Year-End Tax Planning
for Small Businesses

NSA represents accountants who specialize in serving small-to-mid-size businesses. For more information about taking advantage of year-end tax tips, contact Steve Marshall, Steve's Partner Stores & Info Center , 616.889.2253

NSA and its affiliates represent 30,000 members who provide accounting, auditing, tax preparation, financial and estate planning, and management services to approximately 19 million individuals and business clients. Most members are sole practitioners or partners in small- to medium- size accounting firms. NSA protects the public by requiring its members to adhere to a strict code of ethics.

Year End Tax Tips...

The Small Business and Work Opportunity Tax Act of 2007 (H.R. 2206) was signed into law on May 13, 2007, but most of the changes are good. They provide small businesses with tax relief in connection with an increase in the federal minimum wage. As the end of the year approaches, small businesses should consider these changes in their year-end tax planning:

1.Capital Gains. For taxable years beginning after May 13, 2007, capital gains from the sale or exchange of stock or securities will not be treated as passive income that could subject an S corporation (with C corporation earnings and profits) to the “sting tax” on excess net passive income or potential termination of the S corporation election.

2.Subchapter S Corporations. Effective for taxable years beginning after December 31, 2006, where the sale of stock of a qualified subchapter S subsidiary (“QSub”) results in the termination of the QSub election (because the former QSub is no longer wholly owned by an S corporation), the transaction is treated as a taxable sale of an undivided interest in the assets of the former QSub (based on the percentage of stock sold), followed by a transfer to the former QSub of all of its assets in a transaction subject to section 351 of the Internal Revenue Code of 1986 (the “Code”).

3.Interest Expense Deductions. Effective for taxable years beginning after December 31, 2006, the Act enables an electing small business trust to deduct interest expense incurred to acquire S corporation stock.

4.Family Business Tax Simplification. The Act allows a husband and wife who file a joint federal income tax return to elect to treat a “qualified joint venture” (i.e., an unincorporated business owned solely by the married couple and in which each spouse materially participates) as a sole proprietorship, rather than a partnership, for federal income tax purposes. Each electing spouse will report his or her share of income, gain, loss, deduction and credit for federal income tax and self-employment tax purposes as if attributable to a sole proprietorship. This provision is effective for taxable years beginning after December 31, 2006.

5.Work Opportunity Tax Credit. Certain employers hiring individuals from one or more of certain targeted groups are eligible for the WOTC. The Act extends WOTC through August 31, 2011, and expands the availability of the WOTC. The Act also provides a permanent waiver of the individual and corporate alternative minimum tax limitations for the WOTC.