2011 Year-End Tax Guide Part II

2011 “Stretch Drive” Tax Guide
Year-End Tax Moves to Consider
Provided by Peter Miralles, CFP®CIMA®CLU

How would you like to save hundreds or even thousands on your 2011 federal tax return?

Some year-end moves might allow you to do just that.

The fourth quarter of 2011 is passing by quickly and taxpayers now find themselves in the “stretch drive”, with just a few weeks left to make those moves that could help them address tax issues this year and next.

Here is a list of some year-end tax moves to consider, and a few items you might want to review before 2011 ends.

Of course, you should consult a qualified tax or financial professional before taking any action.
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 Part 2 of 3… some ideas & reminders for business owners

• See if your company qualifies for the Section 179 deduction. Per IRC Section 179, a small business can write off 100% of the expense of qualifying equipment or computer software made in 2011 with a $500,000 limit. These capital expenditures can be on new or used equipment. Your company has to be profitable in order for you to take full advantage of the write-off, and you can’t take complete advantage of it if you have spent more than $2 million on qualifying capital in 2011.^9,10

• Remember the 2011 100% first-year depreciation bonus. Your business can claim 100% of the cost of new (not used) property (“qualified property”): tangible property with a depreciation period of not more than 20 years (machinery, equipment, other tangible personal property and non-building land improvements); most computer software; and certain building improvements purchased in 2011 as long as your business uses the property before 2012. This 100% depreciation also applies to qualified property bought after September 8, 2010.^3,10

• Remember that you can take a deduction for start-up expenses. The Small Business Jobs Act of 2010 raised this deduction to $10,000, with phase-outs starting at $60,000 worth of startup expenditures. Those expenses can include rent, attorney and CPA fees, licensing fees, travel costs, insurance and supplies.^3,10
  

• You may be able to exploit some major health care tax credits.

• If you are a) self-employed, b) a partner in a business, or c) a 2% shareholder–employee in an S corporation, you have the ability to deduct 100% of your medical insurance premiums (for yourself, for your family) as an adjustment to gross income.  The adjustment does not reduce net earnings, and it can’t surpass the earned income from the business at which the health coverage was arranged. Also, you can’t deduct premiums paid during any month in which you or your spouse were eligible for employer-paid health coverage.³
• If a) you employ 25 or fewer Full Time Employees (FTE’s), b) the majority of them earn less than $50,000 annually, and c) you bear the cost of at least 50% their health insurance premiums … you may be able to deduct up to 35% of the money you spend on those premiums for 2011. To get the full 35% credit, you must have 10 or fewer FTEs with annual wages averaging $25,000 or less. Above that, phase-outs apply.³

• If you work from home, you can probably qualify for the home office deduction. You have to have a dedicated office space within your residence to take this deduction, by which a portion of utilities and certain expenses can be tax-deductible. For example, if you live in a 2,000-square-foot home and you run your business from a 160-square-foot home office, you can legitimately deduct 8% of your utilities, internet expenses, or any expenses linked to maintaining that home office.¹¹
  

• Think about purchasing supplies and delaying receipt of your receivables. Buying supplies can lower your profit, and delaying receipt of your receivables will lower your taxable income level – thereby helping to reduce the amount of taxes you pay for 2011. Of course, if you’ll be in a higher bracket or if you think taxes will soon increase, you may want to generate more income now with the goal of paying a lower tax rate on it. This can work whether you use the accrual method or the cash method of accounting: if you use the cash method, you can hold off on certain billing notices so that certain payments won’t arrive until 2012, and if you go by the accrual method, you can elect to postpone certain shipments until 2012. (Year-end shipments can also be made FOB destination instead of FOB shipping point to delay title transfers.)³
  

• If you have a C corp., you might want to consider trying to generate more corporate income this year if you think your C corp. will enter a higher tax bracket for 2012. Weigh the opportunity cost and cash flow ramifications of such a choice first.³

• Be sure that you put your corporation through a gross receipts test. This can help you to determine whether the corporation could be hit with AMT.³

• You also might be able to get a deduction for vacation pay vested by the end of 2011 and employee bonuses you won’t be paying out until early 2012. (There is much fine print linked to those possibilities, so talk further about them with your tax advisor.)³

• If you are looking at a net operating loss for 2011, remember than you can carry it back up to 2 years and carry it forward up to 20 years. If you carry it back, you might get yourself a refund of taxes paid; if you carry it forward, you could use the NOL to cancel out some future taxable income.³
  

• If you are looking at an NOL and you view the effort as a for-profit business or investment activity rather than a hobby, be aware that the IRS could readily contest your claim. The IRS definition of a for-profit activity is an activity that makes a profit in three of the last five years, including the currently applicable tax year (or at least two of the last seven years if you are breeding, showing, training or racing horses).¹²

• Double-check to see if your compensation might be subject to self-employment taxes. That might be true if you are a sole proprietor, a manager in an LLC or an active partner in an LLP. Any net earned income generated through the business entity may be fair game.

• Finally, see if your company might be eligible for two oft-overlooked business credits. Check if you can qualify for the domestic production activities deduction (which can be up to 9% of the lesser of either taxable income or income realized through qualified production activities) or the research and experimentation (R&D) credit.³

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Peter Miralles is a Representative with Cambridge Investment Research and may be reached at http://awc2.com/, 678-680-5300 or info@awc2.com.
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This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is not a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such.

This Special Report is not intended as a guide for the preparation of tax returns. The information contained herein is general in nature and is not intended, and should not be construed, as legal, accounting or tax advice or opinion provided by Peter Miralles nor MarketingLibrary.net, Inc. to recipients. No information herein was intended or written to be used by readers for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions. Readers are cautioned that this material may not be applicable to, or suitable for, their specific circumstances or needs, and may require consideration of non-tax and other tax factors if any action is to be contemplated. Readers are encouraged to consult with professional advisors for advice concerning specific matters before making any decision. Peter Miralles and MarketingLibrary.net, Inc. disclaim any responsibility for positions taken by taxpayers in their individual cases or for any misunderstanding on the part of readers. Peter Miralles and MarketingLibrary.net, Inc. assume no obligation to inform readers of any changes in tax laws or other factors that could affect the information contained herein.

Citations.
1 www.irs.gov/newsroom/article/0,,id=229975,00.html [10/28/10]
2 www.nolo.com/legal-encyclopedia/reduce-estate-tax-by-gifts-30095.html [11/8/11]
3 www.dentbaker.com/LinkClick.aspx?fileticket=5gZQwSHvjwQ%3d&tabid=36 [2011]
4 turbotax.intuit.com/tax-tools/tax-tips/Tax-Planning-and-Checklists/The-Gift-Tax/INF12036.html [1/27/11]
5 www.ctphilanthropy.org/s_ccp/bin.asp?CID=14889&DID=45124&DOC=FILE.PDF [12/17/10]
6 www.taxact.com/tax-information/articles/2011/cut-your-taxes-with-these-year-end-moves.asp [11/10/11]
7 money.usnews.com/money/blogs/the-smarter-mutual-fund-investor/2011/11/08/time-for-tax-loss-harvesting.html [11/8/10]
8 www.irs.gov/newsroom/article/0,,id=106182,00.html [2/10/11]
9 money.cnn.com/2011/01/17/smallbusiness/small_business_new_tax_credits/ [1/17/11]
10 journalofaccountancy.com/Web/20113750.htm [1/14/11]
11 www.blackenterprise.com/2011/10/05/10-year-end-small-biz-tax-tips/ [10/5/11]
12 www.irs.gov/irs/article/0,,id=186056,00.html [6/08]
13 www.investmentnews.com/article/20111023/REG/310239992 [10/23/11]
14 www.walletpop.com/2011/01/19/dont-forget-about-the-making-work-pay-credit/ [1/19/11]
15 www.advisorone.com/2011/10/25/taxpayers-get-billions-in-erroneous-education-tax [10/25/11]
16 www.smartmoney.com/personal-finance/taxes/the-nanny-tax-9560/ [1/25/11]
17 house.leg.state.mn.us/hrd/issinfo/sstaxes.htm [2/11]
18 www.whitehouse.gov/blog/2011/04/14/repealing-1099-reporting-requirement-big-win-small-business [4/11/11]