Year End Tax Moves for Business Owners


**** The 2010 Tax Relief act significantly enhances bonus depreciation by temporarily increasing additional first-year depreciation allowance to 100% for 2011 and providing a 50% allowance for 2012. In 2011, bonus depreciation will benefit more taxpayers than Section 179 expensing, because it isn’t subject to any asset purchase limits. However, unlike Sec. 179 expensing, bonus depreciation isn’t available for used property. If you’re anticipating major purchases of assets you may buy before year end so you can benefit from 100% bonus depreciation.


**** Set up a self-employed retirement plan if you are self employed and haven’t done so yet.


*****Consider establishing a retirement plan for your business. Employer contributions to qualified plans are deductible.


***** Increase your basis in a partnership or S corporation if doing so will enable you to deduct a loss from it for this year.


***** Deferring income to next year. Use the cash method of accounting? You can defer billing for your products or services. Use the accrual method? You can delay shipping products or delivering services. Accelerating deductions into the current year. If you’re a cash-basis taxpayer, consider making an estimated state tax payment before Dec. 31, so you can deduct it this year rather than next. Both cash and accrual base taxpayers can charge expenses on a credit card and deduct them in the year charged, regardless of when paid. Warning: If it’s likely you’ll be in a higher tax bracket next year, the opposite strategies (accelerating income and deferring deductions) may save you more.


***** Accrual method businesses should consider accruing year-end bonuses to employees who are not controlling shareholders. They are deductible in the current year even though paid in the following year and the bonus won’t be taxable to the employee until next year.