Have a plan.

Last time, we talked about being prepared. An extension of that attitude and orientation is our next tip. To raise venture capital, you must have a business plan. In that plan, you must address certain key issues, directly and without fudging or fooling yourself.

Your plan need not be long and detailed. It is not meant to be a full operational plan for running the business. By the time you raise your venture capital, any number of variables may have changed, and if your plan does not change in response, you are wasting your time. and probably someone else’s money.

Fortunately, there are literally thousands of examples available on the web. You can start with the SBA website, where there is good advice, as well as many other resources for small businesses. Many companies offer software packages designed to make the process easier. I have not used them, but it’s safe to say that fancy software is no substitute for serious thought. By all means use them, if it helps breaking down writer’s block, or in preparing projections and performance. Just don’t expect miracles. There are more resources and ideas here, here and here.

Here’s what your plan must have at a minimum:

• Mission statement. Make it memorable and short. Avoid jargon. If possible state the problem in human terms, as opposed to technical gobbledygook. Example – “We give doctors a real-time test to diagnose [fill in the blank], instead of existing tests that require two-week turnaround.”
• Executive Summary. Preferably no more than a page or two. This can be in the form of bullet points, possibly the first line or paragraph of each of the four sections.
• Bios of Key Personnel. Emphasize their relevant experience and skills. Your blue ribbon team may have more degrees than a thermometer, but solid industry experience is what really counts.
• Reason for existing. A straightforward description of the problem your business will solve. Tell the reader why it matters, how you’ll do it, and what obstacles you will face.
• Competitive environment. An unblinking assessment of your existing and potential competition. And never, ever say that you don’t have any competition. Even if you have perfected antigravity underwear, you still have competition from airlines, parachute manufacturers and lingerie companies.
• Investment financing required. A conservative estimate of the funds you will need to attain your goals. Take into account the near certainty that you will have unexpected delays, minor catastrophes, personnel defections and supplier disappointments. As always, Murphy’s Law applies.
• Market structure. A description of the market structure for your product or service, and an explanation of how you will navigate that landscape to bring your product to market. Distribution is one of the biggest obstacles for startups and new products. Direct sales to end-users are rare. So an understanding of the existing channels of distribution is critical. Failure to address this point, will demonstrate a lack of understanding that may be fatal to your prospects.
• Expense projections. Professionally prepared and detailed projections of expenditures, preferably on a monthly basis for the first 12 months following funding, and then quarterly or annually thereafter. You might try to do this yourself, if you have significant training or experience. Ordinarily it is much better to hire a consultant or CPA. They understand the format, the relationships between the various line items, and the best methods for pulling it together. If possible, choose someone who has been involved in successful fund-raising activities.

Perfection is not your goal here. You must produce a plan, but its value is realized chiefly in the process of producing it, and modifying it. Planning is an ongoing process. Your plan is your baseline against which decisions large and small will be analyzed. By all means, don’t be sloppy, but remember your goal is to get started, a fact well known by  some famous generals.

“A good plan violently executed now is better than a perfect plan executed next week.”
George S. Patton

“In preparing for battle I have always found that plans are useless, but planning is indispensable.”
Dwight D. Eisenhower

“No plan survives contact with the enemy.”
Colin Powell, paraphrasing Helmuth Karl Bernhard Graf von Moltke

John Vandenhoff continues his exploration of  the tax implications of the new health care law. There’s also more in a series of informational podcasts on the Web site of the Law Firm Alliance, of which we are a member.

In our previous posts (here and here), we talked about the new Healthcare legislation which was signed into law (H.R. 4872, the Healthcare and Education Reconciliation Act of 2010 (Reconciliation Act P.L. 101-152)) (the “Healthcare Act”) and described a couple of the major mandates contained within that Act.

In these, we present a brief overview of some of the key tax changes affecting individuals and businesses. Please call our Virginia and North Carolina lawyers for details of how the new changes may affect your specific situation.

Amongst other provisions, the Healthcare Act codified the common law Economic Substance Doctrine which had been developed by the Internal Revenue Service (“IRS”) and the courts. Essentially, the courts have denied claimed tax benefits if the transaction that gave rise to those benefits lacked economic substance independent of tax considerations, even though the purported activity actually occurred. In other words, the IRS was empowered to set aside a transaction that, although technically in compliance with all tax statutes and regulations, lacked true economic substance and was entered into almost entirely for the purported tax benefit.

New in IRS Code

The Healthcare Act enacted new Section 7701(o) of the Internal Revenue Code, which provides that a transaction will be treated as having economic substance only if the transaction changed in a meaningful way (apart from federal income tax effects) the taxpayer’s economic position; and, the taxpayer has a substantial purpose (apart from federal income tax effects) for entering into such transaction. The transaction must satisfy both tests in order for it to be deemed as having economic substance.

There has been speculation as to the extent the new codified doctrine will be applied. The statute states that the determination of whether the Economic Substance Doctrine is relevant shall be made as if the statute were never enacted. See Section 7701(o)(5)(C) of the Internal Revenue Code. The Joint Committee Report further states that “if the realization of the tax benefits of a transaction is consistent with the Congressional purpose or plan that the tax benefits were designed by Congress to effectuate, it is not intended that such tax benefits be disallowed.” However, it still remains that both prongs of the two-part test must be met in order for the transaction to be deemed to have economic substance.

Codification Imposes Penalties

The teeth for the codification of the Economic Substance Doctrine is that a new penalty applies for an underpayment attributable to a transaction lacking economic substance. The penalty rate is 20% of the amount of the underpayment, but is increased to 40% if the taxpayer does not adequately disclose the transaction on the taxpayer’s return or on a statement attached to the return. It is also important to note that the reasonable cause and good faith exception (which have generally been held to be exceptions to paying penalties for underpayment of tax) do not apply to any portion of an underpayment which is attributable to a transaction lacking economic substance.

The codification of the Economic Substance Doctrine (and the penalties on resulting underpayments) are effective for all transactions entered into after March 30, 2010.

Please see future posts for information regarding other tax affects of the Healthcare Act which take effect in years beginning after 2010. As Virginia business lawyers and North Carolina tax attorneys, we invite you comments below about the new healthcare law and its effects on your and your business.

Be prepared.

Last time, we talked about the importance of communication. Tip number four means, as every Boy Scout knows, successful effort is all about preparation. If you are pitching venture capitalists, you need to bring your “A Game” based on thorough preparation. Here are tips that may sound rudimentary and obvious, but if ignored can cost you a one-time opportunity. The list is not necessarily in order of importance.

• Get a good night’s sleep before the meeting.
• Block off the day to avoid other distractions, if at all possible
• Allow plenty of travel time. If you’re flying, consider arriving the night before.
• Get good directions. In today’s world of GPS, Google Maps and MapQuest, there is simply no excuse for being late because you were on the wrong block.
• If you’re making a presentation, make sure that your laptop/notebook is compatible with their projector, or better yet, bring your presentation on several different types of media. Put a copy in the cloud too, you could always show your slides through Google Docs if all else fails.
• Bring copies of key informational materials, such as surveys, reports, PDFs or brochures.
• If you are doing a technical product demo, (not generally recommended, by the way) make sure your gadget works and you have all the parts. Murphy’s Law is always there waiting for you to trip up.
• Research your audience. Who are the partners? With whom are they partnered? What companies have they invested in? Are any in your “space?” Do any compete with your product? Would your product or idea be disruptive to their existing investments? Is your concept in their sweet spot, wheelhouse, core competence or whatever else they call their comfort zone.
• Stick to the story.
• Save your “save the world” sentiments for when you are rich and famous. You don’t want to give potential investors the impression you are on a humanitarian mission. If you’re not in it for the money, why should they give you any of theirs?
• Avoid jargon, unless strictly necessary, and be sure you use it correctly.
• Prepare both a detailed technical pitch and a “general audiences” pitch, and practice switching gears. If necessary, bring team members who can step in if you are stumped. It’s okay not to know everything. In fact, it’s better to demonstrate the depth of your team.
• Practice listening to questions and answering them directly. Surprisingly, it is far too common for presenters to hear questions as entrées for their favorite points, rather than real questions.
• Make sure you are current on industry news. If there is a “trade rag” or other source that you generally rely on, make sure you read it the morning of the presentation. You don’t want to be blindsided by relevant news, positive or negative.
• Practice, practice, practice. We’ll talk more about that next time.

In our previous post, John Vandenhoff briefly talked about the new Healthcare legislation which was signed into law (H.R. 4872 the Healthcare and Education Reconciliation Act of 2010 (Reconciliation Act, P.L. 101-152)) (the “Healthcare Act”) and described a couple of the major individual mandates contained within that Act.

In this and future posts, we continue to present a brief overview of some of the key tax changes affecting individuals and businesses in the Healthcare Act. Please call our Virginia business lawyers and North Carolina corporate attorneys in our Richmond office and Research Triangle office for details of how the new changes may affect your specific situation.

Income Tax Credit for Eligible Small Employers.
The Healthcare Act provides for an income tax credit for “Eligible Small Business Employers” (defined below) that: i) offer health insurance to employees; ii) pay at least fifty percent (50%) of the cost of the insurance, and iii) contribute a uniform percentage (at least fifty percent (50%)) of the premium cost of each employee who enrolls in the employer’s employee health plan. The maximum credit of thirty-five percent (35%) is available for tax years beginning after 2009. The maximum credit increases to fifty percent (50%) for tax years beginning after 2013. The credit is only available to an employer that purchases health insurance coverage for its employees through a state exchange , and is only available for a maximum coverage of two (2) consecutive tax years.

The credit is only available to employers that meet the definition of “Eligible Small Employers”, andother specified criteria. Only premiums paid by the Eligible Small Employer under an arrangement meeting certain requirements are counted in calculating the credit.

An “Eligible Small Employer” is generally defined as a employer with no more than twenty-five full-time equivalent employees, and whose employees have annual full-time equivalent wages that average no more than Fifty Thousand and 00/100 Dollars ($50,000.00). However, because of certain phase-out rules, the full amount of the credit is available only to an Eligible Small Employer with ten (10) or fewer full-time equivalent employees and whose employees have average annual full-time equivalent wages from the employer of less than Twenty-Five Thousand and 00/100 Dollars ($25,000.00).

To determine whether an employer is eligible for the credit, and the amount of the credit, the employer must first calculate how many full-time equivalent employees the employer employs and the average annual full-time equivalent wages. The number of full-time equivalent employees is determined by dividing the total employee hours worked for the year (counting all full-time and part-time employees) by 2,080. The result of this computation is rounded to the lowest whole number. Average annual full-time employee wages are determined by dividing the employer’s aggregate wages for the year by the number of full-time employees (rounded down to the nearest 1,000).

Therefore, during the years in which the credit is available, small employers have incentive not to hire as many employees nor pay them wages which would increase their average full-time equivalent wages above Fifty Thousand and 00/100 Dollars ($50,000.00).

The credit is not allowed for health insurance premiums paid for partners, sole proprietors, more than two percent (2%) shareholders of an S corporation, more than five percent (5%) owners of a regular C corporation, or “non-qualifying family members” of the foregoing owners. Further, seasonal workers (individuals who work for less than one hundred twenty (120) days for the employer) are not included in the computation for full-time equivalent employees or full-time equivalent wages.

Adoption Credit.
For tax years beginning after 2009 and before 2012, the Healthcare Act increases the adoption tax credit from Twelve Thousand One Hundred Seventy and 00/100 ($12,170.00) to Thirteen Thousand One Hundred Seventy ($13,170.00), and the credit is refundable for those years.

Expanding Health Coverage to Adult Children Under 27 Years of Age.
Effective March 30, 2010, the Healthcare Act requires that group health plans provide coverage to an enrollee’s dependents up to age twenty six (26). The requirement applies regardless of factors such as a young adult’s marital status, student status, financial dependence on the primary enrollee, eligibility for other coverage or any combination of those factors.

Excise Tax on In-Door Tanning Services.
The Health Care Act imposes a new ten percent (10%) excise tax on customers of in-door tanning salons , for services performed after June 30, 2010. The tax is imposed on the full amount of the charge for the service and is imposed regardless of who pays the ultimate cost for this service. It is curious (or maybe entertaining) to note that originally the excise tax was proposed to be applied to services for plastic surgery. However, the imposition of this excise tax was changed to tanning services by the enactment of the final bill.

Please see future posts for information regarding the codification of the economic substance doctrine and for other tax affects of the Health Care Act which take effect in years beginning after 2010.

These changes are substantial and affecting individuals and businesses profoundly. We already know of one business that will be gone due to the new bill. Are you seeing any negative impacts of the reform yet?

A few weeks ago in this blog we alerted you to Bilski v. Kappos, 561 U. S. ____ (2010) because the case had the potential to be important in that the Supreme Court might consider the question of whether or not business methods qualified as “process patents,” — those patents filed to protect processes rather than concrete inventions. On June 28, 2010, the Supreme Court issued its long-awaited decision in Bilski v. Kappos, addressing the patentability of process patent claims under 35 U.S.C. § 101 (the “Patent Act”). While the court did not reject the concept of business process patents nor did it make any effort to provide new criteria that would further limit the patentability of business methods, it did clarify somewhat the criteria for an effective process patent. The Supreme Court also indicated the possibility that courts may later find that the Patent Act forbids patenting certain types of business methods.

The patent application in this case sought protection for a claimed business process that explains how commodities buyers and sellers in the energy market can hedge against the risk of price fluctuations . The key claims involved in the patent application described a series of steps on how to hedge the risk and included a simple mathematical formula. One of the reasons this case was closely watched was that protection of business processes, in particular those using the Internet, have become common and important to developers of business models that are based on a proprietary methodology. If a method can be copied with no legal barrier for protection then the value of the business model collapses.

Generally, the federal statutes specify four independent categories of inventions or discoveries that are eligible for patent protection: (1) processes; (2) machines; (3) manufactures; and (4) compositions of matter. There have been recognized exceptions in court precedents of categories that are not patentable: “laws of nature, physical phenomenon, and abstract ideas.” Historically, the lower courts had held that in order for a process to be patentable: “ (1) it had to be tied to a particular machine or apparatus, or (2) it had to transform a particular article into a different state or thing.” This formulation became known as the “machine-or-transformation test” for approving a process patent. Certain appellate courts had concluded that the machine-or-transformation test was the exclusive test to pass in order to be granted a process patent. The Supreme Court in Bilski held that this line of reasoning incorrectly concluded that the machine-or-transformation test was the sole test. This test is only one among several factors to consider but it is not the sole test for deciding whether a process is patent-eligible.

The Supreme Court held that the Patent Act permits business methods to be patentable processes. The court went on to indicate, however, that even if a particular business method fits into the statutory definition of a “process,” that does not mean that the patent application claiming the process should be approved.  The business process patent application still needs to qualify under the other criteria of the statute. To receive patent protection a business method or process must be “novel,” “non-obvious” and “fully and particularly described,” and it can’t be one of the exceptions to patent protection: laws of nature, physical phenomenon, or abstract ideas. In this case the court held that the concept of hedging risk and the application of that concept to energy markets was an attempt to patent an abstract idea, and therefore was not patentable. In this form, the decision did not help practitioners much in dealing with process claims that fail the machine-or-transformation test and are not held to be abstract ideas, laws of nature, or physical phenomena. To a great extent the case has left the legal landscape in this area unchanged but more guidance needs to be provided if the courts want to help practitioners protect client’s with models built upon proprietary business processes.

Thanks to John Vandenhoff,  here is the first in a series of articles on the tax implications of the new health care law. There’s also more in a series of informational podcasts on the Web site of the Law Firm Alliance, of which we are a member.

John Vandenhoff

On Mar. 30, 2010, President Obama signed into law H.R. 4872, the Health Care and Education Reconciliation Act of 2010 (Reconciliation Act, P.L. 111-152 ), effectively completing a massive overhaul of the U.S. health care system that will affect nearly all taxpayers, many employers, and many elements of the health care industry. The Reconciliation Act modifies H.R. 3590, the Patient Protection and Affordable Care Act (Health Care Act, P.L. 111-148 ) where the bulk of the legislation became law on March 23, 2010.

In the next few posts, we present a brief overview of some of the key tax changes affecting individuals in the recently enacted health reform legislation. Please call our offices for details of how the new changes may affect your specific situation.

Individual Mandate

The new law contains an “individual mandate”-a requirement that U.S. citizens and legal residents have qualifying health coverage or be subject to a tax penalty after 2013. In Virginia, this is resulting in a court battle because the Virginia legislature passed a law in its recent session exempting citizens from this requirement. If enforceable under the new law, those without qualifying health coverage will pay a tax penalty of the greater of: (a) $695 per year, up to a maximum of three times that amount ($2,085) per family, or (b) 2.5% of household income over the threshold amount of income required for income tax return filing. The penalty will be phased in over three years starting in 2014.

Beginning after 2016, the penalty will be increased annually by a cost-of-living adjustment. Exemptions will be granted for financial hardship, religious objections, American Indians, those without coverage for less than three months, aliens not lawfully present in the U.S., incarcerated individuals, those for whom the lowest cost plan option exceeds 8% of household income, those with incomes below the tax filing threshold (in 2010 the threshold for taxpayers under age 65 is $9,350 for singles and $18,700 for couples), and those residing outside of the U.S.

Premium Assistance Tax Credits for Purchasing Health Insurance

The health care legislation provides tax credits to low and middle income individuals and families for the purchase of health insurance. Specifically, for tax years ending after 2013, the new law creates a refundable tax credit (the “premium assistance credit”) for eligible individuals and families who purchase health insurance through an Exchange. The premium assistance credit, which is refundable and payable in advance directly to the insurer, subsidizes the purchase of certain health insurance plans through an Exchange. Under the provision, an eligible individual enrolls in a plan offered through an Exchange and reports his or her income to the Exchange. Based on the information provided to the Exchange, the individual receives a premium assistance credit based on income and IRS pays the premium assistance credit amount directly to the insurance plan in which the individual is enrolled. The individual then pays to the plan in which he or she is enrolled the dollar difference between the premium assistance credit amount and the total premium charged for the plan. For employed individuals who purchase health insurance through an Exchange, the premium payments are made through payroll deductions.

The premium assistance credit will be available for individuals and families with incomes up to 400% of the federal poverty level ($43,320 for an individual or $88,200 for a family of four, using 2009 poverty level figures) that are not eligible for Medicaid, employer sponsored insurance, or other acceptable coverage. The credits will be available on a sliding scale basis.

Venture and IT professionals are familiar with Bilski v. Kappos, in which the Patent & Trademark Office denied a business-method patent for a method of hedging risk through commodities trading. A patent application was filed in 1997 by Bernard Bilski and Rand Warsaw, which was rejected by the US Patent & Trademark Office on the basis that it involved only an idea or concept and did not need any technology to implement. The patent was rejected through a series of appeals culminating in a hearing before the Supreme Court in November last year 2009.

The Court of Appeals for the Federal Circuit in the Bilski case overthrew a test called: the “useful, concrete and tangible result” test that it had articulated in the 1998 case of State Street Bank & Trust Co. v. Signature Financial group, Inc. The State Street case opened up a deluge of business method patent applications for any developer of a new method or process, especially internet designers and code developers. The Appeals Court in that case derived a test known as the “machine-or-transformation” test. This test requires that all patentable methods must either (1) be tied to a particular machine or apparatus, or (2) transform a particular article into a different state or thing. Bilski’s method patent failed both.

Bilski’s argument is that hedging risk in commodities trading shouldn’t be categorically excluded from patenting just because it doesn’t centrally involve equipment, such as wires and electricity like the telephone and the telegraph or because it does not transform one thing or material into another. Only literary works, abstract principles and mental processes can be excluded, the argument goes, and Bilski’s invention is none of these.

By agreeing to hear this appeal the Supreme Court is considering a question of great importance to entrepreneurs and inventors of all stripes. Critics of the business-method patents say that these patents were never intended to protect such things as abstract concepts or mathematical algorithms rather than concrete physical inventions. Supporters of the business method patents say they are essential to promoting innovation and entrepreneurship in today’s knowledge-based, internet-driven economy.

Whichever way the Supreme Court rules it’s likely that the holding will have a significant impact on innovation for years to come. A variety of businesses have written “friend-of-the-court briefs” (amicus curiae) on both sides of the issue. IBM, which over the years has obtained many business-method patents, filed an amicus brief stating that it is now opposed to them. IBM now maintains that the patents are unnecessary for the promotion of innovation. They believe that businesses would develop these new processes without patent protection. IBM’s in-house patent attorney, David Kappos stated that: “You’re creating a 20- year monopoly for no good reason.”

Bilski will definitely be a watershed case. The Supreme Court is due out with its opinion in a matter of weeks.

This article is the second of two by John Vandenhoff on the newly enacted HIRE Act.  John is a tax specialist at Sands Anderson and in this article John describes some of tax incentives as well as the rules that apply when taking advantage of the HIRE Act’s provisions.   David

John Vandenhoff

In the last post, we cited the two main provisions of the recently signed “Hiring Incentives to Restore Employment Act of 2010” (the HIRE Act, P.L. 111-147 ). Some additional features of the new payroll tax hiring incentive include:

• The tax benefit of the new incentive is immediate. It puts money into a business’ cash flow immediately, since the tax is simply not collected in the first place.

• The tax benefit generally applies only to private-sector employment, including nonprofit organizations—public sector jobs are generally not eligible for either benefit. However, employment by a public higher education institution qualifies.

• There is no minimum weekly number of hours that the new employee must work for the employer to be eligible, and there is no limit on the dollar amount of payroll taxes per employer that may be forgiven.

• For workers that would otherwise be eligible for the Work Opportunity Tax Credit (i.e., another type of employment tax credit), the employer must select one benefit or the other for 2010. There is no double dipping.

• An employer can’t claim the new tax breaks for hiring family members.

• A worker who replaces another employee who performed the same job for the employer isn’t eligible for the benefit, unless the prior employee left the job voluntarily or for cause.

• For the hiring to qualify, the new hire must sign an affidavit, under penalties of perjury, stating that he or she hasn’t been employed for more than 40 hours during the 60-day period ending on the date the employment begins.

• The incentive isn’t biased towards either low-wage or high-wage workers. Under the measure, a business saves 6.2% on both a $40,000 worker and a $90,000 worker.

• The payroll tax holiday doesn’t apply with respect to wages paid during the first calendar quarter of 2010, but the amount by which the Social Security payroll tax would have been reduced under the payroll tax holiday provision during the fist calendar quarter is applied against the tax imposed on the employer for the second calendar quarter of 2010.

• The Act creates a similar new set of rules allowing a payroll tax holiday for railroad retirement tax purposes.

The credit for retaining qualifying new hires is the lesser of $1,000 or 6.2% of the wages paid by the taxpayer to the retained worker during the 52-consecutive-week period. Thus, the credit for a retained worker will be $1,000 if, disregarding rounding, the retained worker’s wages during the 52-consecutive-week period exceed $16,129.03. However, the credit isn’t available for pay not treated as wages under the Code (e.g., remuneration paid to domestic workers).

In prior posts, we introduced our Ten Points When Seeking Venture Capital and covered : Be realistic. Be persistent.

Point 3.

Communicate. Let the venture capital funds know what you’re doing. Keep them informed on developments, both in your company, and in the industry segment you hope to dominate. Any time you have a significant positive development, it’s an excuse to update their perception. Even if you have had the door practically slammed in your face, you can always say “I understand why you weren’t interested in my company before now, but you really should know about this development before you make any final decisions.”

Communicating updates is especially powerful if you can relate the development back to something that you predicted, promised or planned to do. If the portfolio manager starts to get the impression that you really know what you’re talking about, their attitude may gradually change. If, for example, you foretold a major industry development, such as an alliance between two companies or the selection of a technology standard, you gain credibility.

If the development is unexpected, then dazzle your target with your nimble reaction to the opportunity it creates. If it’s negative, explain how it will hurt your competition worse than you, and that there is still plenty of upside for feisty upportunistic survivors.

But I would be remiss if I did not also advise you to avoid being a pest. Don’t tell your quarry every little thing that happens. If you have acquired a powerful new team member, with a proven track record, that’s probably worth a note or a call. Hiring your first office manager, while a crucial positive step, probably does not rise to the level of “news” in the VC universe.

In summary, be useful, be noticed and be relevant. And, while it goes without saying (but I’ll say it anyway in my next post) – be prepared!

This article by John Vandenhoff, a tax specialist at Sands Anderson,  describes some of the incentives for businesses that hire new employees under the Hiring Incentives to Restore Employment Act of 2010 (“HIRE”).  We’ll have more on this important new law in some of our follow-on posts.  David

John Vandenhoff

About two months ago, President Obama signed into law the “Hiring Incentives to Restore Employment Act of 2010” (the HIRE Act, P.L. 111-147 ). The main thrust of this Act is a payroll tax holiday and up-to-$1,000 tax credit for businesses that hire unemployed workers. The Act also includes a one-year extension of the enhanced small business expensing option under Code Sec. 179 . Let’s look at some of the important details.

1. Payroll tax holiday and up-to-$1,000 credit for employers who hire unemployed workers.
To stimulate hiring by the private sector, the new law exempts any private-sector employer that employs someone who had been unemployed for at least 60 days from having to pay the employer’s 6.2% share of the Social Security payroll tax on that employee for the remainder of 2010. Your company could save a maximum of $6,621 if it hired an unemployed worker and paid that worker at least $106,800—the maximum amount of wages subject to Social Security taxes—by the end of 2010. Additionally, any qualifying worker hired under this initiative that the employer keeps on payroll for a continuous 52 weeks, makes the employer eligible for an additional non-refundable tax credit of up to $1,000 after the 52-week threshold is reached, to be taken on their 2011 tax return. In order to be eligible, the employee’s pay in the second 26-week period must be at least 80% of the pay in the first 26-week period.
• Workers hired after the date of introduction of the legislation (Feb. 3, 2010) are eligible for the payroll tax forgiveness and the retention bonus, but only wages paid after March 18 receive the exemption for payroll taxes.

2. Extension of enhanced small business expensing.
The new law gives one year of extra time to enhanced expensing rules, allowing qualifying businesses the option to currently deduct the cost of business machinery and equipment, instead of recovering it via depreciation over a number of years. For tax years beginning in 2010, the maximum amount that a business may expense is $250,000, and the expensing election begins to phase out when a business buys more than $800,000 of expensing-eligible assets. These dollar limits are the same as those that were in effect for 2008 and 2009, but without the HIRE Recovery Act, would have dropped this year to $134,000 and $530,000 respectively.
In our next post, we’ll break down some of the benefits of the payroll tax incentives.

Will these incentives change the way you approach your staffing needs for the rest of the year?