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.]

Time's Running Out!

If you filed an extension for your 2010 income taxes, your deadline is October 17.  That's Monday, so don't forget!
-Michael Meier

Have you ever asked yourself . . .

Where will my property go upon my death?
Who can handle my affairs if I were disabled?
Who will make medical decisions for me if I am unable to do so?
Who will care for my children upon my death or disability? 

These are questions everyone should consider, no matter their age or income. This
seminar will provide an overview of the answers to these questions, as well as explain
ways to ensure what you want to happen does in fact happen if the unfortunate occurs.
If learning the answers to these questions interests you, then . . .

You're invited to . . .
Introduction to Estate Planning and Wealth Management
Thursday, September 22, 2011
6:00 p.m. - 8:00 p.m.

Corbett's
5050 Norton Healthcare Boulevard
Louisville, Kentucky 40241
Complimentary cocktails and hors d' oeuvres will be served.
RSVP TODAY! 502-896-2999 Ext. 108

POTENTIAL TAX IMPLICATIONS OF DEFICIT REDUCTION

The Budget Control Act of 2011

The final act of the debt ceiling melodrama in Washington, the Budget Control Act of 2011 (P.L. 112-25) (“BCA”) seeks to increase the debt ceiling in two separate phases.  Phase one is an automatic $400 billion increase, to be followed by an additional $500 billion so long as Congress doesn’t pass a disapproval resolution.  Phase one is coupled with a mandatory $917 billion in deficit reduction for fiscal years 2012 – 2021.

Phase two involves a second increase to the debt ceiling of $1.5 trillion and provides a mandate for creation of a Congressional Joint Select Committee on Deficit Reduction (“JSCDR”).  The JSCDR is to consist of twelve members of Congress, six from each house, with membership to be divided equally among republicans and democrats.  The JSCDR must identify at least $1.5 trillion in deficit reduction for fiscal years 2012-2021.  If the JSCDR fails to achieve its mandate, then the debt ceiling will automatically increase by $1.2 trillion, and a corresponding $1.2 trillion in deficit reduction that will occur pursuant to pre-selected spending cuts to begin in 2013.

Tax Increases vs. Spending Cuts

The emergent issue faced by the JSCDR appears to be whether it will accomplish its deficit reduction goal through spending cuts or tax increases.  However, the magnitude of reduction called for by the BCA makes use of spending cuts alone impractical, so in all likelihood the measures adopted by the JSCDR will include some of both.  So, what does this all mean?

Well for one thing, the now infamous Bush tax cuts will be reappearing in headlines.  The primary issue here will be whether allowing these tax cuts to expire should be considered a tax increase, because in truth, the tax code would only be reverting to its codified form.  There will also be talk of closing “loopholes” in the tax code, eradicating LIFO accounting for business inventories, and probably even some more “radical” tax reform measures such as a federal sales tax.

The imposition of a value-added tax (“VAT”) has been gaining some traction politically.  A VAT works something like a sales tax, except that it shifts the source of taxation from retailers to manufacturers, and potentially, service providers.  From a very broad perspective, then, each “producer” in our economy bears the burden of taxation based upon its “value added” to a product or service that is eventually sold to consumers.

A more simplistic alternative that has been proposed is the reduction of corporate income tax rates.  While at first this may not sound like a tax increase, the proponents of this approach argue that reducing corporate taxes will allow corporations to hire additional employees, thereby expanding the overall income tax base and raising tax revenues. Those against this option argue (perhaps rightfully so) that corporations will glutton themselves on additional profits rather than hire more employees, and continue to increase reliance on automated manufacturing processes and foreign outsourced labor.

You may be wondering what your President has to say about this.  The White House has not been bashful about taking a stance in favor of tax increases to solve the deficit issue.  Specifically, the White House as promoted the following measures:

·       Terminate LIFO accounting for business inventories, raising an estimated $60-70 billion in tax revenues over 10 years.

·       Place a cap on itemized deductions for individuals with adjusted gross income (AGI) over $200,000 and families with AGI over $250,000, raising an estimated $300 billion over 10 years.

·       Levy ordinary income tax rates on carried interest, raising an estimated $20 billion over 10 years.

·       Repeal oil and gas company breaks, such as the allowance for claiming a deduction under the percentage depletion method.

·       Change the required MACRS useful life for depreciation of corporate jets from five to seven years.

Conclusion

Realistically, if the United States plans to realize nearly $2 trillion in deficit reduction over the next ten years then the American taxpayer is going to wind up paying at least part of the tab.  The only real questions are how, when, and how much.  These issues will be hotly debated over the coming months, and are of great importance to the global economy.  In these tumultuous times, citizens should consult their tax advisor on a regular basis to ensure that they are prepared for whatever the tax outcomes of this deficit reduction “crisis” should be.

Estate Planning & Wealth Management Information Session Scheduled

Neikirk, Mahoney & Co. and UBS Financial Services will be co-hosting an Estate Planning & Wealth Management Information Session on Thursday, September 22, 2011 at Corbett’s restaurant in Louisville, KY. 

Guests should arrive at 6:30pm for cocktails and light hors d’oeuvres, to be followed by a brief presentation of basic estate planning and wealth accumulation strategies. This session is specifically geared to benefit interested persons in their 30’s and 40’s who for the first time in their lives may be in need of a comprehensive plan. 

Those interested in attending should RSVP to Jeffrey Mahoney at (502) 896-2999, extension 108.

Estimated Quarterly Tax Payments

Estimated quarterly income tax payments for the third quarter of 2011 are due on September 15, 2011. Remember to schedule a tax planning appointment so we can help you avoid underpaying your 2011 estimated taxes.