New tax rules allow businesses to get carryback on recent losses - South Florida Business Journal:

Friday, November 27, 2009

New tax rules allow businesses to get carryback on recent losses

South Florida Business Journal - by Oscar Pedro Musibay

Oscar Pedro Musibay
Public relations expert Jorge Martinez goes over tax changes that impact his firm with accountant Saul Silverman.
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Despite an uptick in its revenue, companies like the Conroy Martinez Group might still be able to take advantage of tax rules that allow it to use current losses to get a refund.

Public relations expert Jorge Martinez said his clients, like all businesses, are struggling in an economy that has yet to recover locally. Fortunately, his company was able to bring in new business and expand services to existing clients to make up for clients that didn’t renew contracts in 2009. As a result, it generated higher revenue in 2009 than last year.

Saul Silverman, a partner at Goldstein Schechter Koch in Coral Gables, said the federal government has enacted changes that are helping companies that would not be eligible otherwise to get money back.

For example, tax rules from the last two years allowed small businesses – those generating less than $15 million in gross sales – to apply recent losses toward net income going back five years. New rules would potentially allow all business to be eligible for the same carryback of recent losses, with businesses generating greater than $15 million in gross sales having some limitations.

Bob Dreker, managing director of CBIZ MHM in Boca Raton, said the key for accountants is to figure which year is the best one to get the carryback.

“If they had a good year a few years ago, they were in a higher tax bracket,” he explained. “That is the one we want to choose and get the refund.”

Another important tax rule that might help businesses in the coming tax season involves the sale of assets. A typical corporation converting to S-corporation status that sold an asset anytime during a decade would have to pay a capital gains tax at 35 percent. Recent changes allow S-corporations to be exempt from the 35 percent rate after seven years.

Businesses buying equipment can also write off some of the purchase price, but the discount will soon be smaller, so companies should take advantage of the larger discount while its still available, the accountants said.

Gary Gerson, senior partner at Gerson Preston & Robinson, said clients are anxious about the impact of health care legislation under debate and fear higher taxes specially increases in capital gains.

He said he expects Congress will raise estate taxes, which would soon be down to zero, to make up for new programs like health care.

“They are going to have to do something in 2010 and make it retroactive to Jan. 1,” he explained. “They are not going to let anybody die without paying estate taxes.”

He also said families with portfolios of assets are rushing to create family limited partnerships to take advantage of the sale of stock in the partnerships at a discount of 35 percent to 50 percent. His clients fear that will change in the near future, and the concerns are driving the demand for establishing family limited partnerships sooner, rather than later.

Gary Jenkins, managing director of RSM McGladrey, said he’s optimistic – and so are his clients. He said that Congress is sensitive to the struggles of both large and small businesses, and has given them tax tools to help them deal with cash flow issues.

Said Jenkins: “We want to prepare clients so they can grow quickly when the economy turns.”


omusibay@bizjournals.com