Here are some tax planning opportunities for small businesses and their owners. Have a look and let me know if you have any questions.
1 Available first-year depreciation and expensing of capital assets purchased for business use have reached historical highs. For the remainder of 2011, most tangible business property purchased new (original use) is eligible for a 100% first-year bonus depreciation deduction. Absent further action from Congress, bonus depreciation will revert to a 50% first-year deduction in 2012 and there has even been talk of repealing bonus depreciation altogether. Also, the annual limitation on expensing business property (IRC Section 179) placed in service in 2011 is $500,000 with an overall investment cap of $2,000,000. These annual limits are slated to revert to $139,000 and $560,000, respectively, in 2012. The moral of this story is that if your business needs equipment, then you should strongly consider buying before the end of the year.
2 Growing businesses that may be looking to hire a new employee or two before should be mindful of the work opportunity tax credit that is available to employers who hire qualifying workers (generally the unemployed and certain veterans) to fill new positions before the year’s end.
3 The brave self-employed out there, if they have not already done so, should investigate and consider self-employed retirement plan options. Although making that annual retirement plan contribution can be a cash flow burden, remember that as much as 40% of that tax-deferred payment is tax savings you would have paid anyway.
4 Unfortunately, many businesses are projecting a 2011 bottom-line loss. Contrary to popular belief, losses present their own unique set of tax planning opportunities. Owners of business entities that are expecting to receive “pass-through” losses in 2011 should consult their tax advisor about basis limitations and opportunities to ‘generate’ basis before year-end.
[Please note that the ideas and information presented herein may not provide benefit to each and every taxpayer. The reader should take caution to discuss any tax strategy, not just those listed above, with his or her tax advisor prior to implementation.]