Significant tax changes for businesses in 2012: Part 2

This is part two, of the significant federal business tax changes occurring in 2011:

1. Energy Efficient Homes

For 2011, builders of energy efficient homes, qualified for a $2,000 credit per qualified home. In 2012, there is no deduction for these homes built.

2. Work Opportunity

In 2011 and prior there was a tax credit available for employers whom paid wages to several targeted groups. For 2012, the only group eligible for the tax credit are qualifying veterans.

3. Qualified Small Business Stock

Qualified Small Business Stock (QSBS) acquired during 2011 qualified for 100% gain exclusion, if certain holding period, and other restrictions were not applicable. In 2012, this gain exclusion is lowered to 50% of the gain, however, the same restrictions apply.

4. Domestic Production Activity Deduction (Section 199 QPAD)

The only major change to the QPAD is that Puerto Rico is no longer considered domestic production income, in the QPAD calculation in 2012.

Please note these items are likely to change throughout the year, as changes occur, I will not update this post, but will post subsequently! Please look for subsequent updates.

Significant tax changes for businesses in 2012

Nearly every year the tax code goes through significant changes. These changes are due primarily to the fact that political wrangling has trumped solutions to problems within this country. As a result, both political parties have figured out, that rather than solve the problems created by their own movements, and the harsh economic effects; finger pointing and delayed decision making, can insulate them from harsh criticism (preserving their own job = good for them). The result; rather than providing for long-term solutions to a snowballing problem of high government spending, coupled with lower government revenue, due to tax breaks to the highest earners and significantly lower actual earnings and employment levels for the lowest earners, we have a system where major changes to the tax code are nearly an annual occurrence. The only reason taxpayers have payed little attention is due to the fact, that by and large, Congress has swept through and extended nearly all the tax breaks from previous years, even if it does take nearly all year in some cases to push these tax breaks through (making tax planning a nail-biting endeavor).

Anyway, now that I have that out of my system I can focus on the real point of this post. Due to expiring tax breaks, 2012 and 2013 are very significant tax years. Without basic extensions of existing tax structure items, the tax landscape will be radically different in 2014. Here are some major tax changes in 2012, that will affect your business (unless Congressional action is taken):

1. Major changes to 179 depreciation.
A. Unlike 2011, there are no special depreciation provisions for the following types of property: Qualified leasehold improvements, Qualified restaurant property, and qualified retail property.

B. Also the expending limit and qualifying property thresholds are significantly lower in 2012. The amounts are now $139,000 and $560,000 respectively, down from $500,000 and 2,000,000 in 2011. Please remember these amounts still carry the normal income and other restrictions.

2. Major changes to Bonus Depreciation.

The special depreciation rate (168k Depreciation, as it is otherwise known) is 50% for qualifying property placed in service in 2012. This is down from the 2011 rate, which was a much more favorable 100%, for qualifying property (with certain restrictions).

See part 2 of this discussion later on in the week...

Please note these items are likely to change throughout the year, as changes occur, I will not update this post, but will post subsequently! Please look for subsequent updates.

Business travel, proposed reg may apply rules for travel close to home

Prior to this year, business travel was always defined by the IRS under code section 162. In addition, under Reg 1.262-1(b)(5) the IRS defined business travel as travel away from home, and if you were not away from home, these expenses were not allowed.

However, the IRS has changed its stance in new Proposed Reg 1.162-31(b), which would allow for business travel expenses while you are not away from home if all the conditions are met:

1. The lodging is necessary for the individual to participate fully in or be available for a bona fide business meeting, conference, training activity, or other business function.

2. The lodging is for a period that does not exceed five calendar days and does not recur more frequently than once per calendar quarter.

3. If the individual is an employee, his employer requires him to remain at the activity or function overnight.

4. The lodging is not lavish or extravagant under the circumstances and does not provide any significant element of personal pleasure, recreation or benefit.

It is important to note that the IRS has also included specific examples whereby travel expenses would be allowable under the new Proposed Regulations. Some of these examples show important determinations by the IRS, with just as important implications. One example is particularly interesting:

In the example the employer has a large project with a tight deadline. This employer has requested that the employee stay at a nearby hotel for the night to work longer on the project, and also to alleviate the 2 hour commute this employee would have had to incur. This example is interesting because the IRS allows the employer to take the expense, but the employee also has to include the amount of the hotel stay as compensation. The IRS contends that the employee has received a benefit by avoiding the long commute. 

Identity Theft: A rapidly growing IRS problem

Whether you realize it or not, one of the larger issues the IRS has to deal with in recent years is identity theft. Overall, identity theft has increased significantly in the last three years, from just under 52,000 in 2008 to nearly 170,000 in 2009 to over 248,000 in 2010. Usually the theft involves individuals filing false returns, and cashing refunds of other taxpayers, but cases also include employment fraud. Most individuals find out they have been a victim of identity theft, when they go to file their return, and it is rejected due to a return already filed under their social security number. Usually fraud claims take quite a long time to iron out with the IRS, but there are a few changes the IRS has implemented in recent years to try to counteract fraudulent claims.

One major change the IRS has implemented is issuing special pin numbers to past victims of fraud. The use of these pin numbers can cut down on the incidents of fraud, because only the true recipient of the pin number will be able to e-file their return, and as an extra layer of security, the pin numbers are not issued or accessible by the IRS, so would-be fraudsters cannot gain access to this information. However, there is a small problem if a person who has been issued a pin number cannot find their pin. Since the pin numbers cannot be accessed by the IRS, if a person loses their pin, they will not be able to receive a replacement pin, thereby eliminating the extra security their return should have received.

These changes are good, but what can a person do to prevent their information from being stolen, and a false return being issued in their name? At the end of the day, the best practice is diligence. 

Do not provide sensitive information to unscrupulous sources. Destroy sensitive information appropriately. Try to secure your mail, to try and eliminate access to otherwise sensitive information. Be careful what type of information you make available through email and the internet. There are many ways you can help to avoid providing access to your personal information, but if you do have a false return filed in your name, try to rectify the discrepancy as soon as possible with the IRS, and be diligent in this task to make sure the IRS agent is following through with their promises and deadlines.

The information age can be a good thing, but certain information in the wrong hands can lead to headaches. 

Listening Skills: the most under-rated quality of a top performer

This article talks about truly listening to your business managers and shows specific examples of how listening to your business managers allows a CEO to make great business decisions. Even though, I do not run a Fortune 500 company I see the difference between talking and listening. Here is an example:

A small business owner comes in and talks about how they are not getting the results they thought they should be getting from their business. After talking to them for a short period of time, we come up with the real problem, they have been in business for a number of years, have been trying the same marketing and advertising strategy of only advertising in the phone book and have not seen the same results they were seeing only a few short years ago...Does this scenario sound familiar?! It seems like business owners fall into the same traps each of us do. When things are not working the way we would like them to work first we get mad then we get frustrated then we...Change (hopefully).

As a CPA I have learned a lot of things outside of school, but the most important thing no one taught me was  how to listen. If you are not listening to others you are missing out on one of the most important, cheapest and easiest tools at you disposal. If you want to be great at what you do, or truly improve your business you have to listen; to your workers, your board and most importantly to your customers. If you listen to them analyze what they are telling you and improve your system you will have a limitless potential for success.

Here is a link to the article on the Harvard Business Review blog. 

Michigan is ahead of the curve...

According to data released by the US Department of Labor, their Bureau of Labor Statistics indicated that Michigan ranked 12^th among all states in the number of green jobs within the US in 2010.

According to the report nearly 80,000 green jobs are held by Michiganders. Manufacturing lead the way, followed by construction and natural resources and mining sectors. It is important to note that the number of green jobs only makes up a small portion of total employment in Michigan (approximately 2.1%), but this is a good sign for a Michigan economy that is still trying to recover and reinvent itself at the same time (not an easy task). 

The moral of the story here is, keep it up Michigan! If sustainable products and industries are the things of the future, Michigan should be in a good position to capitalize on this new and changing market.  

Never Received a W-2

Have you ever had this happen to you? It is the middle of February and you have not received your W-2 from your employer. Many taxpayers have probably been in that situation, but what if you never receive your W-2? What do you do then?

There are a few required steps you should take if it is past January 31, and you have not received your prior year W-2:

1. Contact your employer to find out about its mailing and verify the address they mailed it to.

2. If you have not received the W-2 by February 14^th you are encouraged to call the IRS directly and provide them with the employer’s information, dates of employment, and estimated wage information.

3. You should probably wait until the absolute last minute to file your return, to make sure you will not receive your W-2, but if you have not received your W-2 by the tax filing deadline you should file your personal return as normal, with an additional attachment 4852, or you can ask for a personal extension if you believe the W-2 will be provided to you.

4.  If you receive a W-2 after you file your return, you may have to file an amended return, if the information differs from your previously filed return.

So you do have a few options for taking care of your personal return even if you do not have a W-2 and you do not believe you will receive one for some reason.  

However, if you just lost your W-2, you should be able to ask your employer for an additional copy. They should be able to get you a copy of the original as they are required to maintain certain documents of this type for a long period of time.