Its getting near the end of the year, and tis the season to be compiling lists.
In a few weeks youll be reminded of the winners and losers during the past year, of 2009 celebrity divorces and deaths, box office bonanzas and busts, and sports triumphs and tragedies. And in the spirit of the season, Im offering a list compiled from the advice of several accounting firms as to factors that businesses should consider in making changes that will impact their 2009 tax filing, and begin the cash-planning process for the year ahead.
The recommendations come courtesy of Steven Lainoff, principal-in-charge of KPMG LLPs Washington National Tax practice, and Jamey Rappis, director of tax at Clifton Gunderson, LLP.
As companies confront a very challenging year, their tax positions could be affected by decisions they make in order to weather the economic situation, said Lainoff. In addition, Washington extended some lifelines this year via new tax provisions to help companies, and these tax opportunities should certainly be explored before year-end.
Lainoff recommends that companies should check with their tax advisors to determine if the following 2009 tax considerations, among others, may apply as they prepare for the upcoming tax-filing season and as the cash planning process for the New Year begins.
1. Explore opportunities for tax refunds. Depending on a companys anticipated tax liability for 2009, it may be able to obtain a refund of all or part of its estimated federal taxes for 2009 prior to filing its 2009 return. If a companys deductions exceed its income in 2008 or 2009, the possibility of securing a refund of taxes paid in prior years should be explored, as recent legislation allows almost all taxpayers to carry a loss from either 2008 or 2009 (but not both) as far back as five years earlier. This can provide a quick infusion of cash for qualifying companies that had taxable income in previous years.
2. Check the performance of the companys investment portfolio. Companies with stock or security investments that became worthless in 2009 should investigate the option of claiming a deduction. The worthless stock (or security) deduction must be claimed in the year in which the investment becomes wholly worthless; if certain requirements are satisfied, this may result in an ordinary rather than capital loss. Because an ordinary loss (as contrasted with a capital loss) can offset ordinary income, it is generally more advantageous for companies in the current economic environment to have ordinary rather than capital losses.
3. Consider deferring income from a corporate debt repurchase. Companies that may have repurchased, exchanged or modified their own outstanding debt in 2009 (or intend to do so in 2010), should look into the possibility of deferring any income resulting from the transaction. This provision from the American Recovery and Reinvestment Act of 2009 allows qualifying companies to defer recognition for a limited period of time on all or a portion of their "cancellation-of-indebtedness" income when they reacquire an applicable debt instrument.
4. Review the impact of the economy on transfer pricing and other compliance matters. For example, companies conducting international trade or manufacturing should consider undertaking a thorough review of transfer pricing and trade and custom activities before the end of the year. The substantial changes in economic conditions, business structures and transfer-pricing regulations have the potential to leave companies exposed to audits by regulators in these areas and to create challenges for future development. Companies should review results of intercompany transactions in relation to tax regulations and consult with their tax and customs advisors regarding potential needs for adjustments and or additional documentation.
5. Ensure compliance with the many state and local tax changes enacted in response to the ongoing economic crisis. Some of these include expanded nexus standards, more comprehensive provisions restricting deductions for expenses paid to affiliates, rate increases or the adoption of surtaxes, and limitations placed on the use of certain business credits and net operating losses. In addition, taxpayers will need to pay careful attention to the states reactions to federal stimulus legislation, specifically, whether states have decoupled from federal law changes such as bonus depreciation and net-operating loss carryback provisions.
Planning is more complicated this year due to the economic turmoil coupled with the need for state and federal governments to generate funds, according to Rappis.
To minimize the tax burden on a business, he advised accelerating capital-purchasing plans and taking advantage of increased expensing limits; taking advantage of credit offered for increasing research and development activities; accelerating buying plans and taking advantage of bonus depreciation deductions; and cleaning up the balance sheet to remove uncollectible debt and dispose of or donate obsolete inventory.
