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CCH Tax Planning Tips for Corporations: 11th Hour Strategies to Maximize 2010 Savings
(RIVERWOODS, ILL., November 18, 2010) – With only weeks to go before the end of the year, companies should be keeping a close eye on federal tax cuts set to expire at the end of December. CCH, a Wolters Kluwer business and a leading provider of tax, accounting and audit information, software and services (CCHGroup.com), highlights four tax-planning moves for companies to make the most of current federal tax laws.
“In the event that existing federal tax cuts from 2001 and 2003 are not extended on Capitol Hill, corporate leaders should consider what steps to take before the end of the year to best position their businesses for 2011 and beyond,” said Mark Luscombe, JD, LLM, CPA, and Principal Federal Tax Analyst at CCH.
Luscombe notes the following steps for corporations to consider:
Accelerate dividends. The tax on dividends will revert to the individual rate if the tax cuts expire, so accelerating dividends into 2010 will give shareholders the current, lower tax rate.“A closely-held company can declare dividends whenever it wants provided that it has the necessary earnings and profits, so timing would not pose a problem,” Luscombe says.
Companies not planning on issuing dividends at all might want to do so now.
Pay bonuses early. The top tax rate will rise from 35 percent to 39.6 percent, so executives might prevail on their companies to pay bonuses in December rather than 2011.
Sell underwater option stock. Employees who exercised incentive stock options earlier this year and have seen share values decline significantly might get caught in an alternative minimum tax (AMT) trap unless they sell before year-end. Otherwise, under AMT rules, they’ll owe tax at the higher value when the option was exercised.
"After the year end it would be too late to change that outcome if the employee remains subject to AMT,” Luscombe says.
Corporate tax departments may want to share this knowledge with their company’s executives. Employees with taxable stock options might want to exercise them before year-end if they believe their tax rate will be higher in future years.
Roll 401(k) balances into a Roth option. Under the Small Business Tax Act, employers can now allow employees to roll pre-tax 401(k) balances into a Roth account option within the 401(k) plan. That triggers a taxable event, but once the balance is in the Roth, accumulations would be tax-free from then on. Companies without such a Roth option need to add one before year-end to enable rollovers taxable at lower 2010 rates.
About CCH, a Wolters Kluwer business
CCH, a Wolters Kluwer business (CCHGroup.com) is the leading global provider of tax, accounting and audit information, software and services. It has served tax, accounting and business professionals since 1913. Among its market-leading solutions are The ProSystem fx® Suite, CorpSystem®, CCH® IntelliConnect®, Accounting Research Manager® and the U.S. Master Tax Guide®. CCH is based in Riverwoods, Ill. Wolters Kluwer (www.wolterskluwer.com) is a market-leading global information services company. Wolters Kluwer is headquartered in Alphen aan den Rijn, the Netherlands. Its shares are quoted on Euronext Amsterdam (WKL) and are included in the AEX and Euronext 100 indices.