PCPS Private Companies Practice Section Small Business Tax Saving Strategies for the 2011 Filing Season Current as of February 1, 2011

Advice for Small Businesses from CPAs >Tax-law changes for small businesses in 2010: -Section 179 expense deduction -Bonus depreciation -Health-insurance deduction -Business tax credits -And others >Year-round tax management 2

Section 179 Expense Deduction >Expensing provision for certain business property >Decreased new-equipment costs, improved cash flow and additional investment capital >Maximum $500,000 first-year write-off >Wide range of eligible property >$250,000 for qualified restaurant, leasehold and retail properties >$2 million+ phaseout >Limits and exceptions 3

Bonus Depreciation >First-year bonus depreciation allowance for eligible property >50% or 100% deduction >Property eligibility requirements >Allowance/date property placed in service >More affordable property, improved cash flow and additional reinvestment capital 4

Corporation Built-in Gains >No net built-in gains tax on certain property >Different rules for 2010 (7th tax year) and 2011 (5th tax year) >Reduced taxes and additional investment capital 5

Employer-provided Cell Phones >No detailed records reporting requirement for employees >Employer-provided and business-use (primarily) requirement >Listed property classification >Employer policy documenting business need and use 6

Small Business Health Insurance Credit >Up to 35% credit for employee health-insurance contributions >Factors determining credit: -Number of full-time employees -Average annual full-time wages -Premium amounts paid -Average premiums by state (certain coverage) -Effective tax years -Allowable each qualifying tax year -Alternative Minimum Tax (AMT) offset -Employee health-insurance assistance and reduced tax liability 7

Start-up and Organizational Costs >Start-up Costs -Deduction in year business starts/succeeding years -Full range of investigatory costs -First $10,000 in expenses and 180-month amortization period -$60,000+ dollar-for-dollar phaseout >Organizational Costs -Deduction for certain costs in creating C or S corporation or partnership -$5,000 maximum -$50,000+ dollar-for-dollar phaseout -Same rules as business start-up costs -Certain legal and accounting fees 8

Deduction for Health Insurance When Computing Self-employment Tax >Health-insurance cost deduction if self-employed >Deduction for business owner, spouse and dependents (and children under age 27 in certain circumstances) >Lowered taxable income and less taxes owed 9

1099 Reporting Requirement >Form 1099-MISC for payments totaling $600 or more >Exceptions for certain types of payments >Rule change after December 31, 2011 >Information return for rental income from real estate of $600 or more (unless authorized exception) effective for

Worker Retention Credit >Tax credit for each formerly unemployed worker >Minimum one-year employment period >$1,000 or percentage of wages paid >Qualification requirements: -Employment start date -Period of unemployment -Position/type of services -Length of employment -Wages paid 11

Other Business Tax Credits >Wide range of business tax credits >Effective through December 31,

Key Takeaways >CPA advice >CPA-small business owner partnership >Year-round tax planning 13

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