Year-End Moves for Business Owners

Year-end planning is a challenge this year because, unless Congress acts, tax rates will go up, many more individuals will be snared by the alternative minimum tax (AMT), and various deductions and other tax breaks will be unavailable. The prospect of higher taxes next year makes it even more important to engage in year-end planning. To that end, we have compiled a checklist of actions that a business can take to help save tax dollars if implemented before year-end. Many of these moves may benefit you regardless of the decisions made by Congress.

  • Buy back stock: If your business is incorporated, consider redeeming stock in order to move money out of the business. The buy-back of the stock may yield long-term capital gain or a dividend, depending on a variety of factors. But either way, you’ll be taxed at a maximum rate of only 15% if you act this year. If you wait until next year to make your move, your long-term gains or dividends may be taxed at a higher rate. Additionally, if your adjusted gross income exceeds certain limits, gains taken next year will be exposed to an extra 3.8% tax (the so-called “unearned income Medicare contribution tax”).
  • Hire a Vet: If you are thinking of adding personnel, consider hiring a qualifying veteran before year-end to qualify for a work opportunity tax credit (WOTC). Under current law, the WOTC for qualifying veterans won’t be available for post-2012 hires. The WOTC for hiring veterans ranges from $2,400 to $9,600, depending on a variety of factors, which include the veteran’s period of unemployment and whether he or she has a service-connected disability.
  • Purchase new assets for bonus depreciation: Put new business equipment and machinery in service before year-end to qualify for the 50% bonus first-year depreciation allowance. Unless Congress acts, this bonus depreciation allowance won’t be available for most types of property placed in service after 2012.
  • Make expenses qualifying for the business property expensing option: The maximum amount you can expense for 2012 is $139,000 of the cost of qualifying property placed in service up to the investment ceiling of $560,000. For tax years beginning in 2013, the expensing limit will be only $25,000 and the investment ceiling will be lowered to $200,000.
  • Purchase a vehicle: If you are in the market a large, heavy SUV (those built on a truck chassis and rated at more than 6,000 pounds gross (loaded) vehicle weight), consider buying it in 2012. Due to a combination of favorable depreciation and expensing rules, you may be able to write off most of the cost of the heavy SUV this year. Next year, the write-off rules may not be as generous.
  • Set up a self-employed retirement plan: If you are self-employed, this can be a very beneficial way to plan for retirement and at the same time reduce your adjusted gross income.
  • Increase your basis in a partnership or S corporation: Doing so will enable you to deduct any losses this year. A partner’s share of partnership losses is deductible only to the extent of his/her basis. An S corporation shareholder can deduct his/her pro rata share of an S corporation’s losses only to the extent of the total of the basis in (a) S corporation stock, and (b) debt owed to the shareholder by the S corporation.

These are just a few of the year-end steps that can be taken to save taxes. By contacting Anders, we can tailor a plan that will work best for you.