As the year-end approaches, it’s time to ensure that you take advantage of all the tax breaks that apply to your business – especially those scheduled to expire by Dec. 31, 2011. Many of us also might face higher personal taxes in 2012. If ever there was a year-end where pre-emptive tax planning with a professional advisor is a must-do, this is it.
Here’s a review of some key points:
- If you are interested in taking an equity position in a small business, do so before Dec. 31. The shares will not be subject to federal capital gains tax when you sell them (after owning for five years). If you dally and purchase next year, the maximum tax rate is slated to be 14 percent when you sell (after the mandatory five years). This provision applies only to stock of qualified small business corporations. Certain sectors – including, but not limited to, financing, oil and gas extraction and hospitality ventures (hotels, motels and restaurants) – do not qualify for this type of tax break. Be sure to get expert tax and investment advice before you buy small business stocks.
- You can claim 100 percent first-year bonus depreciation on new assets that are put to use in your business before Dec. 31. There are no dollar limits on this tax break and businesses small and large are eligible. If your depreciations lead to an overall tax loss for 2011, it may be carried back to 2010 and 2009 and could generate refunds for taxes you paid during this time period. Again the key phrases here are new and purchased and put to use before Dec. 31, 2011. Assets must be considered qualified property; most equipment, software and some lease hold improvements fit in this category.
- If you buy a new van or SUV for business purposes (with a gross vehicle-weight rating of more than 6,000 pounds), you can deduct the entire business-usage percentage of the vehicle’s cost on your 2011 tax return, up to a maximum deduction of $25,000. The business usage of the vehicle must be more than 50 percent, and this percentage is based on overall mileage. In 2012, the depreciation break is expected to be cut to 50 percent.
- New light trucks and passenger cars are eligible for a maximum deduction of $11,260 and $11,060, respectively. To qualify, the vehicle must be new and be used 100 percent for business purposes.
- Also due to expire at the year-end are provisions that permit you to claim deductions of as much as $250,000 for qualified real estate improvements. In most instances, the improvements must have been put to use more than three years after the business opened for business. The deductions cover only nonresidential building interior costs for qualified leasehold property. Elevator construction and some other interior structural costs do not qualify. Restaurant property deductions include both building and improvement costs. To be eligible, more than 50 percent of the building’s square footage must be devoted to preparing meals and to customer seating. Qualifying retail building improvements cover nonresidential buildings that are open for customers to visit and whose products involve sales of tangible, personal property.
The above are concise summaries. Your tax professional can provide more information on these and other tax exemptions that are due to disappear by year’s end.