2012 Year End Tax Tips for Small Businesses

I. Invest now.
In 2012 the bonus depreciation allowed a business to take an immediate deduction for 50% of purchased or leased qualified assets, such as machinery and off-the-shelf software. In 2013 the bonus depreciation goes away. So if you bought a new trailer truck for $100,000 in 2012, you could deduct $50,000 of the cost. If you get it into service after December 31, 2012, sorry, no bonus-depreciation deduction.

In addition, for the past several years the increase in the Section 179 limits (which allow a 100% deduction as opposed to the 50% bonus) has allowed for the immediate expensing of qualifying personal property. For 2012 the deduction limit is $139,000. In 2013 the annual deduction limit is scheduled to be reduced to $25,000. Section 179 can be taken for used property, whereas the bonus depreciation has to be new. (Although some states do not follow Section 179 rules, many do.)

 II. Hire that vet now.
In 2011 the Returning Heroes Tax Credit and the Wounded Warriors Tax Credit were signed into law. Employers who hired veterans could receive tax credits for each veteran ranging from $2,400 up to a maximum of $9,600, depending on a variety of criteria. That’s going away.

 III. Give that gift now.
This year the gift-tax exemption was $5.12 million. On January 1, 2013, it goes back to $1 million.

If you own an S corporation (in which the company’s earnings are taxed at the individual, not corporate level) worth $10 million and you want to give 20% to your kid (for example), a gift of $2 million, then do so now. If you wait until after the first of the year, anything over $1 million will be taxed at a gift rate as high as 55%.
IV. 4. Pay those dividends now.
For 2013, qualified dividends will be taxed as ordinary income, which could increase the rate from 15% to as much as 43.4% (including the new 3.8% Medicare tax).

V. 5. Accelerate revenue recognition now.
Currently taxed at 15%, the capital-gains rate is scheduled to increase to 20%, and may also be subject to the additional 3.8% Medicare tax.

Remember: This is the year of uncertainty. As Carlson says, “This could all be irrelevant. Congress could decide to extend all the [Bush] tax cuts for next year.”