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Sweet marketing music

Tanner Montague came to town from Seattle having never owned his own music venue before. He’s a musician himself, so he has a pretty good sense of good music, but he also wandered into a crowded music scene filled with concert venues large and small.But the owner of Green Room thinks he found a void in the market. It’s lacking, he says, in places serving between 200 and 500 people, a sweet spot he thinks could be a draw for both some national acts not quite big enough yet for arena gigs and local acts looking for a launching pad.“I felt that size would do well in the city to offer more options,” he says. “My goal was to A, bring another option for national acts but then, B, have a great spot for local bands to start.”Right or wrong, something seems to be working, he says. He’s got a full calendar of concerts booked out several months. How did he, as a newcomer to the market in an industry filled with competition, get the attention of the local concertgoer?

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by John Csargo
June - July 2010

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Taxes

Act now before some breaks fade away

IN 2010, many tax laws affecting small businesses will expire or change, making this an important year for business owners to take a proactive approach to tax planning.

These tax law changes will be affecting several areas including: cancellation of business debt, a significant drop in the cost of machinery and equipment that you can deduct, an increase in the domestic production activities deduction, reduction in the mileage rate, and many more.

Small-business owners who pay attention now can get set to take advantage of new deductions and avoid any negatives after laws expire.

For the struggling

Cancellation of business debt. This change, which may expire after 2010 for struggling business owners, was first implemented under the American Recovery and Reinvestment Act (ARRA) in 2009. The law enabled certain businesses to elect to delay recognition of income from the cancellation of business debt in both 2009 and 2010. Income recognition can be deferred until the fifth year after the reacquisition, and then the income is included ratably over the following five years.

Super-sized Section 179 deduction and 50 percent first year bonus depreciation may be eliminated. Under the current tax code, Section 179 allows businesses that spend less than $530,000 a year on qualified equipment to write off up to $134,000 in 2010 with no bonus depreciation. Section 179 is set to completely expire in 2011.

The 50 percent first-year bonus depreciation break is generally dead for assets placed in service in 2010. For a new business vehicle subject to the dreaded luxury auto depreciation limitations, this change has the effect of reducing the maximum first-year depreciation deduction by $8,000. Note that the 50 percent first-year bonus depreciation is still available for certain long-lived assets and transportation assets that are placed in service by December 31, 2010, but only for amounts invested in the asset as of December 31, 2009.

There is a good chance that upcoming legislation will retroactively reinstate both the $250,000 Section 179 deduction and the 50 percent first-year bonus depreciation break for 2010. Business owners should plan accordingly and keep a close watch.

Section 199 domestic production activities deduction increases to 9 percent, excluding oil and gas. The domestic production activities deduction was created as the centerpiece of the American Jobs Creation Act.  It allowed the ability to lower your tax bill if you produce goods, develop software or construct property in the United States, and it applied to products being exported as well.

For tax years beginning in 2010, the Section 199 domestic production activities deduction generally increases to 9 percent of the lesser of:

1. taxable income (modified AGI for individuals);

2. qualified production activities income (QPAI); or

3. 50 percent of W-2 wages.

In 2009, the deduction percentage was only 6 percent. The increase from 6 percent to 9 percent doesn’t apply to oil and gas activities.

Updated mileage rates. Standard mileage rates for the business use of vehicles have been reduced slightly for 2010. Beginning on January 1, 2010, the standard mileage rate for the use of cars, vans, pickups or panel trucks are:

• 50 cents per mile for business miles driven.

• 16 cents per mile driven for medical or moving purposes.

• 14 cents per mile driven in service of no change).

Expanded net operating loss carryback period is gone, most likely. The Worker, Homeownership, and Business Assistance Act of December 2009 gave virtually all businesses the chance to elect to carry back net operating losses arising in tax years beginning in 2009 for three, four or five years. The expanded carry back deal is unavailable for net operating losses arising in tax years beginning in 2010, unless Congress takes action.

R & D tax credit. Since its creation in 1981, the research and development tax credit has come and gone often. Though it is best left to tax professionals to crunch the numbers, it can prove to be a worthwhile expense for your company.

R&D extension

The tax credit for research and development was set to expire after 2009, but the U.S. House has since voted for an extension, effectively pushing $31.1 billion in expiring tax provisions through 2010. Many business owners mistakenly believe research and development is only for large companies but there are many benefits for small businesses as well.

Some other expiring breaks: In addition to what we covered so far, the following widely applicable business tax breaks also expired at the end of last year. We expect most or all of them to be retroactively reinstated. (Note that this is not an exhaustive list.)

• Privilege of electing to claim unused AMT and R&D tax credits instead of first year bonus depreciation deductions.

• 15-year depreciation for qualified leasehold improvements, retail improvements, and restaurant improvements and buildings .

• Five-year depreciation for qualified farm equipment.

• Suspension of the taxable income limitation on percentage depletion deductions for marginal oil and gas properties.

• Enhanced charitable write-offs for donations of food and book inventories, and computers and technology.

• Enhanced charitable write-offs for qualified conservation contributions of capital gain real property .

• Beneficial shareholder stock basis adjustment rule to encourage S corporation charitable donations of capital gain property.

• Beneficial estimated tax payment rule for individuals with small business income. In 2009, estimated tax payments were required to be 100 percent of the prior year tax instead of the typical 110 percent in year 2009.

• New markets tax credit, an incentive to create investments in low income communities.

There have been many changes in 2010 with a number of lingering uncertainties. Make sure your CPA is actively monitoring tax legislation this year as it could be critical to your business.

John Csargo,
Blanski Peter Kronlage
& Zoch CPAs
and Consultants:
763.546.6211
jcsargo@bpkz.com
www.bpkz.com