Navigating this year's tax changes

More than four dozen federal tax provisions expired at the end of 2011, and there's uncertainty whether they'll be extended for 2012. This could make planning your corporate tax strategy a bit tricky this year, say experts.

"It's really a challenge in 2012 for small businesses to plan," says Barbara Weltman, author of "J.K. Lasser's Small Business Taxes 2012" (Wiley; $19.95) and a Millwood-based small-business tax specialist. "They may postpone actions . . . until all of the tax rules for 2012 become certain."

Among the expired provisions, says Weltman:

A research and development tax credit for up to 20 percent of increased qualified research expenditures;

A 100 percent deduction for bonus depreciation of the cost of qualified new property including equipment (it's now 50 percent); and

First-year expensing (the Sect. 179 deduction) on new or used equipment, reduced from $500,000 in 2011 to $139,000 in 2012.

"Many people want 2011 breaks extended for 2012, and that could happen," says Weltman, noting the time frame on when Congress will act is uncertain. (For a list of expired benefits, see newsday.com/columnists/jamie-herzlich).

On a brighter note, there were several tax changes implemented in New York that could be beneficial to small businesses, says Jill Schneider, tax director at Mayer Meinberg Llp, a Syosset-based accounting firm.

MTA tax

Among the more high-profile breaks was the change in the MTA Payroll Tax, she notes. Businesses with an annual payroll between $10,000 and $1.25 million will have the MTA tax (34 cents for every $100 of payroll) eliminated, and businesses with payrolls between $1.25 million and $1.75 million will see their payroll tax lowered by either one-third or two-thirds.

"In our current economic climate, every penny counts," says Adam Schwam, president of Sandwire Corp., a technology development and consulting firm in Garden City and one of the 71,969 Long Island businesses that will see the tax eliminated.

Classic Coach and Hampton Luxury Liner in Bohemia, on the other hand, will not reap the same benefit. Owner Bill Schoolman, a vocal opponent of the tax, says he'll still have to pay it because his company's payroll falls above the elimination/reduction thresholds. Schoolman, who filed the first lawsuit against the tax in 2009, says the tax costs him close to $20,000 annually, adding that the lawsuit is still pending.

Another noteworthy break, says Schneider, is the reduction of a 6.5 percent tax imposed on New York State manufacturers. For taxable years beginning on or after Jan. 1, 2012, and before Jan. 1, 2015, the tax will be reduced to 3.25 percent for qualified manufacturers, she says. The state is still developing the qualifying criteria.

Payroll

Other breaks include a two-month extension of the temporary payroll tax cut that was implemented last year, says Neil Geschwind, a partner at Holtz Rubenstein Reminick Llp, a Melville accounting and business advisory firm.

For workers and self-employed individuals that means a 2 percent reduction in the Social Security tax withholding rate through Feb. 29, 2012. For employees, that would be a reduction from 6.2 percent to 4.2 percent. For self-employed individuals, it would be a reduction from 12.4 percent to 10.4 percent of wages paid through that period, says Geschwind.

Individuals, though, who make more than $18,350 in that two-month period may ultimately end up paying that tax upon filing their 2012 returns, because there's a recapture provision for higher-income earners in an amount equal to 2 percent of excess wages earned during that period, he notes.

So be cautious when planning if you're within that income bracket, he says.

This year small businesses will also need to keep track of the total amount paid for employer-sponsored health coverage, thanks to new reporting requirements that mandate they report it on their 2012 W-2's, he says.

On a positive note, with this being an election year, there probably won't be many new tax increases, and you may even see an extension of some of the expired benefits, says Geschwind.