DETROIT, Feb. 25 — Corporations have their hands full with tax changes this year, given all of the recent legislation and the significant corporate tax implications of Obama’s budget proposal. On the bright side, there was a collective sigh of relief at the exclusion of the controversial “check the box” legislation, and “green” credits are abundant for all kinds of companies, not just confined to alternative energy. Below are some highlights of this year’s tax season – compiled by the professionals at BDO:
Potential Michigan Business Tax changes resulting from Kmart decision
A recent Michigan Supreme Court ruling on the Michigan Single Business Tax will retroactively impact the taxes some local corporations have paid. The court ruling may also end up applying to the Michigan Business Tax, and some companies will need to review their transactions to determine whether they will have unanticipated tax liabilities as a result.
Goodbye check-the-box worries, hello 15.5 billion in new taxes
In place of the controversial proposal to abolish “check-the-box” rules, the Obama administration’s budget instead includes $15.5 billion in new taxes, which ideally will help to regulate transfer pricing rules without some of the downsides of the “check-the-box” legislation. The new proposal takes aim at the transfer of licenses, patents, trademarks and other intangible property to subsidiaries in low-tax countries. It also will defer deductions for items attributable to foreign earnings – one of the big ones would be interest expense.
Figuring out NOLs
The Net Operating Loss rules have changed, yet again, for ESBs (Eligible Small Businesses). Small businesses now have a 3- to 5-year carry back period for the part of a 2008 or 2009 NOL. Additionally, the 3- to 5-year rule has been expanded to cover all businesses for 2009. It is critical to confer with a tax advisor on this topic, as the outcome could vary significantly depending on which option the business chooses.
MNCs brace for change
Multinational Corporations need to review the impact of potential changes in the tax law and be prepared to act to mitigate any negative impact to their worldwide tax burden. Obama’s budget proposal includes a broad package of international tax changes estimated to generate $122.2 billion over the next 10 years.
Enjoy LIFO while it lasts
The budget proposes to repeal the “last-in, first-out” (LIFO) accounting method for costing inventory, which would trigger their LIFO reserve , cause it to be taxed currently and eliminate the current deferral of tax on it. This would mean big changes for oil companies, retailers, textile makers, consumer-products companies and others that record inventory using the LIFO method.
Enlist the Help of Tax Professionals
There are dozens of other changes this year, with a partial list below. Businesses should consult with their accountants immediately to find out if and how they will be impacted:
- Nonqualified Deferred Compensation Plans
- Changes to Investment Credit
- COBRA Premium Assistance Credit
- Credit for Employer Differential Wage Payments
- Deprecation and 179 expense
- Domestic Production Activities Deduction
- Employer Owned Life Insurance Contracts
- Qualified Transportation Fringe Benefits
- S-Corporation Built-In Gains Tax
- Self Employment Tax
- Work Opportunity Credit
- Vehicle Credits and Standard Mileage Rates