I attended a “Tax Update” program offered by McGladry through the Center for Advanced Manufacturing Puget Sound (CAMPS). I gained a number of important insights that I wanted to share. I must add the caveat, though, that I am not a tax gal and am simply relaying the valuable information I heard. If something resonates with you or your business on this topic, be sure to run it by your tax gal (or guy)!
1. Many of the tax reductions implemented by the Economic Growth Tax Relief Reconciliation Act (EGTRRA) of 2001 are slated to expire at the end of 2010. It is not yet clear which (if any) of them will be retained. If this occurs, a critical change would be the increase in marginal income tax rates for individuals. The lowest bracket would increase from 10% to 15% and the highest bracket from 35% to 39.6%. The increase in individual taxation rates may prompt businesses to consider switching their corporate taxation to a C-corporation as C-corp tax treatment *may* be beneficial in certain circumstances. Furthermore, flow-through entities may want to accelerate income this year and defer expenses and deductions into the future.
2. The Small Business Jobs Act of 2010 offers certain incentives this year for small businesses. One example is an additional “bonus” of 50% on the amount that may be depreciated for new personal property purposes by the business. In addition, certain property acquired by the business may be deducted at higher levels. Deductions for start up expenses have also been increased for 2010 and can be immediately expensed rather than capitalized and amoritized.
3. The program highlighted some new areas of interest in taxation relating to employees who travel for business. If an employee is working in a state, the employee should pay income tax in that state on the amounts earned in the state. There is no hard and fast rule as yet but many states have a “safe harbor” period that allows for short-term presence in a state without the income tax kicking in. For example, attendance at a 3 day trade show would not qualify. The Mobile Workforce Project is seeking to draft Uniform Rules for states to consider in this area. It is important to maintain records of employees’ work out-of-state as a regular time keeping system or other record keeping system provides decreased penalties if a company fails to pay the state taxes. A complementary issue is whether the company itself is subject to tax in a state where an employee is conducting business. States have differing standards as to when business is being conducted in the state and where revenue is earned.
Other laws that were discussed and may be worth a discussion with your CPA are: 2010 Hire Act, Domestic Manufacturing Deduction, Research and Development Credit, and Interest Charged Domestic International Sales Corporation (ICDISC).