The Tax Bill Passed – Now What?

Taking advantage of year-end tax planning can help you identify strategies that will allow you to minimize your tax liabilities.  This has been an odd year for purposes of year-end tax planning. Numerous tax breaks introduced in 2001 and 2003 were scheduled to expire at the end of 2010. Even the tax rates for 2011 were uncertain. Congress finally passed the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act (the Act) just after midnight on December 17, 2010. Prior to enactment, it may have been prudent to accelerate ordinary and capital gain income to 2010 in order to take advantage of the relatively low tax rates.

Deferring income  is generally the best practice.

• Now that the tax rates over the next two years are established, the traditional strategy of deferring income into the future is again the best tax option.  This takes advantage of the time value of money.

Accelerate the purchase of business assets

• The Act allows a 100% write off of investments in business assets (not including real property) purchased after September 8, 2010. This benefit is also effective for 2011 and 2012. There is no income or investment limitations as there is for the existing Section 179 expense. If you were considering investing in new equipment in early 2011, you may want to accelerate the purchase to 2010.

Take advantage of business deductions made available by The Small Business Jobs Act of 2010.

• You can benefit from the tax breaks for purchasing equipment, software and certain real property for your business  if you cannot take advantage of the new 100% deduction. You may expense up to $500,000 of equipment costs if the asset was placed in service during 2010. These benefits will also be available in 2011. And, you can also claim a 50% first-year depreciation bonus.
• Self-employed individuals can now deduct the cost of health insurance when calculating self-employment taxes.

Changes to business credits may affect you.

• Eligible small employers are allowed a credit for certain expenditures to provide health insurance coverage for their employees for 2010 and beyond.
• In addition, as a result of the Small Business Jobs Act of 2010, the credit carryback period for eligible small business credits is extended from one to five years.
• The Act extends the research tax credit to 2010 and 2011.

Contributions from an IRA to charities

• The Act extended the ability to make tax-free distributions directly to charities for 2010 and 2011. Although you will not get a charitable deduction you will not pay tax on the distributions to your favorite charities.

These are just a few considerations to get you started on your year-end tax planning. There are many more considerations that you should evaluate. Please don’t hesitate to contact me or any Kaufman, Rossin professional.