2011 YEAR END TAX CONSIDERATIONS AND PLANNING
FOR YOUR BUSINESS
The Holidays are here and that brings us thoughts of sugarplums and year-end close for your business. Below are some items for you to consider.
PURCHASE OF BUSINESS EQUIPMENT:
Qualifying new property placed in service before December 31 can be written off under 100% bonus depreciation. The bonus rate is scheduled to fall to 50% in 2012.
Section 179 depreciation applies to new or used equipment that can also be written off 100% up to a $500,000 purchase cost. This phases out after $2,000,000 of total qualifying purchases. Section 179 expensing will still be available in 2012, but the limits will be much lower.
As in previous years there are special rules and limits for vehicle purchases, so contact us if you have questions regarding those.
The qualifying equipment can be purchased on credit and expensed in 2011 as long as it is placed in service before year end.
IMPROVEMENTS ON YOUR BUSINESS REAL PROPERTY:
There are a variety of energy–related incentives that are scheduled to expire at the end of 2011. If you have, or are still considering some energy efficient improvements to your commercial building such as lighting, heating, cooling, and hot water systems this could be beneficial. There are certain standards that must be met to qualify.
VEHICLE USE EXPENSE IN YOUR BUSINESS:
A mileage log is required to prove your business-mile percentage if you use the vehicle for personal use or for commuting to work. This is required whether you use the standard mileage rate or actual vehicle expense, (i.e. gas, repair, etc). A value for personal mileage on a business vehicle needs to be calculated and added to your W-2 as an “auto fringe”. Call us for details or to calculate the personal value.
OFFICER WAGES AND HEALTH INSURANCE:
S-Corporation owners MUST pay themselves a reasonable wage and issue a W-2 to themselves. A “reasonable wage” is often described as what you would have to pay someone else to do your job. If you have taken “draws” out of the company this year and no wages, call us to reclassify an amount to wages and calculate payroll taxes on the amount. These payroll taxes must be paid by January 15, 2012 to avoid interest and penalties.
As a business owner, your personal health insurance premiums paid through the business should be added to your W-2 and thus deducted in full on your personal return– if they are not added to your W-2, the deduction is not a business deduction and will be taken on Schedule A- Itemized Deductions subject to the 7.5% medical adjustment. Call us for more information on how to handle this for maximum tax benefit.
HEALTH CARE TAX CREDIT FOR EMPLOYEES
If you pay any portion of health insurance premiums for employees you may be eligible for a credit on your tax return. There are eligibility requirements and the credit is limited to those who have 25 or fewer employees with average income of $50,000 or less. If you think you may qualify for this credit, contact us for more information.
The HIRE ACT, passed in 2010, provided credit for employers for each new person hired between February 4, 2010 and December 31, 2010 who had been unemployed for 60 consecutive days prior to hiring. The payroll tax credit was given on payroll taxes paid in 2010, but an additional credit is allowed if this employee was employed by you for the following consecutive 52 weeks. The additional credit is allowed to be taken on the 2011income tax return if this requirement is met. If this applies to your company, be sure to let us know.
As of January 1, 2012, Arizona minimum wage will increase to $7.65. This amount is higher than the Federal minimum; however, Arizona employers must follow the Arizona statute.
THINGS TO DO:
Start gathering your business receipts, update your mileage logs, and tally up your income and expenses for the year. Remember to note the business reason for any travel, meals, and entertainment expenses on your receipts. If this is an over-whelming task for you, call us for help. We do provide this service at an hourly fee.
If you have employees, make sure you have up-to-date information on them – W-4 and A-4’s for deductions, addresses, name change if married/divorced during the year, and verify you have the correct Social Security number before you issue the W-2’s. If you pay year-end bonuses, be sure to add the amount to the W-2 and calculate and pay the additional payroll tax.
If you paid service providers/subcontractors over $600 during the year, make sure you have current addresses and a business EIN # or Social Security number for them. You must issue a 1099-MISC form to them by January 31. This also includes anyone you paid rent to if the amount is $600 or above. If you need assistance in this area give us a call.
We hope that this year was a prosperous one for your business. Call us before year-end at 928-778-0079 if you need an updated estimate of tax liability and to discuss any tax planning considerations.
Remember the filing deadline for Corporations and S-Corporations is March 15 – personal and Partnership returns is April 15.
This tip brought to you by Schutte & Hilgendorf, CPA’s, a Prescott firm serving the greater Yavapai County, providing audit, accounting, bookkeeping, tax preparation and planning, Quickbooks accounting and setup to individuals and small businesses.
Contact us for a free initial consultation 928-778-0079