What Alarm Firms Stand to Gain From Tax-Cut Extension

WASHINGTON — With a majority of installing security contractors electing to file a tax extension each year, scores of companies still have to time consider the Bush-era tax cuts that have been renewed for two years.

Signed by President Obama in December, the “Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010” provided a two-year extension of certain tax cuts and temporary estate tax relief.

SSI spoke with a pair of noted alarm industry professionals who specialize in mergers and acquisitions and accounting services, respectively, to highlight certain provisions of the act that directly affect installing security and monitoring contractors.

One the most notable provisions extends a reduced rate on capital gains. The tax rate on long-term capital gains has been 0 percent since 2008 for individuals in the 10-percent and 15-percent income tax brackets, and 15 percent for all others. The specter of the capital gains rate floating upward to 20 percent (10 percent for taxpayers in the 15-percent tax bracket) in 2011 caused a good deal of upheaval among alarm and monitoring company owners.

“There was definitely an uptick toward the end of 2010 for people who wanted to get deals done prior to the end of the year so they wouldn’t get slammed with more capital gains tax,” say Ron Davis, president of Davis Mergers and Acquisitions Group Inc. “Since the extension I haven’t seen the sense of urgency to get deals done so quickly. I suspect at the beginning of the third quarter we will start seeing a lot more activity than we’re seeing now.”

The act extends through 2012 the 0-percent and 15-percent long-term capital gains tax rates. While taxes should never be the sole motivating factor to sell a company, the difference between capital gains and ordinary income could be 35- to 40-percent of the sale price, says Davis, who pens SSI‘s “The Big Idea” column.

“If you are considering a sale it should be done sometime before the end of the year and really as soon as possible in order to avoid competitive pressures by other sellers,” he says. “[There is also added pressure on sellers] to make sure they take advantage of the potential buyers out there in what may be a soft buying period. In other words, some buyers are having trouble finding sellers.”

Also of significance that many business operators are not likely aware of, the estate tax has been temporarily reinstated at 35 percent with an exemption set at $5 million, says Mitch Reitman, principal of Ft. Worth, Texas-based SIC Consulting Inc.

“If the company is worth less than $5 million, which is probably 80 percent of all alarm companies, there is no estate tax at least for this year. It is indexed for inflation after 2011,” he says.

Critical to small businesses, the act created a 100-percent bonus depreciation through 2011 and 50-percent bonus depreciation through 2012. In a nutshell, if you’re thinking about making a major purchase for your business, 2011 may be the year to do it.

“Let’s say you went out and bought a central station receiver for $50,000 this year. Instead of having to depreciate that over five years, you can write off the entire cost of it,” Reitman says. “You need to talk to your CPA about it, but even if you received a loan from a bank and financed it you can still write off the entire cost the first year.”

Reitman points to an alternative minimum tax (AMT) “patch” as another important benefit to the alarm installation and monitoring community. The patch increases the exemption amounts for 2010 to $47,450 for individuals, $72,450 for joint filers, and $36,225 for married taxpayers filing separately. For 2011, the exemption amounts increase to $48,450, $74,450 and $37,225 respectively.

Even employees, who may have noticed a few extra dollars in their paychecks as of late, can thank the tax relief act. The bill lowered Social Security payroll taxes by 2 percentage points from 6.2 percent to 4.2 percent for a year.

Employers were given new withholding tables and a Jan. 31 deadline to implement the payroll tax changes. If an employer did not adjust its withholdings in a timely manner, the IRS is providing them until March 31 to reimburse the difference.


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About the Author


Although Bosch’s name is quite familiar to those in the security industry, his previous experience has been in daily newspaper journalism. Prior to joining SECURITY SALES & INTEGRATION in 2006, he spent 15 years with the Los Angeles Times, where he performed a wide assortment of editorial responsibilities, including feature and metro department assignments as well as content producing for latimes.com. Bosch is a graduate of California State University, Fresno with a degree in Mass Communication & Journalism. In 2007, he successfully completed the National Burglar and Fire Alarm Association’s National Training School coursework to become a Certified Level I Alarm Technician.

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