Tax Strategies – 2011 Year End Tax Planning for Businesses & Individuals
by Kira S. Masteller
What tax strategies do you have in place for yourself, your family or your business for this year and for the years to come?
Whether you need business tax planning, or individual estate tax planning, we have some tips for protecting your financial future.
Of course, you’ll need to put some of these plans in place now, since many of the recommendations below involve year end tax strategies to help your economic outlook in 2012, 2013, and beyond.
Business Tax Planning – Windows of Opportunity
We hate to impose deadlines on you, but the IRS has no such qualms. If you’re a business owner, you should be aware of these limited windows for tax savings which may end on December 31st, unless Congress decides to extend the following benefits:
Bonus Depreciation – Qualified property acquired between September 8, 2010 and December 31, 2011 may be eligible for 100 percent bonus depreciation, if it is placed in service by the end of the year. Certain other property may be placed in service before 2013 and still qualify. These tend to be longer-lived and transportation properties.
Differential Wage Payments – Employers making differential wage payments to employees called to active military duty may be eligible for tax credits until the end of the year.
Energy Credits – Tax credits for energy-efficient homes, energy-efficient appliance production, and the use of certain alcohol or biodiesel fuels will all expire at the end of the year.
Expensing for Real Property – If you put certain, qualified, real property into service in 2010 or 2011, you might be able to file expenses under Code Sec. 179 of up to $250K of the cost of the property, until January 1, 2012.
Expensing Under Code Section 179 – The dollar limit for Code Sec. 179 is $500K, and the investment limit is $2M, for tax years 2010 and 2011. However, these limits drop dramatically (by 75 percent) in 2012.
FUTA Surtax – As of July 1, 2011, the Federal Unemployment Tax (FUTA) tax rate fell to 6 percent, when the FUTA surtax of 0.2 percent expired. Employers will need to document FUTA paid before July 1, 2011 (or after June 30, 2011) separately. There may be a retroactive reinstatement of the surtax.
If you increased spending on research or development of new technologies, you may be eligible for credits, set to expire at the end of the year.
Work Opportunity Tax Credits – If you hired individuals from one of the nine groups listed below, you may be eligible for tax credits (dependent on certain circumstances). The groups targeted by the WOTC are:
▪ Long-term Temporary Assistance for Needy Families (TANF) Recipients
▪ Other TANF Recipients
▪ Veteran, or a Supplemental Nutrition Assistance Program (SNAP) Recipient
▪ 18-39 year old SNAP Recipient
▪ 18-39 year old Designated Community Resident living in an Empowerment Zone, more commonly called an EZ.
▪ 16-17 year old EZ resident employed for the summer
▪ Vocational Rehabilitation Referrals
▪ Supplemental Security Income benefits recipient
Tax Strategies for Individuals
Even if you don’t own your own business, you can still take advantage of certain incentives which end in a couple of weeks:
Alternative Minimum Tax (AMT) – What are the pros and cons of filing AMT vs. filing for the regular federal tax liability? You’ll have to decide which of your deductions will qualify for AMT and which of your deductions should be applied to 2012 or 2011.
Capital Gains Taxes & Dividends – Decide now whether income from qualified capital gains and dividends should be filed in 2011 or 2012, since reduced tax rates on these will expire after December 2012.
Energy Efficient Incentives – Under Code Section 25C, you could capitalize on some tax benefits by going green by the end of the year. If you’re thinking about making energy efficient improvements to your primary residence, call us to find out if your planned improvements qualify for the incentives.
Gifting – Consider making gifts as a year end tax strategy. Currently, you can gift up to $13,000 per recipient without gift tax, or $26,000 as a married couple. You should also consider a Lifetime Gift Tax Exclusion for larger gifts.
Major Purchases – If saving to buy a big ticket item in 2012, consider making the purchase this year instead, to save on state and local sales taxes. The deductions for state and local sales taxes expire this month.
Shifting Deductions & Income – If you’re used to shifting deductions or income to the following year, you might want to rethink this particular tax strategy. Individual income tax rates will rise in 2012, so it may be worth it to keep your 2011 income in your 2011 filings.
Business and Estate Tax Planning
Whether you own a business or not, your individual tax situation is unique. Be sure to contact your accountant or attorney to address your questions and concerns regarding year end tax strategies. If you have any questions about the tax credits and deadlines listed above, please call me at the number below.
Kira S. Masteller is a Tax and Estate Planning Attorney at our Firm. You may reach her at 818.990.2120.