Recent Tax Law Changes that Might Affect your Business

Our recent RDTC Tax Help Blog entry discusses recent tax law changes that might affect your business. To learn more about these new changes that have been put in to place in the past year, you can read a segment of the entry below, but be sure to read the full text at the RDTC Tax Help Blog.

W-2 Changes

Starting next year, employers will need to make an adjustment to their employees W-2 Forms. Due to the recent health care reform package, employers are now required to list the value of provided health insurance plans on employees’ W-2 Forms.

New Business Expenses

When a new business opens, the owner is allowed to take advantage of first year expense deductions on all business property up to a certain amount. In 2009, the limit was $250,000 but in 2010 the amount was drastically reduced to $134,000. This limit is also expected to drop again in 2011— to only $25,000.

Capital Gains Opportunity

2010 could be the last year for thousands of business owners to benefit from low capital gains tax rates. Currently, the rates are as low as 0% on the sale of assets held longer than one year for self-employed taxpayers in lower income brackets. In 2011, these capital gains rates will increase to align with income tax rates, which can be as high as 35%.

Charitable Property Deductions

In 2008 and 2009, there were temporary tax laws that provided enhanced charitable deductions to business owners who donated items such as computer equipment or office supplies to qualifying charities. Unfortunately, these enhanced deductions were not extended into 2010.

Interview on ABC News “Good to Know”

Last week, I interviewed with Good to Know, on ABC News. In the interview I explained tax changes you need to know before filing your 2009 returns. For those of you who might have missed my appearance, you can check out the embedded videos below, or head over to my YouTube channel.

Sarkozy Proposes Ad Tax on Google

Although not related to American tax changes, I was surprised when I ran across this article on FT.com about the French government’s proposal to levy a tax on the advertising revenues of Google and other Internet portals. According to FT.com, this is the latest sign of a European backlash against the U.S. owner search giant.

President Nicolas Sarkozy instructed his finance ministry to examine the merits of a tax in response to complaints from the French media that Google and other sites are generating advertising income using their news and other content. He also called for an inquiry by French competition authorities into a possible “abuse of dominant position” in the advertising business of big internet sites.

Mr. Sarkozy commented after the publication of an independent report for the French culture ministry that proposed a tax on Google, Yahoo, Facebook and other sites, to help fund initiatives for writers, musicians and publishers to make money from the web.

The report recommended issuing music cards to young people with €25 ($36) in credit provided by the government as a way of encouraging legal downloading of cultural works.

Google said that it opposed any such tax. “We don’t think introducing an additional tax on internet advertising is the right way forward as it could slow down innovation,” said Olivier Esper, senior policy manager of Google France.

Amid growing global scrutiny, the French government, in particular, has gone after Google on a number of fronts.

Continued at FT.com…

Rich Cling to Life to Beat Tax Man

The temporary repeal of estate taxes for 2010 has some wealthy taxpayers going to great lengths to take advantage of this change. According to this article on the Wall Street Journal, some families are even debating between keeping loved ones on life support for a few days in order to avoid paying estate taxes.

"I have two clients on life support, and the families are struggling with whether to continue heroic measures for a few more days," says Joshua Rubenstein, a lawyer with Katten Muchin Rosenman LLP in New York. "Do they want to live for the rest of their lives having made serious medical decisions based on estate-tax law?"

Currently, the tax applies to about 5,500 taxpayers a year. So, on average, at least 15 people die every day whose estates would benefit from the tax's lapse.

The macabre situation stems from 2001, when Congress raised estate-tax exemptions, culminating with the tax's disappearance next year. However, due to budget constraints, lawmakers didn't make the change permanent. So the estate tax is due to come back to life in 2011 -- at a higher rate and lower exemption.

Tax Credit For Home Purchase Could Rise

A couple of weeks ago, I published an article on the pros and cons of buying a home in 2009, and one of the major pros on the list was the new homebuyers credit. Lately there has been a lot of talk surrounding the possibility of the same homebuyers tax credit being extended form $8,000 to $15,000.

This would come as a pleasant surprise to the many American taxpayers who have taken advantage of the credit, and could potentially provide another nice boost for the struggling real estate market. Will the change actually take effect this year? It is probably still too early to tell, but I certainly think it could be a possibility if the economy continues to struggle. For more information on the issue, check out the following story from USA Today.

Lawmakers and businesses are calling for expansion of a tax credit for first-time home buyers that has helped spark home sales in an otherwise dismal real estate market.

With the tax credit scheduled to expire in fall, some business groups say the amount of the credit, now capped at $8,000, should be raised to $15,000 and applied to anyone who buys a home.

First-time buyers make up a hefty 40% of home purchases, according to the National Association of Realtors (NAR), which is about 5 percentage points higher than the historical average.

The credit, introduced in July 2008, was expanded in February as part of the economic stimulus package. The proposals may face headwinds amid growing public criticism of government spending to rescue the economy and the widening budget deficit.

Some economists say a tax benefit is vital to spur home buying and help stabilize prices.

Continue reading this story, here.

Coca-Cola, Oracle, Intel Use Cayman Islands to Avoid U.S. Taxes

Coca-Cola, Tyco International, and Seagate Technology (the worlds largest producer of hard drives) are among the companies accused of avoiding taxes by having offshore locations. If passed into law, President Obama’s recent tax plans would likely force all of these corporations to pay higher taxes. Check out a snippet of the article below or read the full story at Bloomberg.com explaining why so many US companies would be affected.

Seagate Technology, the world’s largest maker of hard disk drives, is headquartered in Scotts Valley, California. Yet the documents it files with the Securities and Exchange Commission list its address on South Church Street in George Town, the capital of the Cayman Islands.

Seagate is just one of the companies that may be affected by President Barack Obama’s proposal yesterday to raise about $190 billion over the next decade by outlawing techniques used by U.S. companies in offshore locations to avoid paying taxes. While the U.S. corporate tax rate is 35 percent, Seagate paid an effective tax rate of 5 percent in the year ended June 2008, according to data compiled by Bloomberg.

The Caymans have no corporate income tax for companies incorporated there. The Caribbean island has helped scores of U.S. companies, including Coca-Cola Co. and Oracle Corp., to legally avoid billions in tax payments to the U.S. government, says U.S. Senator Byron Dorgan.

“Our Main Street businesses are working hard during this economic downturn to pay their fair share of taxes,” says Dorgan, 66, a North Dakota Democrat. “Some of the country’s largest corporations are using these loopholes to avoid paying their fair share of taxes. It is my hope that the Congress will quickly take action to pull the plug on tax breaks that subsidize runaway plants that move U.S. jobs overseas.”

One quarter of the 100 largest contractors with the U.S. federal government, including Altria Group Inc. and Tyco International Ltd have had subsidiaries in the Caymans, according to a study by the Government Accountability Office. At least 10 of the 30 companies listed in the Dow Jones Industrial Average have had units with addresses in the Caymans.

As of November 2007, 378 U.S. publicly traded companies had at least one significant subsidiary in the Cayman Islands, a GAO study found. Altria, Tyco, Coke and Oracle still have subsidiaries in the Caymans, according to their most recent SEC filings. Seagate lists its headquarters in Grand Cayman.

One of the Dow 30 companies using offshore sites to reduce its U.S. taxes is Santa Clara, California-based Intel Corp., the world’s largest chipmaker.

Intel’s then vice president of tax, licensing and customs, Robert Perlman told the U.S. Senate Finance Committee in March 1999 that Intel would have been better off incorporating in the Cayman Islands when it was founded in 1968.

“Our tax code competitively disadvantages multinationals simply because the parent is a U.S. corporation,” Perlman testified.

Nonprofits Wrong to Oppose Obama Tax Changes

From Beyondchron.org:

Nonprofit organizations across the nation are expressing opposition to one of the most progressive parts of the Obama budget: reducing the tax break for itemized deductions, including charitable contributions, that are taken by individuals making over $200,000 a year or married couples earning over $250,000. Under the plan, a taxpayer in the highest bracket who gives $100,000 a year to charity can deduct only $28,000 a year, not $35,000. Obama’s plan directs the tax savings toward universal health care. Charities are concerned that reduced deductions will translate into reduced donations, hurting nonprofits just as foundation and government support declines. But nonprofits opposing this progressive reform miss the big picture. Government, not private donors, should decide how tax dollars are allocated. For too long, wealthy people have been allowed to redirect their taxpayer dollars away from serving education, health care and other pressing public needs to boosting symphonies, operas and elite institutions like Harvard, whose endowment alone exceeded $36 billion in 2008.

Having spent my entire career heading a nonprofit, I always find it sad when my fellow nonprofit leaders become fronts for campaigns by the wealthy to perpetuate social injustice. We saw this in San Francisco when groups like Project Open Hand opposed (unsuccessfully) the city’s living wage law, and we are now hearing that many nonprofits are opposing President Obama’s plan to raise revenue for universal health care by limiting tax deductions by the wealthy.

A Charity Revolt?

According to the Wall Street Journal, “from the Ivy League to the United Jewish Appeal, petitions and manifestos are in the works” to oppose Obama’s charitable deduction reform. Many of the charities opposing the reform are based in New York City, whose Congressmember Charles Rangel heads the House Ways and Means Committee and whose Senator Chuck Schumer is influential on tax issues.

But as White House budget chief Peter Orszag explained on his blog, "If you're a teacher making $50,000 a year and decide to donate $1,000 to the Red Cross or United Way, you enjoy a tax break of $150. If you are Warren Buffet or Bill Gates and you make that same donation, you get a $350 deduction -- more than twice the break as the teacher."

So proponents of the Obama reform see it as a progressive strategy for funding universal health care. Opponents accuse the Obama Administration of “turning even philanthropy into a class issue”.