By Erika Diebert, ASL Tax Senior
There is an opportunity for Qualified Small Businesses (QSBs) to utilize their unused federal 2016 R&D credits against their 2017 payroll tax liability (Employer portion of FICA). This was enacted as part of the PATH Act of 2015 but is just now becoming available starting with the income tax filings for the 2016 tax year.
The offset of payroll taxes will be available for R&D credits generated on the 2016 tax return from R&D expenses incurred in 2016. R&D credit carryovers from years prior to 2016 cannot be used. The maximum benefit allowed to be claimed in a tax year is $250,000. An election to use the credit against payroll taxes is made on an originally and timely filed (including extensions) Form 6765 by completing section D of the form. (more…)
We all have heard and know of people becoming millionaires overnight with “stock option” money, especially in Silicon Valley. Stock options are an important part of the compensation package for many employees in the technology sector. For companies, it is a tool to retain employees and motivate them to perform better as the company’s growth and success translates to their success.
The most common types of stock options are Incentive Stock Options (ISO’s) and Non-Qualified Stock Options (NQSO’s). The tax consequences to employees are as follows:
Incentive Stock Options (ISO) (more…)
In November 2016 the Governor’s Office of Economic Development announced that it had awarded $61 million of California Competes tax credits to 74 taxpayers.
These business entities promised to add over 6,500 jobs and invest $670 million in the California economy.
The credits granted ranged from $8 million to businesses receiving the minimum credit of $20,000. The program is required to grant 25% of the credits to small businesses. It is interesting to note that credits were granted to many taxpayers not operating in manufacturing. Taxpayers receiving credits included entities performing: engineering consulting (Roseville), software development (Folsom); dentist (Fresno), day care services (Oakland); financial planning (Irvine), data analysis (Los Angeles) and architecture (Anaheim). (more…)
Beginning next year several tax filing due dates will be changing. The existing filing schedule has been in place since I manually prepared tax returns with pencil and paper before the computer age began so these changes are significant. The new filing dates were established under the Protecting Americans from Tax Hikes (PATH) Act of 2015 without much publicity outside of the tax practitioner community. The new filing dates are effective for tax years beginning January 1, 2016, so taxpayers unaware of the new dates may have an unexpected surprise next year.
Fortunately, the traditional April 15th due date for individual tax returns has not changed but the due dates of business returns have been modified. The changes were implemented to help smooth the tax filing process for taxpayers owning interests in pass-through entities such as partnerships and S-Corporations. (more…)
I have previously discussed tax opportunities for selling the business by a C corporation. I would like now to switch our focus to options available to S corporations.
One of the options for an S corporation to sell its business is to sell its underlying assets. This is often a preferred option by a potential buyer as it provides a step up in acquired assets. Unlike a C corporation, the S corporation is a pass-through entity and its federal taxable income is only taxed at a shareholder level. Thus, double taxation is usually avoided with some limited exceptions. (more…)
Selling your business may seem like a natural progression for your company and the possibility of early retirement may look closer than ever, but without careful planning and execution and thorough consideration of the tax impact of sale, eventual financial outcome may end up being much smaller than anticipated.
You can structure sale of your business in two primary ways: 1) sale of the stock or interest in the company or 2) sale of underlying assets. Depending on the structure chosen, special elections made and type of underlying assets, composition of gain as ordinary vs capital may differ significantly and so may the tax liability.
Now let’s consider tax consequences of selling your business under two different scenarios. Under the first scenario, you are the owner of a closely held C corporation. Under the second scenario, you are the owner of a pass-through entity, an S corporation or a partnership. (more…)
Business entities use insurance to provide protection against various risks ranging from natural disasters to cyber threats. As our economy has evolved the risks that can be insured against have grown more complex. An introduction to business insurance was the topic of our August, 2015 Emerging Business Group seminar. One traditional use of insurance is to provide funds to compensate a business in the event of the death of a founder or other key employee. For founders and other stockholders, the life insurance proceeds received by the entity can be used to fund the purchase of the founder’s ownership interest in that entity. In the case of key employees, life insurance proceeds can help to offset potential revenue losses or increased costs incurred while the entity determines how to deal with the knowledge and resources lost due to their employee’s death. (more…)
June 30th deadline for filing the Form 114 – Individuals Filing the Report of Foreign Bank and Financial Accounts has passed, but the IRS continues its fight to secure US tax revenue from foreign financial accounts. (more…)
The treaty signed between India and Mauritius in 1983, a decade before India opened its door to foreign investors made Mauritius the most favored route to invest in India. Many foreign companies incorporated a holding company in Mauritius which held shares in an Indian company. The sale of shares in Indian company would not result in capital gains tax in India and Mauritius- thereby making it a preferred vehicle for foreign investment.
According to government data, from 2000 – 2015, about $94 billion, a third of all foreign direct investment into India, came via Mauritius. It was a boon to the Indian economy at the brink of liberalization in 1990’s, but gave rise to “round tripping” i.e., Income on which taxes were not paid was routed via Mauritius companies to avoid tax, revenue loss and treaty abuse. (more…)