Important Tax Considerations When Selling Your Business
Ready to negotiate the sale of your business? First you should sit down with your tax advisor to gain a general understanding of the major tax considerations and constraints that should be evaluated. Partnerships, LLCs, C Corps, and S Corps all have various entity-specific tax consequences that should be evaluated before making any decisions.
The decision analysis process, however, is now more complicated because the top long-term capital gain rate was raised to 20% versus 15%, and there is an additional 3.8% Medicare tax applicable to certain passive investors. In the case of LLC sale transactions, your choices are limited and the transaction will generally be accounted for tax reporting purposes as an asset sale. In the case of a corporation, depending on whether the entity is an S Corporation or you are selling one of the subsidiaries within a consolidated group, it can qualify as Continue reading »
Tax Tip: Tax Debt and the ‘Alter Ego’
In a recent Court of Appeals case (Berkshire Bank vs. Town of Ludlow MA and IRS, 1/11/2013) the Court ruled that an LLC owned by individual behind on his taxes was that individual’s alter ego. That is, the LLC and the individual were deemed to be one and the same, resulting in the assets of the LLC being available to satisfy the IRS tax debt.
Closely held businesses are in particular in danger of being seen as the alter ego of its owners. Common elements the IRS can use to find an alter ego relationship exists include Continue reading »
Tax Tip: Home Office Deduction Safe Harbor
In a newly issued Revenue Procedure 2013-13, effective for tax years starting on or after 1/1/2013, the IRS has created a safe harbor for the home office deduction calculation. The safe harbor is $5 times the home office square footage, for a maximum of $1,500. The safe harbor is in lieu of the substantiation of actual expenses otherwise required under IRC 280A.
If the safe harbor is used:
• The safe harbor is the total deduction. No depreciation or any other costs can be taken in addition to the safe harbor amount.
• The taxpayer can take 100% of the mortgage interest and property taxes as an itemized deduction on schedule A. No reduction of these expenses are required.
• Disallowed home office expenses that were carried over from prior years cannot be used in the year the safe harbor is taken. These amounts continue to be carried over and are usable in a year in which actual (substantiated) expenses are claimed.
• The taxpayer can elect safe harbor or substantiated expenses year-by-year.
Fiscal Cliff Legislation Lets D.C. Empowerment Zone Incentives Expire
The “Fiscal Cliff” legislation (H.R. 8: American Taxpayer Relief Act of 2012) enacted by Congress earlier this month did not extend the tax benefits provided pursuant to Internal Revenue Code sections 1400 through 1400C with respect to District of Columbia Enterprise Zones (“DC Zones”). Although the legislation retroactively extended the Federal Empowerment Zone incentives for calendar years 2012 and 2013, the December 31, 2011 expiration date for the designation of certain DC Zones being eligible for empowerment zone designation was left unaddressed by the Fiscal Cliff legislation.
As a result, the following DC Zone incentives will no longer be available for tax years beginning on or after December 31, 2011: Continue reading »
Cloudy with a Chance of Sales Tax in the DC Metro Area
The taxation of cloud computing services is an evolving area of sales and use tax. Cloud computing, which includes a wide variety of service offerings, generally allows businesses the potential to reduce IT costs by outsourcing hardware and software maintenance and support. Still, remote access to software, or “software as a service” (SaaS), is only a small part of what is referred to as “cloud computing.” The term also includes offerings such as Continue reading »
Caution: Nonresident Foreign Individuals Must Comply with New IRS Documentation Requirements when Filing a Form W-7 U.S. TIN Application
Depending on a foreign individual’s inbound activities in the United States, the person could be required to obtain a U.S. Taxpayer Identification Number (TIN) if the person is not eligible to obtain a U.S. Social Security Number (SSN). Foreign individuals who are required to obtain a U.S. Taxpayer Identification Number must file a Form W-7 with the Internal Revenue Service (IRS).
A U.S. TIN generally is required if a nonresident foreign individual is required to file a U.S. federal tax return on the Form 1040-NR. A nonresident foreign individual generally must file a Form 1040-NR if the person has income that is effectively connected with a U.S. trade or business. A nonresident foreign individual who has ordinary trade or business income from a U.S. partnership generally is considered to have effectively connected income that must be reported on a Form 1040-NR.
A U.S. TIN also could be required if Continue reading »
Key Tax Provisions of “Fiscal Cliff” Legislation
You are probably aware that Congress passed legislation (the “American Taxpayer Relief Act”) early Wednesday morning, which the President is expected to sign into law to avert (or delay, depending on you viewpoint) the so-called “Fiscal Cliff.” While the legislation only delayed by two months widespread automatic spending cuts, it prevents many of the tax increases that were scheduled to take effect in 2013. With the exception of a targeted tax increase to the wealthiest Americans, the Act permanently extends provisions of the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), and the Jobs and Growth Tax Relief Reconciliation Act of 2003, P.L. 108-27 (JGTRRA). It also permanently addresses Congress’ reoccurring task of “patching” the alternative minimum tax (AMT). Further, it temporarily extends many other tax provisions that had lapsed at the end of 2012 and others that had expired a year earlier. Among the tax items not addressed by the Act was the so-called “payroll tax holiday.” Thus, the temporary 4.2% rate for the employees’ portion of the Social Security payroll tax will revert back to 6.2%, effective January 1, 2013.
Below is a summary of the key tax provisions: Continue reading »
Caution: More than One Type of U.S. Federal Tax Withholding Could Be Required for Foreign Partners in a U.S. Partnership
It is very important for a U.S. partnership to determine the residence status of all partners in the partnership. A U.S. partnership is required to report whether a partner is a foreign partner on the Schedule K-1 filed with the Form 1065 federal partnership tax return. A partner is considered to be a foreign partner if the partner is a foreign company formed under the laws of a foreign country. A partner is considered to be a foreign partner if the partner is a foreign individual who is not a U.S. citizen, does not hold a U.S. green card or does not meet the substantial presence test to be treated as a U.S. resident for U.S. federal tax purposes. The U.S. partnership is also required to comply with Continue reading »
Pennsylvania Enacts Job Creation Incentive, but Beware of the Clawback
Pennsylvania has enacted a new job creation law allowing qualified companies to retain 95% of the withholding taxes for the individuals employed in the newly created jobs. The Promoting Employment Across Pennsylvania Act (L. 2012, H2626, effective 10/26/2012), which was signed into law by Governor Tom Corbett on October 26, 2012, offers the 95% retention incentive to for-profit corporations, partnerships, and other entities that create 250 new jobs in a five-year period (with 100 of those jobs required to be created in the first two years). The employer must also offer health insurance coverage to Continue reading »
Form 5500 Filing Relief for Plan Sponsors Impacted by Hurricane Sandy
The IRS announced it is granting relief to benefit plan sponsors affected by Hurricane Sandy. This relief also includes plan providers whose services impact the filing of Form 5500. In general, plans in the affected areas will have until November 7, 2012 to file returns that otherwise would have been due October 31, 2012.
Relief is automatic, with no action required by plan sponsors. In the event a notice for delinquent filing is received, then the impact of Hurricane Sandy should be referenced in the plan sponsor’s reasonable cause statement. As additional details emerge regarding the storm’s impact, additional filing relief Continue reading »
