Year-end tax planning is especially challenging this year
because of uncertainty over whether Congress will enact sweeping tax reform
that could have a major impact in 2012 and beyond. And even if there’s no major
tax legislation in the immediate future, Congress next year still will have to
grapple with a host of thorny issues, such as whether to once again “patch” the
alternative minimum tax (e.g., to avoid a drastic drop in post-2011 exemption
amounts), and what to do about the post-2012 expiration of the Bush-era income
tax cuts (including the current rate schedules, and low tax rates for long-term
capital gains and qualified dividends), and the expiration of favorable estate
and gift rules for estates of decedents dying, gifts made, or generation-skipping
transfers made after Dec. 31, 2012.
Here are some things to contemplate if you are a business owner:
•Businesses should consider making expenditures that qualify for
the business property expensing option. For tax years beginning in 2011, the
expensing limit is $500,000 and the investment ceiling limit is $2,000,000. And
a limited amount of expensing may be claimed for qualified real property.
However, unless Congress changes the rules, for tax years beginning in 2012,
the dollar limit will drop to $139,000, the beginning-of-phaseout amount will
drop to $560,000, and expensing won’t be available for qualified real property.
The generous dollar ceilings that apply this year mean that many small and
medium sized businesses that make timely purchases will be able to currently
deduct most if not all their outlays for machinery and equipment. What’s more,
the expensing deduction is not prorated for the time that the asset is in
service during the year. This opens up significant year-end planning
opportunities.
•Businesses also should consider making expenditures that
qualify for 100% bonus first year depreciation if bought and placed in service
this year. This 100% first-year writeoff generally won’t be available next year
unless Congress acts to extend it. Thus, enterprises planning to purchase new
depreciable property this year or the next should try to accelerate their
buying plans, if doing so makes sound business sense.
•Nail down a work opportunity tax credit (WOTC) by hiring
qualifying workers (such as certain veterans) before the end of 2011. Under
current law, the WOTC won’t be available for workers hired after this year.
•Make qualified research expenses before the end of 2011 to
claim a research credit, which won’t be available for post-2011 expenditures
unless Congress extends the credit.
•If you are self-employed and haven’t done so yet, set up a
self-employed retirement plan.
•Depending on your particular situation, you may also want to
consider deferring a debt-cancellation event until 2012, and disposing of a
passive activity to allow you to deduct suspended losses.
•If you own an interest in a partnership or S corporation you
may need to increase your basis in the entity so you can deduct a loss from it
for this year.
More to come on individual tax planning opportunities…
Larry