Small Business Tax

Q. In a recent article ("Exclude tax on home installment sale"), you said that installment sales must take place over two years. But isn’t the rule only that the payment must be received in the following year?

The new HIRE Act preserves the enhanced Section 179 deduction of $250,000 for assets placed in service in tax years beginning in 2010. Without the tax law change, the maximum deduction was scheduled to fall to $134,000. Strategy: Load up on new business equipment this year. It may be your last shot at a $250,000 instant write-off for the near future.

If your firm is tagged as a “personal service corporation” (PSC), it must pay tax at a flat rate of 35% (the current highest average tax rate for C corps). You can’t benefit from the graduated rate structure like other corporations. As a result, your company might have to fork over thousands of extra tax dollars each year. That’s what happened to a land surveying firm in a new case.

Q. Our company pays monthly bonuses to hourly employees based on the previous month’s performance. When calculating overtime, should the bonus pay be included only for the weekly payroll that contains those bonuses, or does it change the overtime rate for other weekly pay periods as well?

Q. I have several 401(k) plans from prior employers. Am I limited to one rollover to an IRA for 2010?

Q. I didn’t take my first required minimum distribution (RMD) in 2009 because of the waiver. Do I have until April 15, 2011, to take one for 2010?

Don’t expect the taxman to go easy on you in retirement. When you start collecting Social Security retirement benefits, up to 85% of the benefits may be taxable. Strategy: Be proactive about taxation of Social Security benefits. Depending on your situation, you can use one or more of four strategies to reduce or eliminate tax liability.

The homebuyer’s credit is drawing a lot of flak at the IRS. According to an April 15 report to the Senate Finance Committee by Nina Olson, National Taxpayer Advocate, more than 260,000 returns filed in 2010 have already been flagged for correspondence audits because taxpayers didn’t attach sufficient documentation for claiming the credit.

Are you tired of paying tax twice on income as a C corporation owner? First, income is taxed to the corporation as it is earned and then again to you personally when it is paid out as dividends. To avoid the double tax whammy, consider a switch to S corporation status. But watch out for the built-in gains (BIG) tax.

Do you need someone to watch your young children during the summer months while you work? The full amount paid to a household worker can qualify for the dependent care credit even if the worker does other chores.