are a number of end of year tax strategies businesses can use
to reduce their tax burden for 2011. Here's the lowdown on
some of the best options.
Section 179 Expensing:
Business should take advantage of Section 179 expensing this
year for a couple of reasons. First, is that starting in tax
year 2010 and continuing into tax year 2011, the maximum
Section 179 expense deduction for equipment purchases
increased to $500,000 ($535,000 for qualified enterprise
zone property) and the bonus depreciation increased to 100%
for qualified property. Beginning in tax year 2012 however,
the Section 179 deduction is scheduled to drop to $125,000
and the bonus depreciation to be reduced to 50
percent and then be phased out completely.
In other words, in 2011
businesses can elect to expense (deduct immediately) the
entire cost of most new equipment up to $500,000 (subject to a
dollar-for-dollar reduction in that $500,000 for property
placed in service that exceeds the maximum amount of
Qualified property is defined as
property that you placed in service during the tax year and
used predominantly (more than 50 percent) in your trade or
Property that is placed in
service and then disposed of in that same tax year does not
qualify, nor does property converted to personal use in the
same tax year it is acquired.
Many states have not matched these amounts and,
therefore, state tax may not allow for the maximum
federal deduction. In this case, two sets of
depreciation records will be needed to track the federal
and state tax impact. Please contact our office
if you have any questions regarding qualified property
and bonus depreciation.
Timing: If you plan to
purchase business equipment this year, consider the timing.
You might be able to increase your tax benefit if you buy
equipment at the right time. Here's a simplified explanation:
Conventions. The tax
rules for depreciation include "conventions" or rules for
figuring out how many months of depreciation you can claim.
There are three types of conventions. To select the correct
convention, you must know the type of property and when you
placed the property in service.
the rest of this article this,
click here or go to
www.eSullivan.net and click on the Newsletter section.
These (Purchasing New Business
Equipment, Section 179 Expensing, Partnership or S Corporation
Basis, Retirement Plans, Dividend Planning or Budgets) are
just a few of the year-end planning tax moves that could make
a substantial difference in your tax bill for 2011. But the
best advice we can give you is to give us a call at
301-657-8080. We'll sit down with you, discuss your
specific tax and financial needs, and develop a plan that
works for your business.
As always you can call our offices if you have any
questions about these or any other accounting, tax,
financial planning or insurance related issues, at 301-657-8080.
Regards, Paul Sullivan, CPA
President, Sullivan & Company