As 2012 quickly winds down and becomes part of history, small businesses still have time to make some strategic decisions to reduce their tax liability. Income tax planning at the end of the year is not limited to individuals. Therefore, please find attached 7 tax tactics that can help small businesses reduce their 2012 tax liability.
1. Buy property for your business. For tax years beginning in 2012, the maximum Section 179 deduction for qualified business property is $139,000. Unless Congress approves another change, the deduction for qualified property, like equipment and supplies, will plummet to $25,000 for property placed in service in tax years beginning in 2013. Make hay while the sun shines and buy any equipment you need in 2012.
2. Grab a bonus depreciation deduction. Another big tax break will go off the books if Congress doesn't take action. Currently, you can claim a 50% bonus deduction for qualified new business property, in addition to the aforementioned Section 179 deduction and regular depreciation deduction. Again, make hay while the sun shines and buy any new equipment you need in 2012.
3. Salvage deduction for bad debt. Write off some of those old receivables as bad debt. Please note, that you must have previously included the receivable in taxable income in order to write them off as bad debt. Therefore, this only pertains to your business if you use the accrual method of accounting.
4. Send out invoices early. If you are self-employed and expect to have a higher income in 2013, invoice your customers as soon as possible, so you can push the income into 2012. This may help also you avoid the 3.8% and 0.9% Medicare surtaxes.Please note, that if you use the cash method of accounting, the business must receive the customer payment by 12/31/12 for this tactic to be of value. Also, this does not necessarily pertain to traditional C-corporations.
5. Kick-start a new business. You can usually deduct up to $5,000 of your qualified start-up expenses in the year you open the doors. Start-up expenses include costs that would normally be deductible by an ongoing business entity.
6. Fix up the place. If you have cash on hand, make those minor repairs now so you can deduct the expense in 2012. Avoid large capital improvement since these expenses have to be capitalized and therefore added to the basis of the property.
7. Dole out employee bonuses. If you were planning on paying out year-end bonuses to your employees, you may want to pay them out in 2012. It is a win-win for bonuses paid to your high income employees since the taxes in 2013 are bound to be higher than in 2012 due to the Obamacare surtaxes. Accrual based businesses can actually booked the bonuses in 2012 and cut the checks in 2013.
Well, this is it. I hope these strategies are useful and can help you reduce your tax burden.
IRS CIRCULAR 230 NOTICE : In accordance with the requirements imposed on professionals who practice before the Internal Revenue Service, we advise you that any tax advice contained in this communication (including any attachments) is not intended to be used, and cannot be used, for purposes of (i) avoiding penalties imposed under the United States Internal Revenue Code or (ii) promoting, marketing or recommending to another person any tax-related matter