Small Business Tax Saving Strategies for the 2012 Filing Season

1. Small Business Tax Saving Strategies for the 2012 Filing Season Updated December 12, 2011

2. Advice for Small Businesses from CPAs • Tax incentive opportunities for small businesses in 2011 and 2012: • Expense-related provisions • Employee-related provisions • Reporting-related provisions • Planning opportunities • Year-round tax management

3. Expenses: Section 179 Deduction • Expensing provision for certain business property • Maximum $500,000 first-year write-off in 2011; $139,000 in 2012 • Most tangible personal property eligible • Includes qualified restaurant, leasehold and retail properties in 2011 • Phaseout begins at $2 million in 2011; $560,000 in 2012 • Limits and exceptions

4. Expenses: Bonus Depreciation • First-year bonus depreciation allowance for eligible property • 100% deduction for property placed in service in 2011; 50% in 2012 • Property eligibility requirements • Benefits of using bonus depreciation: • Immediate tax relief • Improved cash flow • Additional reinvestment capital

5. Expenses: Start-up and Organizational Costs • Start-up Costs Deduction in year business starts/succeeding years Can include full range of business investigatory costs First $5,000 in expenses deducted; the remaining is amortized over 180 months The deduction requires an election $50,000+ dollar-for-dollar phaseout • Organizational Costs  • Deduction for certain costsin creating C or S corporationor partnership • $5,000 maximum • $50,000+ dollar-for-dollar phaseout • Same rules as businessstart-up costs • Certain legal and accountingfees

6. Employee Related: Federal Unemployment Tax (FUTA) • Employers pay FUTA tax on first $7,000 of each employee’s wages • 6.2% tax rate through June 30, 2011 • Reduced to 6.0% tax rate starting July 1, 2011 • Credit against state unemployment taxes

7. Employment Related: Deduction for Health Insurance • Self-employment tax rate reduced by 2% to 13.3% in 2011 • If you are self-employed, you may continue to deduct health insurance costs fromyour business income when determining yourincome tax liability • Deduction for business owner, spouse anddependents (and children under age 27 in certain circumstances)

8. Employee Related: Worker Retention Credit • Worker retention tax credit for each formerly unemployed worker • Hired after 3/18/2010 and before 1/1/2011 • Minimum one-year employment period • Claim credit on 2011 tax return • $1,000 or percentage of wages paid

9. Employee Related: Credit for Hiring Unemployed Veterans • Special credit for hiring unemployed veterans • Component of work opportunity credit • Hired after 11/11/2011 and before 1/1/2013 • Up to $5,600 for hiring a long-term unemployed veteran • Up to $2,400 for hiring a short-term unemployed veteran • Up to $9,600 for hiring an unemployed veteran with a service related disability

10. Reporting: Certain 1099-MISC Reporting Repealed • As in previous years, Form 1099-MISC is used to report payments for business services totaling $600 or more. • Payments to corporations for businessservices do not require a 1099 – Congress repealed. • All other reporting requirements remain

11. Reporting: Credit Card Transactions • New reporting requirement for merchants accepting credit cards, debit cards, or gift cards • Businesses will need to report income from credit card transactions separately andreconcile credits and returns • Merchants will receive Form 1099-K by January 31 of each year, beginning 1/31/2012 Designed to make sure merchantsare properly reporting income Businesses must provide card processing company with your TIN on a Form W-9

12. Reporting: Information Return Penalties • Failure to file a correct and timely information return • Penalties significantly increased by Congress • $30 per return if less than 30 days late • $60 per return more than 30 days late, but filed by Aug. 1st • $100 per return, otherwise • Penalties may be waived for reasonable cause • Increase penalty for intentional disregard

13. Important Tax Rule: Corporation Built-in Gains • No net built-in gains tax on certain property • If sold more than 5 years after conversion from C corporation to S corporation • Special rule for 2011 – normally 10 years • Reduced taxes and additional investment capital

14. Planning for 2012 and Beyond • Additional 0.9% Medicare tax on certain wages beginning January 1, 2013 • New Medicare tax (3.8%) on certain investment income beginning January 1, 2013 • If Bush-era tax cuts allowed to expire December 31, 2012: • Tax rates increase on regular income, capital gains, dividends • Number of taxpayers subject to Alternative Minimum Tax (AMT) rises • Certain tax credits expire

15. Planning for Net Operating Losses • NOL deduction available when current year’sincome is less than current year’s deductions • NOLs can be carried back 2 years and forward 20 • Planning required to maximize deduction • NOL versus Section 179 deduction • NOL versus bonus depreciation • Many businesses have large NOLs generatedduring economic downturn. Proper planning willinsure best tax result so that NOL benefits arenot allowed to expire.

16. Planning for Retirement • Variety of options, designed to fit your needs • 401(k) allows flexibility; salary deferrals and/or employer contributions • SIMPLE IRA and SIMPLE 401(k) are available only to small businesses; for SIMPLE 401(k), employer is required to contribute • SEP is simple, inexpensive

17. Planning for Business Succession • Critical to start now – need to have plan for unexpected events • Significant impact if a principal owner/ partner suddenly leaves or dies • Several strategies available to finance a smooth transition • Sources of financing can include: • Life insurance • Buy-sell agreement • Grantor trust • Best plan should fit structure of company, personal preferences & needs

18. Key Takeaways • CPA-small business owner partnership • CPA advice • Year-round tax planning