.McQuade.Brennan.LLP.

Low inflation contributed to a five cent drop in standard business mileage reimbursement rate for 2010. Effective January 1, 2010, the mileage reimbursement rate for business and medical and moving expenses have changed, but the mileage rate for charitable organizations has remained the same.

The IRS announced the 2010 optional standard mileage rates beginning January 1, 2010:

-          50 cents per mile for business miles driven

-          16.5 cents per mile for medical or moving purposes

-          14 cents per mile driven in service of charitable organizations

Limitations

The business standard mileage rate cannot be used to compute the deductible expenses of automobiles used for hire, or five or more automobiles owned or leased by a taxpayer and used simultaneously. In addition, a taxpayer may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS) or after claiming a Section 179 deduction for that vehicle.

The Wall Street Journal had an interesting article Monday on corporation’s increasing use of outsourced financial professionals.

McQuadeBrennan’s CFO Service group has been the firm’s fastest growing division. What I see in the Washington, DC marketplace is a shortage of accounting professionals who can tackle the multiple accounting and tax issues that organizations face daily. A private equity group we work with likes to use the term “efficacy” when describing our services.  It’s difficult for management to make assessments of a finance department’s “efficacy”, but they can make judgments on a department’s results. 

Tax returns get filed on time, financial statements are available real-time and most importantly, and what McQuadeBrennan believes is its most valuable service, the financial operations and results are clearly explained to management. 

 The 30-year fixed-rate mortgage averaged 5.04% for the week ending September 17^th, down from 5.07% last week and 5.78% a year ago.

 The 15-year fixed-rated mortgages averaged 4.47%, down from 4.5% last week and 5.35% a year ago.

The five-year adjustable-rate mortgages averaged 4.51%, unchanged from last week, while it averaged 5.67% a year ago.

The 30-year fixed-rate mortgage generally requires an average payment of 0.7 points, the 15-year fixed-rate mortgage requires an average payment of 0.6 points, and the ARMs require an average payment of 0.5 points. (A point is an upfront fee based on the loan amount.)

These increasingly low mortgage rates have boosted homebuilder and consumer confidence, resulting in a boost in recent home sales and new construction. 

I’ve seen many of my client’s portfolios and financials showing more red than black this year due to the economic crisis. I suggest businesses and individuals consider taking advantage of the longer net operating loss carryback option included in the recovery act. Eligible individuals have until October 15^th to make their election and eligible calendar-year corporations have until September 15^th.

Businesses with gross receipts of less than $15 million over a three-year period in the tax year beginning or ending in 2008 can carryback their current net operating losses (NOL) up to five years instead of two years, as previously allowed.

Advantages of taking the NOL carryback include:

-         Offsetting the loss against income taxes paid up to five prior years

-         Using up part or all of the loss now, rather than waiting to claim it on future returns

Corporations use Form 1139 to make their election and offset taxes.

Individuals, estates, and trusts use Form 1045 to make their election.

Business owners should be aware of the Section 179 and bonus depreciation tax deductions announced in the American Recovery and Reinvestment Act of 2009.  For qualifying property purchased during 2009, businesses are allowed to take Section 179 deductions up to $250,000 on the full purchase price of qualifying equipment purchased or financed from your gross income.  The limit to the total amount of equipment purchased is $800,000. Qualifying property includes:

-         Equipment for business use

-         Tangible personal property used in business

-         Business vehicles with a gross vehicle weight in excess of 6,000 lbs

-         Computers

-         Off-the-shelf computer software

-         Office furniture

-         Office equipment

-         Property attached to your building that is not a structural component of the building

-         Equipment purchased for business and personal use, deduction based on the percentage of time it is used for business purposes

You may also take 50 percent bonus depreciation for property placed in service in 2008 and 2009. The tax break has been extended for property with longer production periods. The bonus depreciation allowance is available for property depreciable under MACRS and has a recovery period of 20 years or less; water utility property; off-the-shelf computer software; or qualified leasehold improvement property. 

For businesses who have delayed capital expenditures, this may be a good time to take action. Equipment and motor vehicle dealers are discounting across the board, and the IRS will subsidize a portion of the cost. 

Attention all business owners that conduct business in D.C.! The District has required all businesses that pay business taxes to have a valid District of Columbia Basic Business License (BBL). In general, if your business has a tax identification number, then you are required to obtain a BBL General Business License.   

There are rolling application deadlines based on your business zip code.  For businesses located in Maryland and
Virginia conducting business in the District, application deadlines will be based on the name of the city you are located. 

Maryland:                                      Virginia:

A-C     February 28, 2009             A-F    July 31, 2009

D-Q     March 31, 2009                G-Z     August 30, 2009

R-Z     April 30, 2009

Certain businesses are exempt from applying for a General Business License.  However, they are required to file an exemption request form. 

The following exemptions apply to businesses:

-  Who are required to maintain licensure by local, state or national certification board or body

-  Not having a Federal Employer Identification Number (FEIN)

-  Having a Basic Business License whose endorsements authorize all current business activities

-  Having a current occupational or professional license for business activities 

For example, health professionals, lawyers, professional service providers, educators, insurance providers, and service providers may file for exemption.

The 2009 Economic Stimulus Plan, officially known as the “American Recovery and Investment Plan”, was signed into law on February 17, 2009.  The bill, historical because of its many attributes, contains several incentives to jump start the economy.  

The following are key previsions businesses will find most beneficial: 

- NOL Carryback: Businesses with 2008 gross receipts of less than $15 million can carryback their current net operating losses (NOL) up to five years instead of two years, as previously allowed.  

- Industrial Development Bonds: The scope of state and local government issued industrial development bonds is temporarily extended to facilities manufacturing intangible property. 

- Bonus Depreciation and Section 179 Limits: For qualifying property purchased during 2009, businesses are allowed to take 50 percent bonus depreciation and Section 179 deductions of up to $250,000, certain restrictions apply. 

- Credit for Hiring “Disadvantaged” Workers:  A maximum tax credit of $2,400 for hiring unemployed veterans or individuals between the ages of 16 and 25 who have not been regularly employed or attending school in the past six months.  

- Reduction in S-Corp Asset Holding Period: The 10 year asset holding period requirement to avoid built-in gains tax on S Corporations has been temporarily reduced to seven years. 

- Transportation Fringe Benefits: The 2009 limit on pre-tax deductions for mass transit benefit has increased to $230 per month from the existing $120 and ties the benefit to inflation for future years.   

- COBRA Premium Subsidy: Includes 65% federal subsidy of COBRA premiums for involuntarily terminated employees for a period of up to nine months. To qualify for this premium subsidy, an employee must be involuntarily terminated between September 1, 2008 and December 31, 2009 and earn less than $125,000 if single, or $250,000 if married.  

Key previsions beneficial to individuals: 

- AMT Patch Extension: The existing alternative minimum tax (AMT) fix is extended for another year increasing exemption amounts up to $46,700 of an individual’s income and $70,950 of a couple’s income for 2009. It also allows the use of nonrefundable personal credits to avoid the alternative minimum tax. 

- Education Tax Credits: The Hope education credit limit is increased from $1,800 to $2,500 for all four years of college tuition. In addition, the credit will cover costs of textbooks and would now be 40 percent refundable. Also, computer related expenses are considered exempt under the new 529 College Savings Plan rules. 

- First-time Homebuyer’s Credit: A refundable tax credit increase of 10 percent of home value up to a maximum credit of $8,000 for purchases made before December 1, 2009 (November 30, 2009). The credit is forfeited if purchaser sells the house within three years. Certain income limitations apply.

- Credits for Residential Energy Efficiency Improvements: Tax credits are increased 30 percent up to a $1,500 maximum credit for home energy efficiency enhancement purchases, such as new furnaces or insulation. 

- Deductions for Car Buyers: Vehicles purchased in 2009 costing up to $49,500 qualify the car buyer to take above-the-line deduction for state, local and excise taxes as well as interest on their car loan. Phase out begins at $125,000 for individuals and $250,000 for married filing jointly.

I wrote the following piece with Ms. Kate Carr, President, Cardinal Bank DC.   The Washington Post published the piece, “How to Make D.C. an Economic Powerhouse (Hint: Tax Less)”, in the Outlook Section, Close to Home editorials on Sunday, February 8, 2009. As business leaders in the District, we can’t underestimate the importance of our proposal to the business community.  

No Corporations Need Apply 

The economic crisis has forced state and local governments throughout the country to review their increasingly stressed budgets and seek new sources of revenue. In December, the District’s unemployment rate hit 8.8 percent, compared to the national rate of 7.2 percent, a 16-year high. Personal income taxes provide the city with 17 percent of its revenue, its largest single revenue source. By contrast, corporate and franchise taxes are projected to make up just 4.3 percent of the District’s revenue in 2009.    

In considering its own stimulus package, the D.C. Council should review the structural impediments to job growth in the District. How can the District position itself to take advantage of the enormous opportunities presented by the federal government’s role as the world’s largest financial shareholder and general contractor since the New Deal?    

For-profit corporations are painfully absent from the District’s economic landscape. At 9.975 percent, the District has the third-highest state or local corporate tax rate in the country. For a company considering operating in the District, it’s an absolute deal-breaker. Economists have noted for years the phenomenon that higher tax rates often result in lower tax revenue. The District’s corporate tax policies have the same impact on its economic growth and diversification that NINA (“No Irish Need Apply”) signs had on the unemployed Irish in the 1900s: Don’t bother operating a business in the District. Our tax rates will make sure you’re not competitive.    

The D.C. Council would be wise to consider the expanded role of the U.S. government in managing the largest economy in the world, and what that role could mean to the District. The stimulus package now before Congress will dwarf those of the New Deal. And it’s likely to attract institutions and corporations from around the world who want to participate in the massive spending involved. The Tax Foundation, a nonpartisan policy research group, consistently rates neighboring
Virginia as having one of the most favorable corporate tax environments in the nation. (The District and Maryland are consistently among the worst.) Tysons Corner has plenty of capacity to handle the expected influx of businesses wanting to do business with the U.S. government, and Virginia is ready to accommodate them and their jobs.    

Eliminating the District’s corporate income tax could have a profound impact on the future of the District. Job growth, increasing property assessments, and revitalization throughout the city would be immediate. The economic crisis and the role the federal government is expected to play in the country’s recovery present the District with opportunities that no other city in the country has. Think Dubai; it has oil. The District has the federal government. The District’s tax structure, especially its corporate tax, prevents it from assuming a position of economic leadership in the region and the country. Markets are mobile, and businesses will locate where they have the greatest economic advantage. The District needs an economic advantage.    

The national crisis needs a deliberate, quick and bold response. If the District doesn’t act soon, it may as well post signs on all major roads into the city: No Corporations Need Apply.                 

- Brian McQuade

- Kate Carr

The IRS announced the 2009 optional standard mileage rates beginning Jan. 1, 2009:

- 55 cents per mile for business miles driven

- 24 cents per mile driven for medical of moving purposes

- 14 cents per mile driven in services of charitable organizations.

These rates reflect gas prices, and other fixed and variable costs, such as depreciation. The rate for charitable purposes has been a law since 2008.  These rates are slightly lower than the rates set in the second half of the year to combat the abnormal rise in gas prices.  The business mileage rate was 50.5 cents in the first half of the year and 58.5 cents in the second half.  The medical and moving rate was 19 cents in the first half of the year and 27 cents in the second half. 

A vehicle may not use the business standard mileage rate if the business has used any depreciation method under MACRS or after claiming a Section 179 deduction.  The business standard rate may also not be used for hire or for more than four vehicles used at the same time.

The Housing/Debt Crisis is Over.

Sunday morning the Treasury announced it’s “conservatorship” of Fannie Mae and Freddie Mac. The resolution of the viability of these huge GSE’s [Government Sponsored Enterprises] was critical to resolving the decline in US home prices and the ability of consumers to acquire affordable mortgages. The Fed’s recent reductions of it’s discount rate has had no impact on mortgage rates, as the market and consumers remained fixated on the viability of the two largest players in the US home mortgage industry. Today’s move by the Treasury will begin the recovery of a long and prolonged housing slump.  

Financial institutions should have a big day Monday. It’s been a long time coming.