W-2  IRS has optionally deferred this reporting until 2012 (i.e., for benefits paid in 2012)  Questions remain about what is considered health coverage and how self-insured plan benefits are calculated 2011 – Over the counter drugs no longer eligible for reimbursement from FSA or HSA 36 webinars.plantemoran.com
  37. 37. Tax Legislation Enacted in 2010 (cont.) Health Care Act (cont.) 2012 – 1099 reporting requirement  Requires businesses to report essentially all payments in excess of $600 to IRS on form 1099  Applies to payments made in 2012 and later years  A significant effort is underway to repeal this provision 2013 – Medicare surcharges  Applies if AGI exceeds $200,000 ($250,000 for joint returns)  .9% surcharge on earned income  3.8% surcharge on unearned income  Interest, dividends, rents, royalties, capital gains, income from a business that is a passive activity  Does not include tax exempt income or distributions from retirement accounts 2013 – 7.5% floor on itemized medical expense deduction increases to 10%  Individuals aged 65 and older will be exempt from this rule until 2018 37 webinars.plantemoran.com
  38. 38. Tax Legislation Enacted in 2010 (cont.) Education Jobs Act of 2010 Includes a variety of international tax and foreign tax credit reforms  Eliminates foreign tax credit splitting  Reduces foreign tax credits on certain foreign asset acquisitions  Restricts treaty use to recourse U.S. income as foreign  Limits use of foreign tax credits on certain §956 deemed dividends  Repeals 80/20 rules and reinstates withholding Repeals advanced earned income tax credit 38 webinars.plantemoran.com
  39. 39. Tax Legislation Enacted in 2010 (cont.) 2010 Small Business Act Extends bonus depreciation into 2010 Increased §179 immediate fixed asset expensing  Applicable to 2010 and 2011 tax years  Maximum expense is $500,000  Benefits phase out if asset purchases exceed $2 million  Added certain leasehold, restaurant and retail property to the list of assets eligible to be expenses S corporation built-in gain tax suspended for 2011 if the S election was made prior to 2007  Previous laws suspended the built-in gains tax in 2009 if the S election was made prior to 2003 and in 2010 if the S election was made prior to 2004 Eliminates substantiation requirements and depreciation limitations for employer provided cell phones 39 webinars.plantemoran.com
  40. 40. Tax Legislation Enacted in 2010 (cont.) 2010 Small Business Act (cont.) Eligible small businesses (or their owners) able to carryback certain 2010 business credits 5 years instead of 1 and those credits may offset AMT  An eligible small business must have less than $50 million of average gross receipts over the prior 3 years Increases the exclusion from income on gain from the sale of qualified small business stock from 75% to 100%  Applies to stock issued between September 27, 2010 and December 31, 2010  Gain also excluded from AMT Self-employed taxpayers able to deduct cost of health insurance from self employment income for 2010 Eligible taxpayers able to rollover 401(k), 403(b) and 457(b) accounts into Roth versions of those accounts 40 webinars.plantemoran.com
  41. 41. Other Current Developments Uncertain Tax Position Reporting Schedule UTP now requires corporations which have recorded FIN 48 liabilities for U.S. federal tax issues on their financial statements to disclose information about those issues on their tax returns  For 2010 and 2011, only corporations with $100 million or more of assets are required to report  For 2012 and 2013, asset threshold decreases to $50 million  For 2014, asset threshold decreases to $10 million Generally does not require reporting of recorded FIN 48 issues occurring before 2010 41 webinars.plantemoran.com
  42. 42. Other Current Developments (cont.) Domestic Production Activities Deduction Deduction based on a percentage of qualifying income earned from production activities occurring in the U.S. For 2010, deduction percentage is increased from 6% to 9% Deduction is a Tier 1 issue for the IRS  Issue required to be reviewed when under audit  9% deduction level will likely increase the scrutiny on future audits 42 webinars.plantemoran.com
  43. 43. Other Current Developments (cont.) International Tax Issues IRS has reorganized its Large & Mid-Size Business Unit (LMSB) and renamed it the Large Business & International Unit (LB&I)  Reorganization will result in significantly more personnel being allocated to auditing international tax issues  More audits will have international auditors or specialists assigned from the beginning  IRS is continuing its enforcement of compliance initiatives  Looking for completion of proper disclosures, proper withholding on payments made to foreign persons, proper application of deferral and foreign tax credit rules  Penalties are becoming the norm when issues are encountered whether the issues are intentional or unintentional 43 webinars.plantemoran.com
  44. 44. Other Current Developments (cont.) International Tax Issues (cont.) Report of Foreign Bank and Financial Account (Form 90-22.1 or “FBAR”)  Required to be filed by any “person” that holds an interest in a foreign financial account of greater than $10,000 at any time during the year  Person includes business entities as well as individuals and may require reporting at multiple levels of a “tiered” business structure  An interest in an account may include a direct ownership interest or simply signatory authority over an account  May require that CFOs and other financial personnel within a business file an FBAR even though they do not own an account  Penalties for failure to file the report when required can result in penalties ranging from $10,000 to 50% of the account balance (up to $100,00) and criminal penalties can be assessed 44 webinars.plantemoran.com
  45. 45. Q&A webinars.plantemoran.com
  46. 46. Tax Planning to Prepare for Today and TomorrowToday’s Presenters Mark Jolley, Tax Partner Ann Arbor, MI 734.302.6923 mark.jolley@plantemoran.com Kurt Piwko, Tax Manager Macomb, MI 586.416.4948 kurt.piwko@plantemoran.com Michael Petersmark, Tax Manager East Lansing, MI 517.336.7527 michael.petersmark@plantemoran.com webinars.plantemoran.com
  47. 47. THANK YOU! plantemoran.com webinars.plantemoran.com
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