Energy Tax Credits: trying to make sense of it all

These days it seems like everyone is trying to do some small things to save money and/or help the environment. Recent tax credits offered from the federal government and State of Michigan hope to encourage this behavior. But, with new and changing credits come increased layers of confusion. If you are as confused as the rest of us on what credits are available to you as part of this new initiative, there is a bit of good news. The Michigan Alternative & Renewable Energy Center at Grand Valley State University has recently compiled some useful guides that should help to take the pain out of these tax credits.

They have both quick reference guides for those of us that need to know what types of credits are available to individuals and businesses, and more detailed information for those of us that like to know all the details (See the link below).

Another source that may be helpful for individuals would be form 5695 from the IRS (link below) or this IRS release regarding business energy tax credits.

Michigan Alternative & Renewable Energy Center release
http://www.gvsu.edu/marec/index.cfm?id=16C67908-0454-6A92-FC86012AE1BDD508

IRS form 5695
http://www.irs.gov/pub/irs-pdf/f5695.pdf

IRS release regarding energy tax credits
http://www.irs.gov/newsroom/article/0,,id=209564,00.html

To extend my posting earlier this week

Earlier this week I posted a blog titled Economic Free Fall Part I. In connection with this posting I wanted to point out that new unemployment rates came out this week. There were no surprises in this report (unfortunately). Here is a link to an article on yahoo about the newly released unemployment rates in which Michigan earned the unenviable position of first (and highest unemployment in over 25 years).

http://finance.yahoo.com/news/Michigan-unemployment-tops-cnnm-3856805725.html?x=0&.v=3

Insurance for all may get ugly for small businesses

I have no problem with the concept, insurance for every American is something that I believe would be helpful for a majority of Americans…If it does what it is designed to do, and that would be to make health insurance affordable and/or available to all Americans. But as science teaches us: every action has an equal and opposite reaction. So we begin the real fight: WHO IS TO PAY FOR THIS PROGRAM?

Under a recently released house measure (this is not a bill, it has not passed) members of congress would like a big investment from small businesses to further this initiative. Congress would structure a penalty system for small businesses that do not provide health care to their employees and it would be structured something like this:

Employers with payrolls: Penalty amount (of gross payroll):
Over $400,000 8%
250K – 400K (some smaller penalty)
Less than 250K Exempt from penalty

To further this cause, employers with payrolls less than $250,000 would be offered a tax credit as an incentive to offer health insurance.

According to the National Federation of Independent businesses this measure would affect more than one million small businesses.

Normally I don’t comment on bills that have not been finalized, but this would be a major shift in tax policy for small businesses.

Also check out a great article in the wall street journal that I gleaned much of the facts from, and from which you can extract more information.

http://online.wsj.com/article/SB124759535535340189.html

Economic freefall part 1

A recent study by the University of Michigan estimates that michigan unemployment should peak in 2010 at nearly 16%. This is a staggering estimation keeping in mind that Michigan's current unemployment rate is over 12% and climbing and the full effects of manufacturing and tool and die unemployment may increase as the big three auto makers 'make-over' their companies. The one ominous fact left out in this study was an estimation for the future.

While they believe the unemployment rate will stabilize in 2010, there is no further estimation for when things 'go back to normal'. Unless they believe this high level of unemployment is the new normal (in which case we are all in trouble). I guess what I am trying to say is that our state, and the state of our economy is in big trouble. When you begin to measure the number of unemployed people as a fraction of 1 in 7 (actually higher than this), you begin to wonder how to take these people off the unemployment roles.

Many people talk about education as the key. What most people fail to understand is that many highly educated people are out of work. Yes we have lost many jobs related to GM, Chrysler and others, but many of the jobs are tool and die related jobs that take highly skilled laborers and are very worker intensive. When Michigan businesses look back at this time they will think one of two things, either this change was needed to bring us into the 'new economy', or this was the wake up call (that we missed) showing us how important manufacturing really is to our nations' economy. I am not trying to strike fear in the hearts of Americans, and I would very much like to be wrong, but as the days pass I am leaning much more toward the later.

Personal Service Corporations

One of the things that keep accountants up late at night is heavy taxation. That is why most accountants dread the deadly little pill that is Personal Service Corporations (PSC) and Qualified Personal Service Corporations (QPSC). Any corporation in which substantially all the activities of which involve the performance of services in the fields of health, law, engineering, architecture, accounting, actuarial, performing arts, or consulting, and substantially all the stock, by value, is held directly or indirectly by employees, retired employees, the estate of any such employee or former employee is deemed to be a Qualified Personal Service Corporation .

For this purpose the test for ‘substantially all’ is defined as 95% or more of the time spent by employees of the corporation is devoted to these activities. This also includes auxiliary functions that may support the proper function of these services. Such functions include the supervision of employees, and support services that may be related to the proper function of the business as a whole. This same 95% test applies to the ownership of the business function.

The largest stigma of all is the fact that if you fit the QPSC test(s) you are taxed at the highest corporate tax rate of 35% on all earnings. Even the average C Corporation has a much more favorable tax rate than this form of entity.

If you are a new business preparing to incorporate, please keep these facts in mind as there are few benefits and many pitfalls associated with this type of entity. Also, if you think you own a personal service corporation and these issues have not been addressed, contact a qualified adviser or send me an e-mail at tonym@dalbergandassociates.com.