2011 TAX PLANNING STRATEGIES FOR BUSINESSES

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.]

2011 TAX PLANNING STRATEGIES FOR INDIVIDUALS

2011 TAX PLANNING STRATEGIES FOR INDIVIDUALS

The end of the 3^rd quarter has passed, and similar to last year, the volatile political landscape has your tax advisor reaching for a crystal ball rather than a copy of the Internal Revenue Code.  Nonetheless, numerous tax planning opportunities remain viable for individual taxpayers, a few of which are listed below.

1 Health Savings Accounts (HSA) have become increasingly popular with employers and employees alike.  Employers enjoy reduced costs of group health insurance plans, and employees benefit from paying medical expenses for themselves and dependents with pre-tax dollars.  Remember that it is not too late to maximize your 2011 HSA contribution.  Even if you become eligible under your employer’s plan in November or December, you can still maximize your 2011 contribution.

2  Take advantage of the $3,000 annual allowance for deduction of capital losses by selling a few of those loser stocks you’ve been holding onto (an oldie, but a goodie).  Remember that you can restore your investment position by repurchasing the same stock after 31 days.  Talk to your broker or advisor, and don’t let this simple deduction get away from you in 2011.

3  If you converted a traditional IRA to a Roth IRA earlier in the year and the value of the investments held by the Roth have since declined in value, you can avoid overpaying tax on the original conversion by “recharacterizing” the conversion back to a traditional IRA.

4  Homeowners are eligible for a non-refundable credit up to $500 for qualifying energy efficient improvements made to their principal residence before the end of the year.

5  There will be no tax (yes, you read that right) on the gain realized upon the sale of qualified small business stock issued by a corporation that meets certain requirements (see your tax advisor), that is purchased before January 1, 2012 and held more than five years.

6  If you are age 70-1/2 or older, and will be forced to take a required minimum distribution (RMD) from your IRA, but don’t necessarily need the cash, consider coordinating with the custodian of your account to make a charitable donation directly from your IRA.  This approach, rather than taking the distribution and then making the charitable contribution, can provide substantial tax savings to seniors without substantial itemized deductions.

[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.]