Yearend Business Tax Planning Tips

Contained in the three major tax Acts that were passed in 2010 is a little Holiday cheer for everyone!  As we approach the end of the year, we would like to share some of the more common deductions and strategies you should consider:

Purchases of machinery or equipment:   For 2010 & 2011, taxpayers can immediately expense (rather than depreciate) $500,000 worth of machinery or equipment (up from $250,000) and the phase-out limitation for this deduction has increased from $800,000 to $2,000,000 under Code Sec. 179. 

Purchases of qualified leasehold improvement property:  For 2010 & 2011, taxpayers can expense up to $250,000 of qualified leasehold improvements since this provision has been extended. 

50% Bonus Depreciation Extended: The new law extends the 50% bonus first-year depreciation allowance for one year;  it’s available for qualifying property acquired and placed in service in 2010. 

Autos and Trucks First Year Expense Election: Qualified autos (autos that qualify for bonus depreciation) and light trucks or vans are allowed first-year expense write-off up to $11,060 for 2010.  Trucks and SUVs greater than #6,000 lbs. can write-off up to $25,000.

Business Startup Cost Expense Election:  The write-off for start-up expenditures, formerly $5,000, has increased to $10,000 for 2010.

Did you hire an employee who had been unemployed for at least 60 days?  The HIRE Act exempts any private-sector employer that hired a worker who had been unemployed for at least 60 days from having to pay the employer's 6.2% share of the Social Security payroll tax on that employee through the end of 2010.  As an additional incentive, any qualifying worker that the employer keeps on payroll for a continuous 52 weeks makes the employer eligible for an additional non-refundable tax credit of up to $1,000.

Here are some additional Tax savings opportunities for businesses to consider before yearend: 

• Consider back-loading payroll federal tax withholding to avoid under payment of estimated taxes
• Estimate the yearend tax basis of each owner’s business interest to avoid loss limitations or phantom income from the repayment of debt 
• Review accountable plan terms & plan operation to be sure employee business expense reimbursements qualify as non-taxable
• Be sure your pension plan strategy is in place before yearend; some plans cannot be setup after yearend
• Make final purchases of equipment & leasehold improvements eligible for bonus depreciation before yearend
• Purchases before December 31 via credit card will qualify for a 2010 deduction
• If you hired unemployed workers, pursue the new payroll tax holiday and up-to-$1,000 credit

Special Considerations for S-Corporations: 

• Reimburse S-Corporation stockholders for business use of a home office via an accountable plan before yearend
• Consider if officer wages are reasonable compared to the salary of your peers
• Ensure S-Corporation distributions were paid pro-rata according to percent of stock ownership
• Document all shareholders loans to avoid the new open account limitations
• Yearend is quickly approaching!  Please contact our office if you have questions concerning your taxes.  As always, we are here to help.