November 2011

Posted on November 19, 2011

Tax planning for year-end 2011 presents new challenges for business taxpayers to reduce or defer federal income tax liability. Although traditional planning techniques remain fundamentally important considerations this year, tax planning is complicated in context of the effective dates for many popular tax incentives, and the anticipation of tax legislation that may be put to a vote in Congress before year’s end.

Considering this legislation, here are a few tax planning tips for year-end:

  • As of January 1, 2013, qualified dividends will be subject to ordinary income tax rates. Accordingly, corporations with excess earnings and profits should consider making larger dividends in 2011 and 2012.
  • The Code Sec. 179 deduction is limited to the taxable income of the taxpayer, whereas regular MACRS deductions are not. Foregoing the Code Sec. 179 deduction in 2011 may create a net operating loss for carryback. However, Code Sec. 179 expense deduction in excess of current year income can be carried over to future years and effectively increase the deduction in years when the limitation is expected to decrease. Unless Congress changes the provisions, the expense limitation reverts to $25,000 in 2013.
  • In addition to the Code Sec. 179 deduction, the bonus depreciation deduction is extended to property placed in service before January 1, 2013.
  • The 15-year recovery period for qualified leasehold improvement property, qualified restaurant property (including restaurant buildings), and qualified retail improvement property applies to property placed in service before January 1, 2012.
  • The deduction for energy-efficient commercial building property is available for five years to include qualified property placed in service before January 1, 2014.
  • The recognition period for the S corporation built-in gains tax has been reduced through 2012. The relief provided by this provision should be valuable to small family or privately-owned businesses that are forced to downsize and sell assets to raise cash.
  • Advance planning is necessary to minimize the threat of the alternative minimum tax at a flat rate of 20 percent.
  • Enhanced deduction for food, book and computer donations.
  • The following credits are available for 2011:
    • Credit for increasing research activity
    • Work Opportunity Tax Credit
    • Credit for employer- provided childcare
    • Credit for employer’s differential wage payments to military personnel

These and other tax planning techniques can be applied to your situation. Please call my office at your convenience for an appointment to discuss your year-end options.