|
The latest trend in the business sector has less to do with profitability and more to do with accountability. It is all about taking steps to protect the environment. Fortunately, there are a number of ways that employers and employees can implement environmentally friendly changes while saving taxes and money in the long run. Here are several areas for your consideration.
Tax-free commuting: The tax code allows employers to provide tax-free payments or reimbursements to employees for certain commuting expenses. For instance, an employee may currently receive mass transit benefits of up to $115 per month. Similarly, employees can benefit from carpooling or vanpooling in a qualified company-owned vehicle. The maximum tax-free monthly benefit for this tax break is $115 per employee. Both of these fringe benefit amounts are adjusted for inflation on an annual basis.
Alternative motor vehicle credits: Business taxpayers may qualify for a special tax credit for acquiring a vehicle that meets specified requirements. This includes the use of hybrid vehicles. The amount of the hybrid-vehicle credit, which ranges according to the vehicle's fuel economy, may be as high as $3,400. Caveat: The credit for hybrid vehicles begins to phase out when the manufacturer has sold more than 60,000 vehicles.
Home-office deductions: Instead of having employees drive to work every day, you may allow them to work from home all or part of the time. This generally reduces your company's overhead expenses. Furthermore, an employee may qualify for home-office deductions if he or she can establish that the arrangement is required for the employer's convenience. The optimal means is to spell out the requirements for stay-at-home employees in writing.
Energy-tax deductions: Under the energy-tax law passed back in 2005, the owner of a commercial building may claim a deduction for certain energy-saving improvements. This tax break, currently scheduled to expire after this year, is available for improvements that achieve a 50% energy reduction for a targeted type of building. The deduction is equal to $1.80 per building square foot, although you may qualify for a lesser deduction of $0.60 per square foot under certain circumstances.
Hazardous site deductions: Normally, environmental cleanup costs must be capitalized and added to basis. But there is a special exception for the cleanup of hazardous materials located at qualified sites. A business may be able to claim a current deduction for qualified expenses. As the law stands now, the deduction is limited to expenses paid or incurred before 2008, but this tax break may be extended by subsequent legislation.
Finally, there is no other "official" deduction or credit for buying other energy-efficient property. However, that does not mean you cannot derive tax benefits for such purchases. For example, if qualified assets are placed in service in 2008, they are eligible for both the enhanced Section 179 deduction, the 50% bonus depreciation and the regular Modified Accelerated Cost Recovery System (MACRS) deductions. The maximum Section 179 deduction for this year is $250,000.
To investigate the opportunities available for a particular business, contact a professional tax adviser.
Finding Tax Shelter in Estate Planning
Shield assets with a credit shelter trust
Who are the beneficiaries of your estate? For many entrepreneurs, it is typically a combination of a spouse and children. However, part of the net worth you intend to pass to your loved ones could be eroded by estate taxes. Fortunately, you may be able to shelter your estate from tax through a "credit shelter trust" (also called a "bypass trust").
Background: Thanks to the unlimited marital deduction, any transfer of assets from one spouse to another is completely exempt from federal estate tax. Furthermore, for decedents dying in 2008, up to $2 million of assets can be effectively sheltered through the credit known as the estate-tax exemption. This exemption amount increases to $3.5 million for 2009.
Under the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), the federal estate tax is scheduled to be eliminated after 2009, but it is then scheduled to be reinstated in 2011. By using a credit shelter trust, you may transfer a sizable amount to your heirs by combining the marital deduction with the federal estate-tax exemption.
Example: William Marx, a successful business person, owns assets currently valued at $4 million. Under his will, all of the property is to be transferred to Susan, his spouse.
Assuming that William dies in 2008, the assets pass to Susan free of estate tax under the unlimited marital deduction. But the exemption for William's estate goes to waste. For instance, should Susan die in 2009, the exemption for her estate can shelter $3.5 million. The remaining $500,000 (adjusted for investment performance) is subject to estate tax.
Possible solution: William could leave half of his estate, or $2 million, to Susan outright and transfer the other half to a credit shelter trust. For instance, this can be accomplished by establishing the trust in his will (i.e., a testamentary trust). There are two common methods:
*The will can provide that the income from the trust is to be distributed among the surviving spouse and children.
*If there is concern about a surviving spouse's financial security, trust income can be paid to the spouse for life.
Going back to our example, the $2 million transferred to the trust is sheltered by the estate-tax exemption for William's estate. It bypasses Susan's estate completely. And when Susan dies, there is no estate tax on the $2 million she leaves to the children. Net effect: With the credit shelter trust, $4 million is transferred estate-tax-free.
Reminder: Of course, you must consider other factors- including the application of state inheritance laws-as part of an overall estate plan. It is recommended that you seek assistance from an estate-tax practitioner.
Q's and A's for Your Retirement
Take steps to safeguard your business
The IRS figures the more, the merrier. That is why it has announced it is teaming up with more than half of the individual states to resolve employment tax issues and corral offenders. This collaborative effort is intended to provide a centralized and uniform methodology for improving employer compliance in this area.
Details: The new initiative is the by-product of the teamwork between various state agencies, the U.S. Department of Labor, the National Association of State Workforce Agencies, the Federation of Tax Administrators and the IRS.
As of this writing, 29 states are participating in information-sharing agreements. They are, in alphabetical order: Arizona, Arkansas, California, Colorado, Connecticut, Hawaii, Idaho, Kentucky, Louisiana, Maine, Massachusetts, Michigan, Minnesota, Nebraska, New Hampshire, New Jersey, New York, North Dakota, Ohio, Oklahoma, Rhode Island, South Carolina, South Dakota, Texas, Utah, Vermont, Virginia, Washington and Wisconsin. More are expected to follow.
The IRS and the states are hoping that their joint efforts will reduce fraudulent filings, uncover tax avoidance schemes and ensure proper worker classifications. In particular, it will try to clarify the features distinguishing independent contractors from employees. This classification of workers is often contested by both sides.
What can employers expect to occur? The IRS and the participating states hope to accomplish the following:
*An exchange of employment tax information for civil cases involving attempts to evade or inappropriately reduce employment tax liabilities;
*An exchange of information using either actual employment tax reports or a template compatible with federal and state information that the oversight team has developed;
*Participation in coordinated enforcement efforts;
*Sharing of independently conducted examination results or side-by-side cooperation on an examination;
*A concerted attempt to be consistent with their examination results, reducing the chances that states might classify a worker as an employee while the IRS classifies the worker as an independent contractor or vice versa;
*Sharing employment tax training opportunities and materials; and
*Sharing outreach opportunities to the business community whenever that is practical.
The new initiative meets the necessary disclosure requirements for ensuring the privacy of taxpayer information. In addition, all participating states must demonstrate that they have systems in place to ensure the safety of any IRS data they will receive as a part of the information-sharing agreements.
More to come: The joint crackdown is also expected to result in legislative proposals to promote increased fairness and confidence in the tax system. Stay tuned for further developments relating to employment taxes.
Wash Sale Rule Extended to IRAs
The IRS has finally issued the definitive word on "wash sales" inside an IRA.
Basic premise: Normally, if you incur a loss on the sale of a security, you can use the loss to offset annual capital gains plus up to $3,000 of ordinary income. But the wash sale rule prohibits you from deducting the loss if you buy back substantially identical securities within 30 days of the sale. Silver lining: You can add the nondeductible loss to your basis.
In settling a long-standing debate, the IRS now says that the wash sale rule applies if you buy back the securities through an IRA (either a traditional or a Roth). Plus, you cannot make a basis adjustment for the nondeductible loss.
How to Start a Nonprofit Organization
Summary of basic steps for a new entity
If you are deeply committed to a charitable cause, you may decide to establish a nonprofit organization with a specific mission. However, you must be careful to observe all the technicalities in this area. Here are the basic steps to forming a nonprofit.
*Decide on the nonprofit's name. The name must be different from any one already registered with the state. (Hint: Try to be descriptive.) Check with the appropriate state office to determine if the name is still available. For a relatively small fee, you may be able to reserve the name.
*File articles of incorporation with the state. This documentation-which includes basic information like the nonprofit's name, address and telephone number-should have specific language that will help you obtain favorable tax status. If you are unsure of the procedures, seek professional assistance.
*Apply for tax exemptions. You must submit the proper forms, along with a copy of the articles of incorporation and the requisite fee, to the IRS in order to secure a federal income tax exemption. In a handful of states, you must follow similar procedures on the state level. In other states, obtaining the federal tax exemption will also qualify your organization for a state tax exemption. Check on the requirements for your state.
*Have bylaws drafted. The bylaws cover the rules relating to board meetings, voting on issues, and selecting a board of directors and officers. Typically, the bylaws are adopted by the corporation's directors at the nonprofit's first board meeting. Make sure you are well prepared for this occurrence.
*Appoint the board of directors. The board is responsible for making the main operational and financial decisions of the nonprofit. Depending on state law, you may be required to designate a specific number of board members (usually, at least three).
*Hold your first meeting. Besides adopting the bylaws at the first meeting, the board of directors will usually elect the nonprofit officers, record the federal and state tax exemptions and handle other pressing matters. After the meeting, ensure that the minutes are promptly filed in a binder.
*Obtain licenses and permits. Check with your appropriate state office about licensing requirements for the organization. For instance, if you are planning to offer products for sale to donors, you will need a sales tax permit. In addition, some activities may require a zoning permit.
Don't hesitate to contact your legal and business advisers for assistance. They can help guide you along the way.
Facts
and Figures
Timely points of particular interest
→ Low-cost Motivators - Employees generally need motivation, but it does not always have to be costly. One idea: Try ordering in lunch from a local sub shop or pizza place. During your informal lunch break, watch a taped sitcom or a DVD in the conference room. Alternatively, take the crew outside to a park or garden. Or maybe you could go to a library, coffee shop or museum. In any event, it is possible to motivate creatively without breaking the bank.
→ Trust Advisory Fees - The U.S. Supreme Court recently ruled that the 2%-of-AGI (adjusted gross income) floor for miscellaneous expenses applies to most investment advisory fees paid by a trust. Now, in a follow-up ruling, the IRS says it will not apply this decision retroactively. Furthermore, for 2008 and later years, it is expected to exempt a set percentage of bundled fees from the 2% floor. This will make it easier to allocate fees. |
