Business Resolutions

From the Union Leader to the Boston Globe to the Wall Street Journal, business writers and analysts are predicting a general increase in hiring for 2011. Early economic indicators, including the Dow edging tantalizingly towards 12,000, suggest consumer confidence is returning to a level not seen for several years. This is welcome news after countless reports of layoffs, work force reductions, and hiring freezes.

Is your business ready to add new employees? Talking to business associates has revealed an understandable but dangerous tendency to let hiring procedures, company policies and employee handbooks unattended during this recent negative economic cycle. With many companies experiencing a downturn in earnings, it was hard to justify added expense in reviewing these types of materials. Now, however, with news that the recession is “officially over” and publication of positive predictions, this may be a good time to revisit company procedures and update policies, manuals, and forms. Please feel free to contact me with any questions you may have about the best manner in which to do this; or call Meredith Cook at 629-4511 to discuss updating your employment policies; or, call Mona Movafaghi at 629-4523 to discuss immigration issues. This is an opportune time to revamp employer policies and hiring information, and place your company in a good position to expand your work force as, hopefully, it and the economy grows again.

-Submitted By Christopher Pyles, Esq.
603-629-4725
cpyles@wiggin-nourie.com

Overview of Tax Changes Affecting Individuals in the 2008 Financial Bailout and Tax Package

We want to alert you to several tax law changes affecting individuals that were enacted Oct. 3, 2008. Most of them apply retroactively. These changes, together with several other popular tax benefits, were included in the controversial financial bail-out legislation to win support from reluctant lawmakers. Although many of the changes will have a modest impact on a relatively small group of taxpayers, they are described below for your general information, as well as their potential applicability. The changes in the alternative minimum tax, however, are likely to have a significant positive impact on an individual's 2008 federal tax picture. These changes are discussed immediately below.

Alternative Minimum Tax Relief
Changes in the alternative minimum tax ("AMT") rules will provide relief for millions of individuals. The first change is an increase in the exemption amounts that are subtracted from an individual's "alternative minimum taxable income" to determine the taxable amount (if any). The exemption amounts for 2008 are $69,950 for joint filers, $46,200 for single filers, and $34,975 for married taxpayers filing separate returns. These amounts, although only slightly higher than in 2007, are substantially higher than the exemption amounts originally scheduled to apply in 2008.

The second broadly applicable AMT change permits taxpayers to use all their "nonrefundable personal credits" (e.g., the dependent care credit) in full to offset both the regular tax and the AMT in 2008. Before this change, which represents a one-year extension of a rule that had expired in 2007, most of the nonrefundable personal credits could not be used to offset the AMT.

Other changes in the new law are aimed at a narrower but nevertheless substantial group of taxpayers. These are the many employees who paid AMT as a result of exercising incentive stock options ("ISOs"), then later suffered losses on selling the stock after its value had declined sharply. This scenario is often called the "phantom income" problem because tax is paid on gains that never materialize.

The new law addresses this problem in two ways. First, it liberalizes a rule, which originally took effect in 2007, designed to allow taxpayers to recover some of the benefit of previously unused AMT credits over a five-year period. The new law provides additional relief by eliminating a phase-out provision in the original rule and reducing the recovery period to two years.

Second, the new law forgives any tax, including interest and penalties, outstanding on October 3, 2008 (date of enactment), if attributable to the minimum tax adjustment for ISOs. Second, for taxpayers who have already paid any interest and penalties that would have been abated under this new rule, such interest and penalties can be used-half in 2008 and half in 2009-to increase the "AMT refundable credit amount" and the minimum tax credit.

Another AMT change may benefit energy-conscious taxpayers. Beginning in 2008, the credit for "energy efficient residential property" can be used to offset the AMT.

Retroactive Extensions of Other Individual Provisions The new law extends through 2009 several provisions that had expired at the end of 2007. These include:

* State and Local Sales Tax Deduction. Allows taxpayers to use state and local sales taxes as itemized deductions in lieu of state income taxes
* Deduction for Qualified Tuition and Related Expenses. Allows an "above-the-line" deduction (i.e., not part of itemized deductions) for certain higher education expenses. The maximum deduction is $4,000 or $2,000, depending on the taxpayer's adjusted gross income (AGI). No deduction is allowed for single filers having AGI above $80,000 or for joint filers having AGI above $160,000.
* Deduction for Classroom Expenses. Allows an "above-the-line" deduction (i.e., not part of itemized deductions) of up to $250 for out-of-pocket expenses of teachers and other educators in grades K-12 for items such as books, supplies, and computer equipment used in the classroom.
* Tax-free IRA Distributions to Charity. Permits direct distributions to charity of up to $100,000 from a traditional or Roth IRA maintained for an individual whose has reached age 701/2. Ordinarily, such distributions would be taxable to the individual, who would not be able to offset the income fully because of the percentage limitations on charitable contribution deductions.
* Special Provisions Concerning Mutual Funds. The new law extends three rules primarily affecting nonresidents who are not U.S. citizens. One concerns "interest-related" dividends from mutual funds. The second is a "look-through" rule for determining the taxability of mutual fund assets for estate tax purposes. The third concerns the treatment of mutual funds for purposes of the Foreign Investment in Real Property Tax Act ("FIRPTA").

Credit for Residential Energy Efficient Property Extended and Expanded
The new law extends through 2016 the credit for "residential energy efficient property," which was scheduled to expire at the end of 2008. Also, as noted above, beginning in 2008, taxpayers can use the credit against the alternative minimum tax ("AMT"). Moreover, the new law retroactively adds two new types of qualifying property, and, beginning after 2008, removes the credit limit for "qualified solar electric property."

Previously, the credit was based on expenditures for three defined types of qualifying property: qualified solar electric property, qualified solar water heating property, and qualified fuel cell property. The new law adds two more categories: qualified small wind energy property and qualified geothermal heat pump property.

The credit for each type of property is 30% of qualifying expenditures, subject to a dollar limit for each. These limits are as follows:
* $2,000 for qualified solar electric property expenditures in 2008; the limit is removed after 2008.
* $2,000 for qualified solar water heating property expenditures.
* $2,000 for qualified geothermal heat pump property expenditures.
* $500 for each half kilowatt of capacity (not to exceed $4,000) for qualified small wind energy property expenditures.
* $500 for each half kilowatt of capacity for qualified fuel cell property expenditures.

Earned Income Threshold for Child Tax Credit Refundability
The new law reduces the earned income threshold for determining the refundability of the child tax credit for 2008 to $8,500 (from $12,050).

Real Property Tax Deduction for Nonitemizers
In 2008, individuals who do not itemize their deductions may include, as part of the standard deduction, real property taxes of up to $500 ($1,000 for joint filers). The new law extends this rule through 2009.

IRS CIRCULAR 230 DISCLOSURE: To ensure compliance with requirements imposed by the IRS, we inform you that, unless expressly stated otherwise, any U.S. federal tax advice contained in this communication (including any attachments) is not intended or written to be relied upon or used, and cannot be relied upon or used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.

Charitable Donors benefit from "Bailout" legislation

In addition to the "financial rescue" provisions of the recently enacted Emergency Economic Stabilization Act of 2008 there are a number of tax provisions included in the legislation that will benefit charitable donors. Charitable components included in the legislation are an IRA Rollover Provision, Basis Adjustment to Stock of an S Corporation Making Charitable Contributions of Property, Enhanced Charitable Deduction for Qualified Computer Contributions, Enhanced Charitable Deduction for Food Inventory, Enhanced Charitable Deduction for Contributions of Book Inventory to Schools, Temporary Suspension of Limitations on Charitable Contributions, Increase in Standard Mileage Rate for Charitable Use of Vehicles, and Exclusion from Income of Mileage Reimbursements for Charitable Volunteers.

For a summary of these and other provisions in the Act go to : http://poe.house.gov/UploadedFiles/Tax%20Credits%20in%20Economic%20Stabilization%20Bill_110th.pdf

Jane, Stop this Crazy Thing

As a business transaction attorney, I am a first-hand witness to the personal energy, time and emotion that parties put into the purchase or sale of a business. All of these elements can be critical components to completing a transaction; they can, however, also cloud and complicate the decision to terminate negotiations and abandon a transaction.

When parties commence a business transaction it is often with the best intentions, good faith, but only a general agreement of the essential business terms of the deal. As the saying goes, “the devil’s in the details”. As lawyers, accountants, and other professional advisors become involved, the parties are forced to consider the transaction terms with much greater specificity. Moreover, there are almost always terms and conditions that are critical to the transaction that the parties did not consider in their initial discussions.

As the negotiations and preparation of the transaction documents move forward, the opportunity for a “stalemate” on a critical issue increases. Too often, such stalemates lead to protracted and unproductive negotiations. As a result the transaction may fall apart, or one or both of the parties may end-up with a transaction that does not meet their anticipated result.

Ultimately, a purchase agreement is a balance of risk and reward. The buyer or seller of a business must balance the potential reward of the transaction with the risk that the party must bear under the purchase agreement. When a “stalemate” occurs, a party should promptly assess the impact of the issue in question on that party’s risk/reward analysis. If conceding on the issue results in an unacceptable risk to the party (without corresponding reward), the party must either obtain the concession from the other party on that issue, or walk away from the transaction. The sooner this determination can be made the better.

In order to prepare to make decisions during the process of negotiating a transaction, a party should know its risk/reward profile, and prioritize its interests prior to undertaking a transaction. In doing so, with the assistance of its professional advisors, the party will be better prepared to make critical decisions during the negotiation process. A prompt but thoughtful decision may result in a resolution of the disputed issue; or a determination that the transaction is not in its best interest. Either way, the party will avoid an endless run around the treadmill with Astro.

"Would You Like to Supersize Your Contract?"

"You must have a form for that?" Business attorneys often hear that question from prospective clients when discussing a document they would like to have prepared. It may be an agreement relative to formation of an entity, a commercial contract, or an agreement for the purchase and sale of a business. Too often parties believe the lawyer has a "boilerplate" agreement into which the lawyer simply needs to fill-in the names of the parties and the dates.

Part of the value of hiring a seasoned business attorney is, indeed, to benefit from the prior experiences and work performed by the attorney in similar matters. Additionally, there is the benefit of efficiency and economy with an attorney who does not have to "re-invent the wheel" when working on a business agreement. Each commercial relationship, however, has its own dynamic and unique concerns which should be properly and specifically addressed in the governing contract. The provisions of the contract to address such issues cannot be "cut and pasted" from one agreement to another.

Your business attorney should take the time to ask you about the parties involved, the specific goals of the business relationship or transaction, standards and guidelines for performance by each party, timing concerns, and any unique issues that may arise in performance of the contract. These are matters that are unique to each contract. If these questions are not asked and, therefore, not addressed in the agreement, in the event a dispute should arise the agreement will provide little guidance in resolving the dispute.

A little extra time in the preparation and drafting of a business contract may save much time and many dollars in avoiding or resolving a subsequent dispute between the parties. There are no contract "Value Meals" to order.