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Don't Forget These Valuable Business Tax Credits

The tax code provides many valuable, and often unknown, tax credits. Most of these credits have been shaped and molded through the years by special interest groups and Congressional pet projects, no doubt. However, if one of them hits your business wheelhouse, it can provide an unexpected tax benefit.

Tax credits are more valuable than tax deductions. Deductions lower your taxable income and are worth your tax rate multiplied by the deduction (roughly). For example, a taxpayer with a $4,500 business expense who sits in the 35% tax bracket receives a tax benefit of $1,575 (not counting the state benefit) from the expenditure. Credits, on the other hand, are worth the amount. dollar-for-dollar. So a $4,500 business expense that qualifies for a tax credit is worth the full $4,500.

Most credits have special rules assigned to them.  For instance, the Disabled Access Credit is equal to 50% of the eligible access expenditures for the year that exceed $250 but do not exceed $10,250.  Thus the maximum credit is $5,000 in any one year.  When a credit is taken for an expenditure, the deduction is not allowed for the same expense (no "double-dipping").

Because many other credits are somewhat obscure, they may not always come up or be identified during your regular tax preparation.  Be sure to let us know if you are aware of a credit to which you may be entitled.  Often when purchasing products that qualify for the credit, the sales rep will let you know that the items qualifies for a tax credit. 

Following are some of the credits that are more common among the industries we serve.

• Credit for Small Employer Pension Plan Start-Up Costs.  If you haven't had a retirement plan before and decide to start one, you are then entitled to a credit related to the fees spent to start the plan. The credit is limited to $500 per year for three years. 
• Fuel Tax Credit.  If you purchase fuel for farm or off-highway business use (purchased not tax-exempt), then you likely qualify for the fuel tax credit.  This credit is common for mowing companies, farms, or companies that use generators frequently in their business. 
• Small Employer Health Insurance Credit.  New during 2010 as part of ObamaCare, this credit applies to employers that provide health insurance to their employees and meet certain other average wage and employee criteria.  
• Disabled Access Credit.  Mentioned earlier, this credit is available for small businesses that incur expenses to make their facilities accessible to disabled individuals.  This can include costs related to a building, equipment, and even certain services. 
• Retaining Qualified New Employees.  As a part of tax relief passed in 2010, this credit applies to those employees that qualified for the FICA tax relief allowed for thos who were unemployed prior to being hired.  The credit is allowed once those employees are retained for 12 months and meet certain other criteria.
  
  

  And one of our favorites... 

• Mine Rescue Team Training Credit.  Do you train employees to perform mine rescues?  If you do, congratulations, there is a tax credit for you!

If you think one of these credits may apply to you and your business, please let a Veros team member know and we'll be sure to confirm that you meet all the necessary criteria to take the credit.

What You Need to Know About the New Estate and Gift Tax Laws

Right before the end of 2010, Congress passed the 2010 Tax Relief Act.  Before the new law, there was no estate tax for 2010, but some beneficiaries could have faced higher taxes because there were less favorable income tax basis rules.  Also, under the prior law, estate and other transfer taxes were scheduled to rise substantially for post-2010 transfers. 

A Temporary Fix.  Once again our lawmakers have concluded a temporary relief package of laws and no long-term plan.  Below are the guidelines for retroactive for 2010 and for the upcoming years.

2010

• Preserves repeal of tax in 2010, if you elect that option, along with less favorable modified carryover basis in assets that are passed on to the heirs
• Otherwise, by default, estates will have a $5 million exemption, top tax rate of 35% and heirs will receive a step-up in basis (new basis in assets becomes the value at the date of death, rather than original cost to deceased) in any assets transferred

2011 & 2012

• Top tax rate of 35%, $5 million exemption (set to increase with inflation for 2012)
• Step-up in basis for assets transferred to heirs
• A deceased spouse's unused exemption may be shifted to the surviving spouse and added to that spouse's $5 million exemption.  This could change the need to set up assets into a trust, depending on the reasons for doing so.  Issues such as time between death of the first spouse until death of the second spouse that could allow for more appreciation or remarrying would be reasons why a credit shelter trust would still be important.

What happens after 2012?  Right now, the top rate will jump to 55%, and the exemption will drop to $1 million, for estates of decedents after December 31, 2012.

Gift Tax Changes.  Years ago, the gift tax and the estate tax were unified -- they shared a single exemption and were subject to the same rates.  That is not the case in recent years.  For example, in 2010, the top gift tax rate was 35% and the exemption was $1 million.  For gifts made after December 31, 2010, the gift tax and estate tax are reunified and an overall $5 million exemption applies. 

GST Tax Changes.  The GST tax is an additional tax on gifts and bequests to grandchildren when their parents are still alive.  The 2010 Tax Relief Act lowers GST taxes for 2011 and 2012 by increasing the exemption amount from $1 million to $5 million (as indexed after 2011) and reducing the rate from 55% to 35%/

These changes have a significant impact currently from the prior law in place, but the long-term impact of estate tax law is still unknown.  Estate planning is important for two reasons: 1) To reduce taxes, and 2) If taxes are not a concern because an estate is below the exemption level, it is important to have a proper estate plan to ensure that the needs of intended beneficiaries are met.

If you have questions about the new estate and gift tax rules and how they might impact your family, please do not hesitate to contact a member of our Wealth Management team. 

Veros Partners teams up with INHP for Living the Dream Project

We may be a little late in posting this but the day hasn't gone forgotten!  It was a perfect fall day for the Veros Partners team and INHP to help transform a house into a home for the Montgomery family on the east side of Indianapolis.  The homeowner went through an education process to learn more about budgeting, financial planning, and improving her credit score.  We congratulated her on these accomplishments by rewarding her and her family with a special home renovation!

The Veros team, INHP volunteers, and a few additional partners worked diligently by painting rooms, providing home furnishings, cleaning, removing brush from the yard, organizing the garage, stocking the pantry, and much more.  It's amazing what 20 hard-working volunteers can accomplish in one day!

A VERY SPECIAL THANKS to Ron Joyner of Ron Joyner Construction Services, LLC, for his contractor expertise, as well as a generous in-kind donation from CertaPro Painters of Indianapolis for their donation of paint and supplies for the home's interior transformation.

Also, thanks to many of our clients for their continued support!

You may view more pictures of our experience that day by clicking on the picture above for a link to an INHP Shutterfly site.  Simply enter homeownership as the site password to view them.