Tax tips
Nothing is certain … not even taxes

There are many gray areas in the tax code, and even a good-faith tax position may be challenged by the IRS or other taxing authorities. New accounting rules require businesses to evaluate uncertainty over positions they take in their tax returns. They also provide guidance on the extent to which uncertain tax benefits can be recognized in your financial statements and require you to disclose uncertain tax positions.

The new rules generally don’t require you to disclose the specific tax positions that are uncertain. Still, many taxpayers are concerned that these disclosures may provide taxing authorities with clues to vulnerabilities in their tax returns. Be sure to talk with your tax advisor about how the new rules may affect you.

Getting on an installment plan

Estate taxes can be a big concern for many business owners. But if your company meets the definition of “closely held business” and your interest in it makes up more than 35% of your adjusted gross estate, it may be possible for your family to stretch out the payments of estate taxes attributable to the company over 14 years. As you plan for the succession of your business, be sure the next generation is aware of this tax-saving option.

Consider the alternatives

More and more C corporations are being ensnared by the alternative minimum tax (AMT). The AMT increases your tax bill if your AMT liability is greater than your regular tax liability. It applies to alternative minimum taxable income (AMTI), which is calculated by taking your regular taxable income and adding back certain tax benefits and preference items (including the benefits of accelerated depreciation). The AMT doesn’t apply to small corporations, generally defined as those with average gross receipts under $7.5 million.

If the AMT is a concern for you this year, one strategy to consider is leasing rather than buying equipment or other depreciable property. If you buy depreciable property, you may have to adjust your depreciation deductions for AMT purposes. But lease payments generally are fully deductible.

Changes for donor-advised funds

In recent years, donor-advised funds have become a popular vehicle for charitable giving. They allow you to make tax-deductible contributions to an account that you name. Similar to a foundation, but far less expensive to administer, the fund invests your donations and makes grants to a variety of qualified charities. Your donation is irrevocable but, unlike an outright gift to charity, you retain some influence over how the funds are used. For example, you can request the fund to schedule contributions over time or give your contributions to different charities.

Until recently, there was no legal definition of a donor-advised fund and little guidance on the types of organizations that could receive grants from them. The Pension Protection Act of 2006 defined the term and imposed several restrictions. For example, grants to individuals are prohibited, and grants to certain types of organizations require the fund to exercise “expenditure responsibility” — that is, ensure that recipients are qualified charitable organizations.

If you have invested in a donor-advised fund or plan to do so, be sure the fund meets the new requirements. •