Other "Business" Tax Breaks Expiring After 2011

In addition to the 100% §168(k) bonus depreciation deduction and the expanded §179 deduction, there are several other important business tax breaks currently scheduled to expire at the end of 2011. Whether or not Congress ultimately extends these expiring tax breaks, there are real tax savings to be obtained if you take advantage of these provisions before the end of 2011. The following are some of the more important expiring provisions that your business should consider utilizing before the end of 2011:

Two Percent Social Security Tax Holiday For “2011.”

For 2011 only, there is a 2% reduction in Social Security taxes for both employees and self-employed individuals. Therefore, if you are an employee, your take-home pay for 2011 is generally being increased by 2% of each dollar of compensation that you earn. However, since Social Security taxes apply only to the first $106,800 of compensation in 2011, your maximum savings will generally be $2,136 (i.e., $106,800 x 2%). Likewise, if you are self-employed, your Social Security taxes are reduced by 2% of your self-employment income for 2011 (up to $106,800). Therefore, if your self-employment income is $106,800 or more, your self-employment taxes will be reduced by $2,136. Tax Tip! Accelerating 2012 compensation or self-employed income into 2011 will save you 2% on your Social Security tax to the extent the income acceleration does not cause you to exceed the $106,800 earned income cap.

100% Exclusion For “Qualified Small Business Stock.”

If you sell “qualified small business stock” (QSBS) acquired after September 27, 2010 and before January 1, 2012, you may be able to exclude the entire gain from taxable income if you hold the stock for more than 5 years (the gain will also be exempt from the alternative minimum tax). QSBS is generally stock of a non-publicly traded domestic “C” corporation engaged in a qualifying business, purchased directly from the corporation, and held for more than 5 years; where the issuing corporation meets certain active business requirements and has assets at the time the stock is issued of $50 million or less. Businesses engaged in a professional service, banking, insurance, financing, leasing, investing, hotel, motel, restaurant, mining, or farming activity generally do not qualify. Planning Alert! If you are considering investing in or starting a new business, we will gladly help you evaluate whether structuring your investment as QSBS will work to your overall tax advantage. However, you must act promptly to take advantage of this narrow window of opportunity to qualify for the 100% exclusion. Only stock acquired from September 28, 2010 through December 31, 2011 qualifies for the 100% exclusion.

Don’t Overlook The “Retention Credit” For Qualified Unemployed Workers.

If your business 1) hired a qualified unemployed worker after February 3, 2010 and before January 1, 2011, 2) the worker signed a IRS Form W-11 (“HIRE Act Employee Affidavit”), and 3) you retained the worker on your payroll for at least 52 consecutive weeks, you may be entitled to an “income tax” credit of up to $1,000 for each qualifying worker on your 2011 return. If you think your business qualifies for this credit, we will gladly help you determine the exact amount of credit available.

brad@mcarthurco.com

704.544.8429