ChamberLink February 2012 : Page 10

10 ChamberLink • February 2012 FOCUS ON .... Tax Season 2012 Tax Changes for 2012 By Krystal Sams Tax filing season is once again upon us. As small businesses prepare their 2011 tax returns and focus on tax planning strategies throughout this year, there are several tax law changes they should consider taking advantage of: bonus DepreCiation Taxpayers are allowed to deduct the cost of certain property used in a trade or business or for the production of income through annual depreciation deductions. The depreciation deduc -tion allowed for a tax year is generally determined by spreading the basis, or cost, of a piece of property placed in service over a predetermined life set by the IRS based on the property’s function and use. An additional first-year depreciation deduction equal to 100 percent of the adjusted basis of the property was available for qualified property acquired after Sept. 8, 2010 and before Jan. 1, 2012, and placed in service before Jan. 1, 2012. This additional depreciation deduction, known as “100 percent bonus depreciation” was temporary. As a result, the additional first-year depreciation deduction dropped to 50 percent for qualified property acquired after Dec. 31, 2011 and before Jan. 1, 2013. Virginia does not conform to the additional first-year depreciation deduction rules and therefore a taxpayer’s Vir -ginia tax return would need to be adjusted via an addition to income in the year any additional depreciation deduction was taken on the federal return and via a subtraction in later years. Taxpayers may elect out of bonus depreciation. Making this election would spread the depre -ciation deductions for the cost of an asset into future years measured by the asset’s depreciation period. Electing out of bonus depreciation may be a valuable strategy for certain taxpayers. CoDe seCtion 179 expensing Business taxpayers are allowed to expense up to a certain dollar amount of qualified property purchases each year rather than having to expense them over time. The maximum amount that can be expensed is reduced if the taxpayer’s cost of qualified property exceeds a certain investment limit. For 2012, the Code Sec. 179 dollar limit is $139,000 and the investment limit is $560,000. Taxpayers should note Sec. 179 is generally also limited to active trade or business income in a tax year, with any excess deductions carrying forward to future years. Work opportunity tax CreDit (WotC) The WOTC is designed as an incentive to encourage employers to hire individuals from nine targeted groups that have historically experienced higher-than-average unemployment rates and other barriers to employment. For 2012, the WOTC now has an expanded definition of “qualified veteran,” an increased maximum credit amount, and has been extended to tax-exempt employers. The WOTC gener -ally is 40 percent of the qualified worker’s first-year wages up to $6,000, with higher and lower amounts for certain groups. Under current law, the WOTC applies to wages paid to qualified individuals who begin work for the employer before Jan. 1, 2013. payroLL taxes Employers should remind employees that effective March 1, 2012, the employee-share of Social Security tax is scheduled to revert back from 4.2 to 6.2 percent unless Congress decides to extend the payroll tax holiday. A similar benefit was provided to self-employed individuals. The act provides special rules for 2012 to prevent taxpayers with wages and self-employment income in excess of $18,350 from receiving extra benefit. If a full-year extension of the payroll tax cut isn’t put in place, taxpayers employed during January and February with income that exceeds $18,350 will be required to recapture any excess benefit they receive. The employer-share of Social Security tax continues to be 6.2 percent. The maximum earn -ings subject to Social Security tax is $110,100 for 2012. W-2 HealtH Insurance reportIng The new health reform legislation requires employers to report the cost of health insurance they provide to employees on their W-2 forms. The IRS has made the new reporting require-ment optional for all employers for the 2011 Forms W-2. Recently the IRS announced the reporting requirement will continue to be voluntary for small employers, or those filing fewer than 250 Forms W-2, at least through 2012 or until further guidance is issued. inFormation reporting In April 2011 Congress passed the 2011 Taxpayer Protection Act to repeal expanded informa -tion reporting that would have required Form 1099s to be issued for certain business payments, even those made to corporations, and would have required rental property expense payments to be reported on Form 1099. The provisions had been widely criticized as being a burden on taxpayers, especially small businesses. MIleage rates Beginning Jan. 1, 2012 the standard mileage rates for the use of a vehicle became 55.5 cents per mile for business miles driven, 23 cents per mile for miles driven for medical or moving purposes, and 14 cents per mile driven for service to a charitable organization. Worker classIfIcatIon A new IRS program called the Voluntary Classification Settlement Program (VCSP) offers employers the opportunity to voluntarily resolve past worker classification issues by reclassifying their workers from independent contractors to employees for federal employment tax purposes. This program will allow employers to get into compliance by making a minimal payment to cover past payroll tax obligations, have reduced penalties, and avoid having to go through normal administrative correction procedures used when discrepancies are noted in an audit. As always, businesses should consult their tax advisor to determine which tax strategies best suit their needs for this filing season and throughout the year as tax laws continuously change. Best wishes for a successful 2012! Krystal Sams is a CPA with PBGH, LLP.

Tax Changes for 2012

By Krystal Sams

Tax filing season is once again upon us. As small businesses prepare their 2011 tax returns and focus on tax planning strategies throughout this year, there are several tax law changes they should consider taking advantage of: Bonus Depreciation Taxpayers are allowed to deduct the cost of certain property used in a trade or business or for the production of income through annual depreciation deductions. The depreciation deduction allowed for a tax year is generally determined by spreading the basis, or cost, of a piece of property placed in service over a predetermined life set by the IRS based on the property’s function and use. An additional first-year depreciation deduction equal to 100 percent of the adjusted basis of the property was available for qualified property acquired after Sept. 8, 2010 and before Jan. 1, 2012, and placed in service before Jan. 1, 2012. This additional depreciation deduction, known as “100 percent bonus depreciation” was temporary. As a result, the additional first-year depreciation deduction dropped to 50 percent for qualified property acquired after Dec. 31, 2011 and before Jan. 1, 2013. Virginia does not conform to the additional first-year depreciation deduction rules and therefore a taxpayer’s Virginia tax return would need to be adjusted via an addition to income in the year any additional depreciation deduction was taken on the federal return and via a subtraction in later years. Taxpayers may elect out of bonus depreciation. Making this election would spread the depreciation deductions for the cost of an asset into future years measured by the asset’s depreciation period. Electing out of bonus depreciation may be a valuable strategy for certain taxpayers. Code Section 179 Expensing Business taxpayers are allowed to expense up to a certain dollar amount of qualified property purchases each year rather than having to expense them over time. The maximum amount that can be expensed is reduced if the taxpayer’s cost of qualified property exceeds a certain investment limit. For 2012, the Code Sec. 179 dollar limit is $139,000 and the investment limit is $560,000. Taxpayers should note Sec. 179 is generally also limited to active trade or business income in a tax year, with any excess deductions carrying forward to future years. Work Opportunity Tax Credit (WOTC) The WOTC is designed as an incentive to encourage employers to hire individuals from nine targeted groups that have historically experienced higher-than-average unemployment rates and other barriers to employment. For 2012, the WOTC now has an expanded definition of “qualified veteran,” an increased maximum credit amount, and has been extended to tax-exempt employers. The WOTC generally is 40 percent of the qualified worker’s first-year wages up to $6,000, with higher and lower amounts for certain groups. Under current law, the WOTC applies to wages paid to qualified individuals who begin work for the employer before Jan. 1, 2013. Payroll Taxes Employers should remind employees that effective March 1, 2012, the employee-share of Social Security tax is scheduled to revert back from 4.2 to 6.2 percent unless Congress decides to extend the payroll tax holiday. A similar benefit was provided to self-employed individuals. The act provides special rules for 2012 to prevent taxpayers with wages and self-employment income in excess of $18,350 from receiving extra benefit. If a full-year extension of the payroll tax cut isn’t put in place, taxpayers employed during January and February with income that exceeds $18,350 will be required to recapture any excess benefit they receive. The employer-share of Social Security tax continues to be 6.2 percent. The maximum earnings subject to Social Security tax is $110,100 for 2012. W-2 Health Insurance Reporting The new health reform legislation requires employers to report the cost of health insurance they provide to employees on their W-2 forms. The IRS has made the new reporting requirement optional for all employers for the 2011 Forms W-2. Recently the IRS announced the reporting requirement will continue to be voluntary for small employers, or those filing fewer than 250 Forms W-2, at least through 2012 or until further guidance is issued. Information Reporting In April 2011 Congress passed the 2011 Taxpayer Protection Act to repeal expanded information reporting that would have required Form 1099s to be issued for certain business payments, even those made to corporations, and would have required rental property expense payments to be reported on Form 1099. The provisions had been widely criticized as being a burden on taxpayers, especially small businesses. Mileage rates Beginning Jan. 1, 2012 the standard mileage rates for the use of a vehicle became 55.5 cents per mile for business miles driven, 23 cents per mile for miles driven for medical or moving purposes, and 14 cents per mile driven for service to a charitable organization. Worker Classification A new IRS program called the Voluntary Classification Settlement Program (VCSP) offers employers the opportunity to voluntarily resolve past worker classification issues by reclassifying their workers from independent contractors to employees for federal employment tax purposes. This program will allow employers to get into compliance by making a minimal payment to cover past payroll tax obligations, have reduced penalties, and avoid having to go through normal administrative correction procedures used when discrepancies are noted in an audit. As always, businesses should consult their tax advisor to determine which tax strategies best suit their needs for this filing season and throughout the year as tax laws continuously change. Best wishes for a successful 2012! Krystal Sams is a CPA with PBGH, LLP.

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