Year-end tax planning is essential for every business. This year is no exception.
As usual, certain tax law changes may influence tax-planning strategy. Paul Thompson, EA, ABA, ATA, ARA, Chair of the National Society of Accountants (NSA) Federal Taxation Committee, offers these business tax tips:
Purchase New Business Equipment – Under Internal Revenue Service (IRS) Code Section 179, taxpayers can elect to recover part or all of the cost of qualified property, up to a limit, by deducting it in the year it is placed in service. Business should take advantage of Section 179 expensing this year for a couple reasons.
First, starting in tax year 2010 and continuing into tax year 2011, the maximum Section 179 expense deduction for equipment purchases increased to $500,000 ($535,000 for qualified enterprise zone property) and the bonus depreciation increased to 100 percent for qualified property. Beginning in tax year 2012 however, the Section 179 deduction is scheduled to drop to $125,000 and the bonus depreciation to be reduced to 50 percent and then be phased out completely.
Increase Loss Deductions – Partners or S corporation shareholders in entities that have a loss for 2011 can deduct that loss only up to their basis in the entity. However, they can take steps to increase their basis to allow a larger deduction. Basis in the entity can be increased by lending the entity money or making a capital contribution by the end of the entity’s tax year.
Issue Corporate Dividends – Reduce accumulated corporate profits and earnings by issuing corporate dividends to shareholders, which continue to be taxed at the 15 percent rate through 2012.
Set Up Retirement Plans – Self-employed individuals who have not yet done so should set up self-employed retirement plans before the end of 2011.
“Running a business – especially a small business – in today’s economy is not easy,” adds NSA Executive Vice President John Ams. “These tips are just a few of the many critical pieces of advice that business owners can gain from professional accountants.”
NSA and its affiliates represent 30,000 members who provide accounting, auditing, tax preparation, financial and estate planning, and management services to approximately 19 million individuals and business clients. Most members are sole practitioners or partners in small- to medium-size accounting firms. NSA protects the public by requiring its members to adhere to a strict code of ethics and maintain an annual continuing education regimen.