Business Provisions May Sunset for Good on December 31, 2011
Business taxpayers are well-advised to consider how to make the most of tax breaks that are available this year but may not be around next year, or may survive only in diluted form. Given the wrenching political battle that played out in July over deficits and the debt ceiling, many tax provisions expiring at the end of this year may not be given another lease on life. Those provisions that aid a particular industry or group of taxpayers could be the most at risk.
Credits at risk for year-end:
Research credit.
Work Opportunity Tax Credit (WOTC).
New markets tax credit.
Differential wage payment credit for employers.
New energy efficient home credit.
Each business should evaluate credits at risk and determine if appropriate for business.
Tax Deductions at risk:
1. 100 percent bonus depreciation. The 100 percent bonus depreciation allowance applies only for qualified property acquired and placed in service after Sept. 8, 2010 and before Jan. 1, 2012 (placed in service before Jan. 1, 2013 for certain aircraft and long-production-period property). For qualified property acquired and placed in service after Dec. 31, 2011 and before Jan. 1, 2013 (placed in service after Dec. 31, 2012 and before Jan. 1, 2014 for certain aircraft and long-production-period property), a 50 percent bonus depreciation allowance will apply.
2. Expensing allowance. The maximum amount that may be expensed under Code Sec. 179 for tax years beginning in 2010 or 2011 is $500,000. For tax years beginning in 2012, the maximum amount will be $125,000 (indexed for inflation with 2006 as the base year). For tax years beginning in 2010 and 2011, the maximum annual expensing amount generally is reduced dollar-for-dollar by the amount of section 179 property placed in service during the tax year in excess of $2,000,000 (the investment ceiling). For tax years beginning in 2012, the investment ceiling will be $500,000 (indexed for inflation with 2006 as the base year).
3. 15-year write-off for specialized realty assets. Qualified leasehold improvement property, qualified restaurant property and qualified retail improvement property placed in service after Dec. 31, 2011, will no longer be eligible for a 15-year depreciation write-off under MACRS.
Individual steps to reduce taxes before December 31, 2011:
1. Pay State Tax Estimates before December 31, 2011: If itemizing your deductions (Schedule A) on your Federal return, you can increase your tax savings by paying your state tax estimates before year-end. State taxes are typically a deduction on Schedule A of your Federal return if you choose to itemize.
2. Pay all Business Bills before December 31, 2011: If you own a business and are on a cash basis for accounting (typical structure for most small businesses) it may be advantageous to pay some or all of the outstanding bills for your business prior to year-end. This results in a greater business deduction on your tax return. Credit card purchases also qualify as a business deduction in the year purchased.
3. Donations: If itemizing your deductions (Schedule A) on your Federal return, donations to a qualified non-profit organization before December 31 can be deducted from your income.
4. Investment and Retirement Planning: Meet with a tax advisor and financial planner to discuss savings for retirement and other individual and business options. It may be time to sell some of those stock losers to help offset other capital gains during the year.
5. Safe Harbor Rules: If you are required to pay estimated taxes based on your taxable income; pay the safe harbor amounts to avoid penalties and interest for underpaying estimated taxes.
6. Gifting and Estate Planning: If you have significant worth, you may be able to reduce your taxable estate by gifting $13,000 to each of your family members on a yearly basis. Remember to always to perform gifting in conjunction with estate planning
These are just a few tax-saving tips that can easily be missed during the busy holidays. Again, please remember you should always consult with your tax advisor regarding your specific situation.
Lance Brant is the managing shareholder for Capstone Certified Public Accountants, LLC-541-382-5099 with offices in Bend and Sisters.
