CPA & Business Advisory Blog

Part 3: 2011 Tax Planning for Individuals and Businesses: Year-End Moves for Business Owners

Part 3 of 3

Hiring Unemployed Workers: Hire a worker who has been unemployed for at least 60 days before year-end if you are thinking of adding to payroll soon. Your business will be exempt from paying the employer's 6.2% share of the Social Security payroll tax on the formerly unemployed new-hire for the remainder of 2010. Plus, if you keep that formerly unemployed new-hire on the payroll for a continuous 52 weeks, your business will be eligible for a nonrefundable tax credit of up-to-$1,000 after the 52-week threshold is reached. This credit will be taken on the business's 2011 tax return. In order to be eligible, the formerly unemployed new-hire's pay in the second 26-week period must be at least 80% of the pay in the first 26-week period.

Health Insurance for Small Employers: For tax years beginning after 2009, eligible small employers are allowed a credit for certain expenditures to provide health insurance coverage for their employees. Generally, employers with 10 or fewer full-time equivalent employees (FTEs) and an average annual per-employee wage of $25,000 or less are eligible for the full credit. The credit amount begins to phase out for employers with either 11 FTEs or an average annual per-employee wage of more than $25,000. The credit is phased out completely for employers with 25 or more FTEs or an average annual per-employee wage of $50,000 or more. The credit amount is 35% of certain contributions made to purchase health insurance.

New Equipment & Machinery: Put new business equipment and machinery in service before year-end to qualify for the 50% bonus first-year depreciation allowance. Unless Congress acts, this bonus depreciation allowance generally won't be available for property placed in service after 2010. (Certain specialized assets may, however, be placed in service in 2011.)

New Vehicles for Business Use: Is a new business vehicle purchase likely soon? Buying it this year offers some big benefits. The maximum deduction for cars acquired and placed in use before Dec. 31 is $11,060. After that, the cap falls to about $3,000. And if you buy a new SUV with a loaded weight of over 6,000 pounds and place it into service in 2010, you get a triple scoop of tax breaks: Up to $25,000 of the cost can be expensed, half the balance is eligible for bonus depreciation and 20% of the remaining cost is recovered through normal depreciation. Assuming 100% business use, the total first-year write-off for a $50,000 new heavy SUV is a whopping $40,000. Large pickup trucks fare even better. For a pickup with a loaded vehicle weight of over 6,000 pounds and a cargo bed (separate from the cab) of at least six feet, you can deduct the full cost, if the vehicle is put to use in your business in 2010.

Business Property Expenses: Make expenses qualifying for the $500,000 business property expensing option. The maximum amount you can expense for a tax year beginning in 2010 is $500,000 of the cost of qualifying property placed in service for that tax year. The $500,000 amount is reduced by the amount by which the cost of qualifying property placed in service during 2010 exceeds $2 million. Also, within the overall $500,000 expensing limit, you can expense up to $250,000 of qualified real property (certain qualifying leasehold improvements, restaurant property, and retail improvements). Note that at tax return time, you can choose not to use expensing (or bonus depreciation) for 2010 assets. This is something to consider if tax rates go up for 2011 and future years, and you'd rather have more deductions after 2010 than for 2010.

C-Corporation Shareholders: If you’re a shareholder in a closely held C corporation and the company pays you a taxable dividend this year, the maximum federal rate is only 15% (it is 0% to the extent you are in the 10% or 15% ordinary income tax brackets). However, this may well change in the near future. Thus, now may be a good time to convert some of your C corporation wealth into cash at a very manageable tax cost (and possibly none at all). Although the current administration has stated that it wants to hold the rate to 20%, unless Congress acts soon, the maximum federal rate on dividends is scheduled to skyrocket from the current 15% to 39.6% starting with 2011.

These are just some of the year-end steps that can be taken to save taxes. If you have any questions, please do not hesitate to call. We would be happy to meet with you at your convenience to discuss the strategies and requirements outlined above. There is still time to implement these strategies to minimize your 2010 tax liability, as well as plan ahead to reduce your 2011 tax liability.

Click below to read parts 1 and 2 of this story: 

Traditional Strategy of Deferring Income is Dicey This Year
Year-End Moves for Individuals

For more information on Tax Planning and Preparation, contact Steve Hartstein, CPA, JD at Skoda Minotti by calling 440-449.6800 or visit www.skodaminotti.com.

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