With great uncertainty in the tax arena for 2011, it can be difficult for business owners to plan for the future. But several tax breaks are expiring, and owners need to act now to take advantage of them, says Steve Magovac, CPA, MT, an associate director in tax at SS&G.
“Over the last few years, the government has been favorable to small businesses, offering a significant increase in tax breaks to entice growth and investment in small companies,” says Magovac. “As a result, companies can lower their taxable income, which frees up cash and allows them to reinvest in themselves rather than pay the IRS.”
Smart Business spoke with Magovac about what you can do now to take advantage of changes to the 2010 tax laws.
Why do business owners need to act now to take advantage of the current tax climate?
We have no idea what is going to happen in 2011 and whether or not rates are going to go up. Tax planning right now is a gamble. You may have the opportunity to defer revenue — and therefore, taxation — until next year, but if rates go up, you might pay more than you would have this year. The president and Congress have every intention of raising rates. It didn’t happen this year, and if the economy doesn’t improve, they may put it off for another year, but rates will eventually go up.
How will the HIRE Act impact employers?
The act was passed this year to promote jobs. The IRS granted relief to employers who hire a worker who has not worked a 40-hour-a-week job in the 60 days previous to being hired. The employer is relieved of its Social Security match of 6.2 percent. It applies even if you hire an employee who was working a part-time job, and another employer hires that person on a part-time basis. The second employer would be relieved of that match.
You can’t lay someone off just to hire someone new for the credit. But if someone leaves, or is fired for cause, the person hired to fill that position could be eligible.
On top of that, if you hire that person and he or she works for you for at least a year, the employer is entitled to a tax credit of up to $1,000, which would be claimed on the owner’s income tax returns. This applies to employees hired after Feb. 3, 2010, and for wages paid after March 19.
A lot of companies are missing this opportunity for relief on payroll returns. If you haven’t taken the opportunity because you were unaware of it, you can amend your payroll returns to apply for a refund.
If a business owner hires his or her spouse, the spouse is eligible for the payroll credit, but children, siblings and other extended family members are not. Both incentives to hire new employees are set to expire on Dec. 31, 2010.
