Nov 25

Now is a great time to review the business’ finances and see if there are any late-year purchases that would benefit your business while helping to reduce your small business tax bill.

1)    Retirement  - If you haven’t already considered making a contribution to a 401(k) or SEP, now is a great time to evaluate your tax situation and see if a contribution will help you for 2011.  Mosy retirement accounts must be established before year-end and some accounts may even require earlier dates in order to qualify for the 2011 tax year.  The possible exceptions to this are the IRA and simplified employee pension (SEP) account which can be created and funded as late as April 15, 2012 or even later for a SEP if you file for a 2011 tax deadline extension.

 2)    New Hires – There are still some small business tax incentives remaining from the 2010 jobs bills that can make hiring a late year employee beneficial to your business.  You must hire a qualifying worker such as a veteran, workers with disabilities, or low-economic tax bracketed individuals before December 31, 2011.  The tax credit can be worth up to 40 percent of the first $6,000 in wages, but remember to check with your small business accountant or local Department of Labor regarding potential partial credits for end-of-year new hires.

3)    Section 179 deductions – Soon to phase down, the Section 179 deduction is the highest it has ever been for small business looking to take advantage of the full purchase price upfront rather than depreciating the expense over time.  The total amount you can deduct for 2011 is $2 million with a dollar-for-dollar phase-out after $2 million. Qualifying deductions can include computer hardware/software, certain vehicles and machinery used in manufacturing.  These items must be purchased and placed into service by 12/31/11. 

4)    Bonus depreciation – Also included in the American Recovery and Reinvestment Act (ARRA) enacted in February 2009, is the extended bonus depreciation that enables businesses to deduct half the cost of qualifying property in the year it is placed into service.  The rate increased to 100 percent for qualified investments made after September 8, 2010 through December 31, 2011.  Next year the rate drops back to 50 percent.  The following property qualifies under the bonus depreciation:

 a)    Tangible property depreciated under the modified accelerated cost recovery system (MACRS)

b)    Water utility property

c)    Off-the-shelf computer software

d)    Qualified leasehold improvement property.

5)    Charitable donations – If you’re business is doing well and you’re feeling particularly benevolent, consider making a charitable contribution to your favorite nonprofit before 12/31/11. 

6)    Bonuses  - If your small business gives employee bonuses, end of year is a great time to consider giving a special bonus.  You can take the bonus deduction now for a bonus payment you’ll make in 2012 with the following stipulations:

        a)    You cannot pay a bonus to an employee who has more than 50 percent ownership     (stock) in the company

b)    The bonus must be paid to the employee within the first 2.5 months of the following tax year.  If you ‘give’ the bonus now, the employee must receive it by March 15, 2012 for the 2011 deduction to count.

c)    You must reflect the bonus payment on the business’ books by the end of 2011.

d)    The employee will not be responsible for paying taxes on the bonus until the tax year in which they receive it.

These are just a few of the deductions and tax strategies a small business accountant or tax expert can assist you with as the year begins to wind down.

PASBA member accountants bring the collective resources of a nationwide network of Certified Public Accountants, Public Accountants,  Enrolled Agents and other practitioners available to answer your tax and financial questions and streamline your business accounting, bookkeeping, and payroll operations.

To find a trusted accountant in your area, visit www.SmallBizAccountants.com.
Please be advised that, based on current IRS rules and standards, any advice contained herein is not intended to be used, nor can it be used, for the avoidance of any tax penalty that the IRS may assess related to this matter. Any information contained in this article, whether viewed or subsequently printed, cannot be relied upon as qualified tax and accounting advice.  Any information contained in this article does not fall under the guidelines of IRS Circular 230.

Copyright Information 2011 Professional Association of Small Business Accountants