Quick! Don’t miss out on tax breaks!

If you run a small business, you’ve probably noticed it’s almost year-end! Now is the time to focus on last-minute moves you can make to save taxes on your 2009 business return.   These moves could be especially productive before year-end because there are tax breaks that are not likely to continue much longer unless Congress acts to extend them.

These are some of the items you should think about before year-end:

• If you have plans to buy office furniture, equipment, or other tangible business property, you should consider doing so before year-end to take advantage of the temporarily increased Section 179 deduction. Unless Congress takes action, the Section 179 deduction will decrease from $250,000 in 2009 to $134,000 in 2010.
• Another reason to purchase tangible business property before year-end is Bonus Depreciation. You can claim first-year bonus depreciation equal to 50 percent of the cost of most new equipment and software placed in service in 2009. Unless Congress extends it, this provision will expire on December 31, 2009.
• If your small business is organized as a C corporation, you should consider paying a dividend in 2009. If the corporation pays a taxable dividend, the maximum federal rate is currently 15 percent. The maximum federal rate on dividends is scheduled to increase to 39.6 percent starting in 2011.
• If you are planning to make improvements to real property, you should do so before year-end. Qualified retail improvement property, qualified leasehold improvement property, and qualified restaurant property placed in service before 2010 may be depreciated over 15 years instead of 39 years.
• If your business is organized as an S corporation, you might want to consider paying bonuses to shareholders who own 50 percent or more of the corporation before year-end. Accrued bonuses for this type of shareholders are deductible only in the year paid.
• If your business uses the accrual method of accounting, you should consider compensation planning. In order to deduct any accrued salaries and bonuses in your 2009 tax return, they must be paid within 2.5 months of year-end.
• If your small business is organized as a pass-through entity, (e.g. partnerships and S corporations) you should incorporate your individual tax planning with that of your business. In these type of entities, any decisions made at the business level will directly affect the owner’s personal tax liability. This is especially important if you own more than one pass-through entity. Income and losses from all pass-through entities could be combined in your personal return.

Although the time to make tax-planning moves for 2009 is running out, it is still possible to reduce your 2009 tax liability. In these tough economic times, it is more important than ever to save as much as you can.