The Future of Taxes for the Business Owner Presented by: Ryan E. Miller, CPA Director Katz, Sapper & Miller, LLP 800 East 96 th Street, Suite 500 Indianapolis,

The Future of Taxes

for the Business OwnerPresented by:

Ryan E. Miller, CPADirector

Katz, Sapper & Miller, LLP

800 East 96th Street, Suite 500

Indianapolis, IN 46240

317.580.2009

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Recent Tax Legislation

• HIRE Act – March 18, 2010• Patient Protection Act – March 21, 2010• 2010 Reconciliation Act – March 23, 2010• Education Jobs Act – August 10, 2010• 2010 Small Business Act – September 27, 2010• 2010 Tax Relief Act – December 17, 2010• Six Other Pieces of Legislation in December

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HIRE Act

• Payroll Tax Holiday– Holiday from OASDI for newly hired workers who

were unemployed– Wages paid 3-18-10 through 12-31-10

• Retention Credit– Up to $1,000 credit for retaining new workers for

at least one year– Employees that begin employment 2-4-10

through 12-31-10

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HIRE Act

• Foreign Account Compliance– Foreign Financial Assets

• Must be reported on individual tax returns if aggregate value exceeds $50,000

• Applicable for calendar year 2011• In addition to the FBAR requirement

– PFIC Annual Information Return• All PFIC interests must be disclosed• Notice 2010-34

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Health Care

• Over-the-Counter Medicines– No longer a qualified medical expense– Health FSA, HRA, HSA, and Archer MSA

• W-2 Reporting of Health Coverage– Tax years beginning in 2011

• 1099 Reporting of Payments to Corporations– Payments made in 2012 and beyond

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Health Care

• Small Employer Health Insurance Credit– Applies to 2010 through 2013– Eligible Small Employer

• No more than 25 FTE employees for the tax year• Average annual wages do not exceed $50,000• Employer contributes at least 50% of premiums

– Credit Amount • An applicable percentage (50% max.) multiplied

by the lesser of:– Actual premiums paid by employer, or– A benchmark premium

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Small Business Act

• 100% Gain Exclusion for QSBS– Applies for QSBS acquired after Sept. 27, 2010

and before Jan. 1, 2011– QSBS

• Domestic C Corporation other than DISCs, RICs, REITs, REMICs, or Cooperatives

• Acquired at original issue• Asset limitations

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Small Business Act

• Increased Section 179 Expensing– $500,000 expense limit with $2 million phase-out

threshold– Qualified real property expensing with $250,000

expense limit– Applies to 2010 and 2011

• 50% Bonus Depreciation– Placed in service in 2010

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Small Business Act

• Passenger Automobiles– $8,000 increase in the first year depreciation

limit for property placed in service in 2010

• Cell Phones– No longer “listed property” starting in 2010

• Health insurance costs are deductible in computing 2010 self employment tax

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Small Business Act

• Temporary reduction in an S Corporation’s built-in gain period (from 7 to 5 years)– 10 year period returns in 2012

• 1099 reporting imposed on recipients of rental income – Deemed to be engaged in a trade or business

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2010 Tax Relief Act

• A Two Year Deferral of Sunset Provisions– Favorable tax rate structure for individuals– Marriage penalty relief– No reduction in itemized deductions or personal

exemptions for higher income taxpayers– 15% long-term capital gain and qualified

dividend tax rate– AMT exemptions for individuals will not drop

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2010 Tax Relief Act

• Bonus Depreciation– 100% Bonus – Sept. 9, 2010 through Dec. 31, 2011– 50% Bonus – Jan. 1, 2012 through Dec. 31, 2012

• Increased Section 179 Expensing– $125,000 expensing limit and $500,000 phase-out– Applies to 2012

• Passenger Automobiles– $8,000 increase in the first year depreciation limit– Placed in service deadline extended through 2012

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2010 Tax Relief Act

• 2% Tax Holiday on Payroll and Self-Employment Taxes – Applies for wages paid and self-employment

income earned during calendar year 2011

• Increased Income Tax Deduction for Self-Employment Taxes– 59.6% of the OASDI tax plus 50% of the HI tax

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2010 Tax Relief Act

• Significant Estate Tax Relief– Revived the estate tax for 2010

• $5 million exemption• 35% top tax rate• Step-up in basis• Election available to opt out of estate tax for

2010– Increased exemption and reduced top tax rate

are applicable for 2011 and 2012

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2010 Tax Relief Act

• Massive “Extenders” Bill – Through 2011– Thirty tax breaks for businesses– Eight key tax breaks for individuals– Eleven energy related tax breaks– Five disaster relief provisions

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IRA Conversions

• 2005 Legislation Referred to as TIPRA• Eliminated the income limitation• Inclusion of 2010 Conversion Income

– Pick up half in 2011 and half in 2012– Elect to pick it all up in 2010

• Undoing an IRA Conversion– Must wait 30 days before reconverting– Pick up all the conversion income in 2011

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Indiana

• Reduce the Corporate Tax Rate from 8.5% to 5%? Unclear How Much Traction This Has

• Sales Tax – Taxing Services? – Unlikely

• Sales Tax – Digital Goods– CarFax report taxable as software– Expand the definition to database access?

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Indiana

• Expand the Nexus Threshold for Sourcing Sales Revenue– Move from “cost of performance” to a “market

method” of sourcing– Many surrounding states have already made the

change (OH, IL, MI, WI)– Seems likely for Indiana particularly given the

move to a single sales factor apportionment

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Indiana

• Unclaimed Property Report– Attorney General to start sending out jeopardy

notices to businesses that have not filed an unclaimed property report

– Amnesty program enrollment ended October 31, 2010

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ESOPs

• An Employee Stock Ownership Plan (ESOP) is an employee benefit plan that is designed to invest primarily in the sponsoring employer’s stock

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ESOP Candidate Profile

• Owner approaching retirement• Capable management team to succeed

owner• Unused debt capacity• Profits to support ESOP debt service• Company size (more cost effective benefit)• Motivated by tax advantages

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ESOP Candidate Profile

• Motivated by “ownership culture” advantages

• Desire to buy-out minority shareholder• Limited 3rd party, strategic buyers in the

market

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Indiana ESOP Initiative (IEI)

• Linked-Deposit Program– ESOP loan to Company, bank interest rate

reduced 1-2%– State links deposit to bank, CD rate reduced by

1-2%– $50 million program– Apply to the program after bank financing has

been secured

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Linked-Deposit General Guidelines

• Company must have its headquarters in Indiana, conduct significant portion of operations in Indiana, and employ majority of employees in Indiana

• Treasurer will rely on credit evaluation provided by the financial institution

• No established ESOP prior to participating in ESOP Linked-Deposit Program (ie, new ESOPs only)

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Linked-Deposit General Guidelines

• At least 10% of ownership in company must be transferred to the ESOP in the initial transaction

• Maximum amount available to company will be $5 million

• Funds will be deposited in the form of 12-month CDs– Renewed annually for up to 3 years– Treasurer determines CD interest rate– Bank can charge up to 3.25% more than CD rate