Trucking company executives should be aware of certain provisions of the HIRE Act, Congress passed recently.
For 2010, the purchase of trucks, trailers, and other equipment may be written off or expensed on your income statement on the first $250,000 of purchases , subject to a spending cap of $800,000 allowed for the year, amounts purchased over the $800,000 cap will begin to phase out the $250,000 amount on a dollar for dollar basis.
If you hire new employees, you may want to look at the HIRE provisions, which may allow you to skip the 6.2 % required employer‘s share of the payroll tax payment, for the remainder of 2010. You will need to consult with your CFO or outside CPA to discuss what a qualifying employee is. In reading the HIRE provisions, the most interesting section is the eligibility requirement which states that a new employee will not be eligible if the new employee replaces another employee who performed the same job, for the employer, unless the prior employee left the job voluntarily or for cause. The new employee must have been unemployed for the last 60 days, except for 40 hours of employment, which is allowed during the out of work period. The following is a "what if" scenario you may kick around, to determine if your company qualifies for the payroll tax holiday, and the special $1,000 tax credit.
Consider the following: If your trucking company hires a driver, after February 3, 2010, who has been unemployed for 60 days, is hired by your company to drive truck # 109, previously driven by a company driver who left your company on their own accord, to seek other employment, it would appear on the surface that the company could take the payroll tax credit of 6.2 %.
If the new driver earned wages of $45,000, for the 2010 year, then the payroll tax credit computed at 6.2% would be $2790. The credit would apply to the 2nd, 3rd, and 4th quarter, 2010 payroll reporting periods.
In addition, if the new driver, stays a year, on the 2011 corporate tax return filed by the employer, an additional credit of $1,000 would be allowable to offset income taxes incurred by the company, the credit is the lesser of $1,000 or 6.2% of wages, thus the wage limit would be $16,000 in wages paid to reach the cap of $1,000.
This sounds too good to be true, given the nature of turnover in the trucking industry. If you had 100 percent turnover, which is an industry average, you would not be paying much of the payroll tax matching tax of 6.2% on wages paid new drivers hired during the year. More research need s to be done to determine what is meant by job replacement for the former employee who left the job voluntarily or for cause.
If you have any questions please give Richard Bell a call 501.753.9700.
Wednesday, May 12, 2010
Wednesday, April 28, 2010
Deductiblity of Covenants Paid Not to Compete
In a recent ruling, Recovery Group, Inc., v. Commissioner, (TC Memo 2010-76), the tax court answers a common question about the sale of a partnership or corporation interest that involves a covenant not to compete. A common scenario for transferring an owner’s interest when the owner leaves a company is that the remaining owners purchase that interest. A purchase price allocation is made between the value of the partnership or stock interest, goodwill, and a covenant not to compete.
The values assigned to each component are more important than you might think. The value assigned to purchase the partnership interest is usually stepped up, and the assets within the partnership receive new values. In order to properly accomplish this, tax elections must be filed. This usually leads to tax deductible assets for the remaining partners in the form of inventory or fixed assets. If a stock interest is purchased, then the value is not currently deductible, similar to buying stock shares in Walmart, until the stock interest is later sold. If goodwill is purchased, the goodwill asset is amortized over 15 years.
This leaves the question about value assigned to the non-compete agreement, and when and how much is deductible. In the case examined by the tax court, $400,000 of the purchase price was assigned to the covenant not to compete and was deducted over the term of the agreement, the following twelve months. The purchase terms of the departing owner’s interest consisted of a down payment of $200,000 and a note for $600,000 over three years. The tax court disagreed with the twelve month deduction, and ruled that the non-compete was akin to goodwill, i.e. an intangible asset, and should be amortized over 15 years, the amortization life of that asset group.
In reviewing this case, it should be noted that the term of the non compete , one year, and the payment period of the non compete , three years, did not govern the deductibility term. In reviewing the tax side of a proposed purchase transaction, covenants not to compete will be treated like goodwill for deductibility purposes.
If you have questions or comments, please let Pancho or Kelly know. You can give them a call at 501.753.9700.
The values assigned to each component are more important than you might think. The value assigned to purchase the partnership interest is usually stepped up, and the assets within the partnership receive new values. In order to properly accomplish this, tax elections must be filed. This usually leads to tax deductible assets for the remaining partners in the form of inventory or fixed assets. If a stock interest is purchased, then the value is not currently deductible, similar to buying stock shares in Walmart, until the stock interest is later sold. If goodwill is purchased, the goodwill asset is amortized over 15 years.
This leaves the question about value assigned to the non-compete agreement, and when and how much is deductible. In the case examined by the tax court, $400,000 of the purchase price was assigned to the covenant not to compete and was deducted over the term of the agreement, the following twelve months. The purchase terms of the departing owner’s interest consisted of a down payment of $200,000 and a note for $600,000 over three years. The tax court disagreed with the twelve month deduction, and ruled that the non-compete was akin to goodwill, i.e. an intangible asset, and should be amortized over 15 years, the amortization life of that asset group.
In reviewing this case, it should be noted that the term of the non compete , one year, and the payment period of the non compete , three years, did not govern the deductibility term. In reviewing the tax side of a proposed purchase transaction, covenants not to compete will be treated like goodwill for deductibility purposes.
If you have questions or comments, please let Pancho or Kelly know. You can give them a call at 501.753.9700.
Friday, April 23, 2010
Presdient and First Lady Release 2009 Tax Return
On 4/15/10 the President released their 2009 tax return. I find it interesting the amounts on this return which reported and AGI of $5.5 million and tax of $1.8 million. President Obama earned $5.6 million in book royalties and made charitable contributions of $329,000 to 40 different charities. The President's return can be downloaded at www.whitehouse.gov/blog/2010/04/15/president-obama-and-vice-president-biden-s-tax-returns.
Thursday, April 01, 2010
Receivership Instead of Bankruptcy, a new Concept!!!
Receiverships instead of bankruptcy, a new concept!!!
Google, Bell Receivers, LLC, and it will drive you to numerous news sites about a recent project, our firm, Bell Receivers, LLC worked on. The uniqueness of the project was an attempt by a lender and a company to use the concept of a receivership, to operate and manage a troubled company, take the company thru an attempted liquidation of its assets and liabilities, outside the context of a bankruptcy filing. Receiverships usually involve real estate property liquidations and operations, this receivership broke new ground in what receiverships may be able to do, in handling workouts, liquidations or restructurings, outside the context of a bankruptcy filing, in the future. For more information contact Richard or Jeff at Bell Receivers, 501-753-9700.
Google, Bell Receivers, LLC, and it will drive you to numerous news sites about a recent project, our firm, Bell Receivers, LLC worked on. The uniqueness of the project was an attempt by a lender and a company to use the concept of a receivership, to operate and manage a troubled company, take the company thru an attempted liquidation of its assets and liabilities, outside the context of a bankruptcy filing. Receiverships usually involve real estate property liquidations and operations, this receivership broke new ground in what receiverships may be able to do, in handling workouts, liquidations or restructurings, outside the context of a bankruptcy filing, in the future. For more information contact Richard or Jeff at Bell Receivers, 501-753-9700.
Thursday, March 26, 2009
New Tax Law for Net Operating Loss Carrybacks
By: Richard Bell, CPA
The old rules for companies, defined as proprietorships, partnerships, or corporations, with losses for the year, would be to either carry the loss back to the prior two years, or elect to carry the loss forward for 20 years. For example, if you incurred a net operating loss in 2007, you could carry the loss back to a taxable income year 2005, or 2006, and if the full loss was not utilized you could carry the loss forward to 2008 and beyond for 20 years.
For 2008, if you have a loss , and qualify as a small business type, defined to be a company with prior three average revenues of 15 million or less, you may elect to carry the loss back for three additional years, and may opt to choose the specific year of loss. For example, if you have a net operating loss in 2008 , you may carryback the loss to 2007, 06, 05, 04, or 03. It is not necessary to go to 03 first, you can start with 04 or 05 if you so choose. For losses not absorbed, you may again carry the losses forward for 20 years. Further, you may retain the right to forego the carrybacks and elect to carry the losses forward to 2009 and beyond.
There are always exceptions and special rules to the general rules. For instance you may have filed an election to forego the loss and carry it forward, Generally, this election is irrevocable, but the new tax law allows you to amend this election, to take advantage of the new five year carryback period. Further, if you file a corporate C type return, that is a fiscal year, that began in 2007 and ends in 2008, you can make a special election to treat the return as a 2008 year return instead of a 2007 return, and file the losses in the carryback period.
If you have questions on how to best utilize your business losses, contact Pancho.espejo@bellandcompany.net or Andrew.griffith@bellandcompany.net in our office, they will be glad to assist you.
The old rules for companies, defined as proprietorships, partnerships, or corporations, with losses for the year, would be to either carry the loss back to the prior two years, or elect to carry the loss forward for 20 years. For example, if you incurred a net operating loss in 2007, you could carry the loss back to a taxable income year 2005, or 2006, and if the full loss was not utilized you could carry the loss forward to 2008 and beyond for 20 years.
For 2008, if you have a loss , and qualify as a small business type, defined to be a company with prior three average revenues of 15 million or less, you may elect to carry the loss back for three additional years, and may opt to choose the specific year of loss. For example, if you have a net operating loss in 2008 , you may carryback the loss to 2007, 06, 05, 04, or 03. It is not necessary to go to 03 first, you can start with 04 or 05 if you so choose. For losses not absorbed, you may again carry the losses forward for 20 years. Further, you may retain the right to forego the carrybacks and elect to carry the losses forward to 2009 and beyond.
There are always exceptions and special rules to the general rules. For instance you may have filed an election to forego the loss and carry it forward, Generally, this election is irrevocable, but the new tax law allows you to amend this election, to take advantage of the new five year carryback period. Further, if you file a corporate C type return, that is a fiscal year, that began in 2007 and ends in 2008, you can make a special election to treat the return as a 2008 year return instead of a 2007 return, and file the losses in the carryback period.
If you have questions on how to best utilize your business losses, contact Pancho.espejo@bellandcompany.net or Andrew.griffith@bellandcompany.net in our office, they will be glad to assist you.
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