The federal government’s Economic Stimulus Act is best known for its individual rebates, but there are components that are designed to jumpstart business spending as well:

Q. How does the Economic Stimulus Act relate to business?

A. There are two main business areas; the first is increased asset expense allocation. The economic stimulus package doubles the current small business expensing limit from $128,000 to $250,000. This provides business owners with an immediate deduction for the entire cost of certain investments made in their business, such as purchasing new equipment. This applies only to business owners who invest less than $800,000 in their business this year.

The second is the bonus depreciation allowance, which provides a valuable tax break in the form of bonus depreciation. The incentive allows all qualifying taxpayers to claim an immediate 50 percent deduction for certain qualifying depreciable property acquired and placed in service in 2008.

Q. Are there restrictions on these incentives?

A. There are important guidelines that lay out how the benefits can be applied:

Increased Asset Expense Allocation

- Applies to depreciable tangible personal property placed in service in 2008

- For other than calendar year taxpayers, additional limitations apply to purchases eligible for increased expensing during 2008. If this applies to clients, CPAs should be sure they are aware and take the time to walk through the limitations with them.

- Includes off-the-shelf computer software

- Property must be used in the active conduct of a trade or business

- Must be newly purchased property

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From 409A to audits, independent valuations are a popular topic of discussion these days…and for good reason. They can make all the difference in defending your position – and that of portfolio companies – with the IRS and financial statement auditors.

Q. Why do I need an independent valuation for stock options, as opposed to a valuation performed internally?

A. A decade ago we may have said, “You don’t.” But these days, the big picture tells us that you should only use an internal valuation if your in-house capabilities have the right expertise. Valuations come into play on too many levels to take a chance, especially when dealing with 409A (taxation of deferred compensation), GAAP and audit concerns.

Just as important, an internal appraiser needs to understand how the valuation will be defended if regulators take a closer look and require you to “show your work.” Also, your auditors will be assessing the valuation as part of their audit of compensation.

Q. You mentioned 409A in relation to granting stock options as compensation, which is common practice for us. What will an independent valuation accomplish?

A. On the tax side, under 409A, regulators may at some point be checking into whether the stock option was granted at Fair Value. An independent valuator gives you a safe harbor for these stock options when the IRS comes calling.

There are certain safe harbor provisions for internally prepared valuations, as well. However, your in-house appraiser needs to have qualifications similar to an external valuation expert in order to meet the standards.

If you don’t meet safe harbor and are deemed to have granted stock options at less than Fair Value, you’re looking at significant penalties: the recipient of the options will be hit with a 20 percent penalty on top of regular taxes and interest.

Q. Is 409A the main driver for independent valuations, then?

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Even without the recent headlines regarding Amazon’s lawsuit against New York, eCommerce Sales Tax has become a pressing issue for companies that sell online. The guidelines differ from state to state, can be extremely complex, and can lead to significant problems for companies that are not up to speed. Rosanna DiFilippo answers some topline questions about the issue.

In addition, we invite you to listen in on an audio interview with Rosanna on MFA’s Thought Leadership page.

Q. Is sales tax for online transactions any different than for in-store purchases?

A. It is often not the type of purchase made but the location of the sale and delivery of items that make eCommerce sales tax complex. Taxation is generally dependant on whether the seller has “nexus” in a state - that is, whether its presence in a region means they are actively doing business there. The trouble is that the guidelines for nexus are not uniform; companies may be subject to sales tax in one state but free from taxation in another.

Q. What are the different guidelines?

A. Guidelines differ from state to state, but here are a few examples:

- In California, sales tax does not apply to the sale or lease of prewritten programs if the product is transferred for download by remote telecommunications from the seller’s place of business to the purchaser’s computer and the purchaser does not obtain tangible personal property (i.e., a CD on which the software program is written).

- In Connecticut, canned, or prewritten software is considered tangible personal property and its sale, leasing or licensing (including upgrades) is taxable at 6%. Here’s where it gets tricky, though: if software is downloaded but no tangible property is transferred, the charge assessed is for computer and data processing services. That means a Connecticut retailer of downloaded software is actually a retailer of computer and data processing services and must register, collect, and remit sales tax of 1%. (more…)