Posts Tagged ‘Business’

2010 Tax Relief Act – Payroll Tax Cut

On December 17, 2010, the Tax Relief , Unemployment Insurance Reauthorizations and Job Creation Act of 2010 (2010 Tax Relief Act), was signed by President Obama. The 2010 Tax Relief Act extends the Bush-era individual and capital gains/dividend tax cuts for all taxpayers for two years. The bill also provides for an AMT “patch”, a one year payroll tax cut, bonus depreciation for 2011 and 2012, a top federal estate tax rate of 35 percent with a $5 million exclusion, and more.

For most individuals , the most immediate impact of the new law will be  the payroll tax cut and  the extension of the reduced individual income tax rates.

The 2010 Tax Relief Act reduces the Social Security (FICA) portion of payroll taxes collected from employees and self-employed individuals from current 6.2 percent to 4.2 percent for 2011 only.  So what does this mean in real dollars?

If you earn the maximum amount of $106,800 that is subject to FICA tax, you will save $2,136 next year. Anyone earning less will save 2 percent of wages or net self–employed income.  See your tax professional with any questions you may have regarding the new legislation.

Golden Opportunity for Investors & Entrepreneurs; Qualified Small Business Stock

Golden Opportunity for Investors & Entrepreneurs; Qualified Small Business Stock 

While congress fusses over a 3% change in tax rates, some business investors could score a 100% tax break…..but they need to hurry! 

Since the August 10, 1993, investors in Qualified Small Business Stock (QSBS) could exclude half the gain on the sale of this stock if it was held for more than 5 years……up to $10 million or 10 times cost basis (whichever is greater)!   QSB’s (described later in this article) are certain businesses formed after August, 1993 having less than $50 million in total assets.  Over the years, portions of the excluded gain were subject to Alternative Minimum Tax (AMT), thus few sellers of this stock received the potentially huge tax savings which one should expect if excluding $10 million or more from income.  Over the years we have assisted founders and “Angel” or “family and friend” investors plan for these gains which usually occur when a company is sold or goes public.  That darn AMT always gets in the way! 

This is huge!  For a scant 95 day period commencing September 28, 2010 and ending December 31, 2010, those who invest in QSBS and hold that stock for five years may exclude 100% of the gain up to $10 million, or 10x investment and the AMT does not apply!  This was buried in the latest stimulus package.  I think it was probably a political favor for someone; 95 days is hardly enough time to meaningfully stimulate significant investment in small companies! It’s not even being publicized! 

I recall when Alice Cooper and David Bowie packaged their copyrights in companies they took public.  They made a fortune!  If I thought my garage band had commercial potential, I’d incorporate before year end to take advantage of this tax windfall!! 

Seriously, this is a phenomenal opportunity!  Inventors, R & D companies and others with a new idea or product should consider setting up a new qualifying corporation before the end of the year.  Likewise, Angel investors and others, willing to invest in high risk investments like start ups and small businesses should seriously consider closing a deal by 12-31-10!  It also appears that employees of qualified small business corporations could exercise stock options and take delivery of the stock certificates by year end. It doesn’t have to be a new company, just one formed after August 10, 1993 which is issuing stock directly to the investor after September 27, 2010 and before December 31, 2010.  Individuals and, under certain circumstances, LLC’s, Partnerships and S Corporations are eligible shareholders. 

My mind has been grinding on this ever since I saw it for creative ways to utilize this opportunity.  One that came to mind is a business which will eventually be sold as a business unit verses an asset sale.  If you have a qualifying small business that is going to pass to the next generation or, perhaps be sold to employees or competitors, and that business is presently an LLC, partnership or sole proprietorship, consider incorporating and recapitalizing that business, issuing stock before December 31,2010.  

These are extremely complex transactions.  If you want to take advantage of this once in a lifetime opportunity and have identified a deal, talk to your tax professional soon.  You will need most of the days remaining in the year to complete the deal…which is why this looks more like a political favor than tax stimulus to me!  This article together with the requirements of a QSB, and an illustration is posted on our website.  Follow this link to the article on our website: Golden Opportunity for QSB Investment

The “Needs” Checklist for Small Business Owners

The small business owner is faced with many challenges during these economic times, and it’s important for the owner to “come up for air” and focus on issues that will help guide them on creating a successful business.

The following is a list of certain items the owner should review on a periodic basis to assess their current situation and implement changes if necessary:

  1. Business Profitability Improvement
  • How is business? What keeps you up at night?
  • Do you have a business plan?
  • What are your marketing activities?
  • Do you perform a budget analysis – compare actual vs. budget? Do you have a budget? If you answered “no”…
  • How do you compare to your industry?
  • Do you analyze the Income Statement for profit improvement potential? Consider cutting out some discretionary expense items.  (I wonder if we could get Congress to do the same thing… not likely)
  1. Taxation Planning
  • What are the current results and what are your expectations for year end?
  • What tax planning strategies can we implement for this year?
  • Is there enough cash to pay the tax and implement the tax savings strategies?
  1. Finance
  • Do you have a line of credit?
  • Do you need to increase your line of credit?
  • Do you need new financing? The banks are still being quite stingy with the funds so this could take some work.
  1. Wealth Creation
  • What investments do you have in your portfolio?
  • What is your current net worth?
  • What action needs to be taken to achieve your goals?
  1. Risk Management
  • Do you have a valid will that reflects your current wishes?
  • Do you have a partnership or shareholder agreement?
  • Do you have a buy/sell agreement?
  • Is adequate insurance coverage in place?
  1. Succession Planning
  • When do you want to retire?
  • What is your selling price for the business? You need to be realistic during down economic times; most businesses aren’t worth what they were in 2005.
  • What is the current value of the business?
  • Are you dispensable? While you’d like to say no, when trying to position your business to sell, it’s better if the answer is yes. 

The key is to develop a plan, measure it periodically, and implement changes as necessary.

Welcome to our BLOG!

Welcome to the Polito Eppich Blog.  We hope you will come and join us often.  We want to offer San Diego a source of tax, accounting and business information that is fresh and useful.  Our posts will be personal and engaging. The last thing we want to do is talk about geeky accounting information that is too difficult to understand.  Yes, we will be writing about taxes and accounting and you’re probably wondering how that can be fun and engaging.  I guess you’ll just have to come back to see how.  However, I can tell you this.  It will not be written like the IRS code which takes a lawyer to understand (lucky for you, you don’t have to read that stuff).

We will also blog about the community, do some client spotlights, and give you fun information about us.  We enjoy our relationships with our clients and community.  We strive to be accessible and personal; we never want to be stiff and stuffy.

We welcome you to stop by our website for more information about us.  There you will find personal profiles and fun pictures.

Contact us frequently; we want your input and questions.  This blog is for you, not us.  We hope you enjoy.

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