Rebella Accountancy | 507 E. First Street, Suite A | Tustin, CA 92780 | Phone: 714-619-0667 | Fax: 714-544-0236

       

 

 

Monica Rebella, CPA

Rebella Accountancy

 

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Other Articles

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Feature Articles

- 2011 year-end tax planning for individuals in a changing landscape
- 2011 year-end tax planning for businesses: bonus depreciation, expensing, and more available
- Washington debates raising taxes on higher-income taxpayers to cut deficit, fund jobs program
- Using fringe benefits as an income substitute during the economic downturn
- The Saver's Credit: An underused retirement savings benefit
- October 2011 Compliance Calendar

How Do I?

- Compute a 'substantial equal periodic payment?
- Obtain an appraisal for a noncash charitable contribution?
- Compute gain in a like-kind exchange when some cash is received?
- Deduct a contribution of clothing or a household item under the new rules?

Frequently Asked Questions

- Are Social Security survivor benefits received by children taxable income?
- When is the best time of year to contribute to an IRA?
- How does a 60-day loan from an IRA work?
- What if I owe taxes and can't pay the full amount?
- How does the new sales tax deduction for vehicle purchases work?
- How much proof is enough, when contributing used clothing to charity?

 

 

2011 Year-End Tax Planning for Businesses:   Bonus Depreciation, Expensing and more

Many tax benefits for business will either expire at the end of 2011 or become less valuable after 2011. Two of the most important benefits are bonus depreciation and Code Sec. 179 expensing. Both apply to investments in tangible property that can be depreciated. Other sunsetting opportunities might also be considered.

Bonus depreciation

Bonus depreciation is 100 percent for 2011. A business can write-off, in the first year, the entire cost of its investment in new depreciable property. Under current law, bonus depreciation will decrease to 50 percent in 2012 and will terminate after 2012. (These deadlines are extended one year for certain transportation property and property with a longer production period). President Obama has proposed to extend 100 percent bonus depreciation through 2012. Normally, this would have a good chance of being approved, but with the focus on deficit reduction and the linking of tax benefits to tax increases, it is not at all clear what will happen.

So, if a business has income in 2011 and plans to invest in depreciable property, it is worthwhile to consider making that investment in 2011, while the available write-off is at its highest. Under normal depreciation rules, a business will still be able to claim accelerated write-offs, but this may be 50 percent or less of the cost of the property, with the balance written-off over several years, instead of all in one year.

Planning for bonus depreciation is important because the property must satisfy placed-in-service and acquisition date requirements. Property is placed in service when it is in a condition or state of readiness on a regular ongoing basis for a specifically assigned function in a trade or business. The acquisition date rules may vary. For 2011, property is acquired when the taxpayer incurs or pays its cost. This could occur when the property is delivered, but it could also be when title to the property passes. For 2012, property is acquired when the taxpayer takes physical possession of the property.

Code Sec. 179 expensing

Code Sec. 179 expensing (first-year writeoff) has been around for awhile, but at higher amounts more recently. While there is no limit on bonus depreciation, expensing is limited to a statutory amount. For 2011, this amount is $500,000. It is scheduled to drop to $125,000 in 2012 and to $25,000 after 2012 (adjusted for inflation). Moreover, the cap is reduced for the amount of total investment in Code Sec. 179 property. The phaseout threshold is $2 million for 2011, dropping to $500,000 for 2012 and $200,000 for 2013 and subsequent years. For businesses who want to invest in depreciable property, the payoff is definitely greater in 2011. Taxpayers taking advantage of expensing should write off assets that would otherwise have the longest recovery periods.

Other 2011 benefits

Some other important benefits expire at the end of 2011 or become less valuable. A significant benefit in 2011 is the 100 percent exclusion for small business stock. After 2012, the normal exclusion rate will drop to 50 percent, although it has been 75 percent in recent years. The exclusion is based on the year the stock is acquired; the stock must be held for five years before sold and satisfy other requirements.

Another important benefit is the 20 percent research credit. The credit has been extended one year at a time for a long period, so it is likely to be extended again. Nevertheless, until Congress acts, there is some uncertainty for research expenses incurred after 2011.

Conclusion

To maximize the benefits of 2011 year-end tax planning, a business must be proactive in determining what upcoming capital investments might be accelerated into this year and what investments become cost effective because of the immediate tax benefits that they offer. Some business-related tax benefits will be less valuable after 2011; for others, it is not clear what Congress and the administration will do in terms of surprising taxpayers with a year-end tax bill. Please contact this office if you have any questions over how year-end tax strategies that begin now and continue through December can help maximize tax benefits for your business.

To read this & my other articles online, click here or go to www.RebellaCPA.com and click on the Newsletter section.

 


 

Using Fringe Benefits as an Income Substitute During the Economic Downturn?

 

Many businesses are foregoing salary increases this year because of the economic downturn. How does a business find and retain employees, as well as keep up morale, in the face of this reality? The combined use of fringe benefits and the tax law can help. Some attractive fringe benefits may be provided tax-free to employees and at little cost to employers.

De minimis fringe benefits

A de minimis fringe benefit is any property or service whose value is so small or minimal that accounting for it would be administratively impracticable. Such benefits are excluded from an employee's gross income. Examples of de minimis fringe benefits include:

Occasional overtime meals and meal money. To qualify as a tax-free de minimis fringe benefit, the meal or meal money must be provided to your employees so that they can extend their normal workday, thereby enabling them to work overtime. Such meals and meal money can only be provided occasionally. This means that they generally cannot be provided routinely, when overtime work is a common occurrence or are contractually mandated for overtime work. Occasional snacks may also qualify as a de minimis fringe benefit but if the snacks are provided daily, they would not qualify.

Occasional transportation. Transportation costs can also qualify as de minimis fringe benefits. Taxi-fare for an employee to return home after working late, for example, may be a de minimis fringe benefit. The transportation must be occasional.

Holiday gifts. Traditional holiday gifts, such as a Thanksgiving turkey, with a low fair market value can generally qualify as a de minimis fringe benefit. However, cash or a cash equivalent such as a gift certificate in lieu of the property, do not qualify. In fact, cash and cash equivalent fringe benefits, no matter how little, are never excludable as a de minimis fringe benefit, except for occasional meal money or transportation fare.

E-filing. Electronically filing an employee's tax return, but not paying for someone to prepare the return, may qualify as a de minimus fringe benefit.

Telephone calls. An employer may treat the cost of local telephone calls made by employees as a de minimis fringe benefit.

Working condition fringe benefits

A working condition fringe benefit is any type of property or service provided to your employees to the extent that the cost of such property or services would have been deductible by the employee as a trade or business expense, depreciation expenses, or as if the employee paid for the property/services himself or herself. Working condition fringe benefits have special tax rules for employers and employees.

Vehicles. If an employer-provided vehicle is used 100 percent for business and the use is substantiated, use of the vehicle is considered a working condition fringe benefit. The value of use of the vehicle is not included in the employee's wages. However, when an employer-provided vehicle is used by the employee for both personal and business purposes, an allocation between the two types must be made. The portion allocable to the employee's personal use is generally taxable to the employee as a fringe benefit. The portion allocable to business use is generally considered a working condition fringe benefit and is excludable from the employee's income.

No additional cost services

If an employer-provided service does not cause the employer to incur any substantial additional costs, it may qualify as a "no additional cost service" and be excludible from the employee's income. The service must be offered to customers in the employer's ordinary course of business. Some of the most common examples are airline, rail and bus tickets and hotel and motel rooms provided at a reduced rate or at no cost to employees. This benefit can be offered to retired employees as well as active employees. There are special rules for highly-compensated employees.

If you are considering alternatives to salary compensation, and would like to know what your options are, please contact our office. We can discuss the tax benefits and drawbacks of providing your employees with various types of fringe benefits.

 


 

How much proof is enough, when contributing used clothing to charity?

 

You may have done some spring (or fall) cleaning and found that you have a lot of clothes that you no longer wear or want, and would like to donate to charity.

 

Used clothing that you want to donate to charity and take a charitable deduction for, however, is subject to a few rules and requirements.

 

Under IRS guidelines, clothing, furniture, and other household items must be in good used condition or better, to be deductible. Shirts with stains or pants with frayed hems just won't cut it. Furthermore, if the item(s) of used clothing are not in good used condition or better, and you wish to deduct more than $500 for a single piece of clothing, the IRS requires a professional appraisal.

 

For donations of less than $250, you must obtain a receipt from the charity, reflecting the donor's name, date and location of the contribution, and a reasonably detailed description of the donation.

 

It is your responsibility to obtain this written acknowledgement of your donation.

 

Used clothing contributions worth more than $500

 

If you are deducting more than $500 with respect to one piece of used clothing you donate, you must file Form 8283, Noncash Charitable Contributions, with the IRS. For donated items of used clothing worth more than $500 each, you must attach a qualified appraisal report is to your tax return. The Form 8283 asks you to include information such as the date you acquired the item(s) and how you acquired the item(s) (for example, were the clothes a holiday gift or did you buy the items at the store).

 

Determining the fair market value of used clothing

 

You may also need to include the method you used to determine the value of the used clothing. According to the IRS, the valuation of used clothing does not necessarily lend itself to the use of fixed formulas or methods. Typically, the value of used clothing that you donate, is going to be much less than you when first paid for the item. A rule of thumb, is that for items such as used clothing, fair market value is generally the price at which buyers of used items pay for used clothing in consignment or thrift stores, such as the Salvation Army.

 

To substantiate your deduction, ask for a receipt from the donor that attests to the fact that the clothing you donated with in good, used condition, or better. Moreover, you may want to take pictures of the clothing. If you need have questions about valuing and substantiating your charitable donations, please contact our office.

To read this & my other articles online, click here or go to www.RebellaCPA.com and click on the Newsletter section.

 


 

As always you can call me at 714-619-0667 if you have any questions about investing, retirement or any other tax & accounting related issues. 

 

Regards, Monica Rebella, CPA

President, Rebella Accountancy

 

To see more Business Owner Clients talk about Monica, click here!

 

 

Monica Rebella, CPA | President - Rebella Accountancy | Certified Public Accountants
507 E. First Street, Suite A | Tustin, CA 92780 | Phone: 714-619-0667 | Fax: 714-544-0236
Email: mrebella@rebellacpa.com | www.RebellaCPA.com | www.MyDentalCPA.com