5 Year-End Tax Tips

With the impending fiscal cliff only weeks away, Washington still has not reached a compromise. Yet a recent Gallup survey found that eight in 10 Americans consider achieving resolution to avoid the fiscal cliff extremely or very important. For businesses and individuals, this means a difficult task in year-end tax planning.

Here are 5 things businesses and individuals should consider during this tough period of tax planning.

Source: Samuel C. DiSalvo, director the tax practice, Freed Maxick CPAs

1. It May be Time to Shop

For companies planning on acquiring property in 2012 or 2013, there may be enhanced savings by making the acquisitions in 2012. Under current law scheduled to expire on Dec. 31, a company can take bonus depreciation of 50 percent of the cost for qualified property acquired and generally placed in service by year-end 2012. A company is also allowed, under certain circumstances, to expense up to $139,000 of qualified property in 2012an amount that drops to $25,000 next year.

2. Consider dividend distributions/stock redemptions

Some companies are beginning to approve larger dividends and paying them earlier for a reason. Generally, the highest individual income tax rate on qualified dividends is 15 percent for 2012. This rate is scheduled to rise to 39.6% for 2013 unless Congress otherwise extends the 15 percent rate or agrees to some rate in between. There will also be an additional 3.8 percent Medicare tax in 2013 on net investment income (which includes dividends) for high income individuals. Making a corporate stock redemption could provide investors a hefty tax savings.

4. Accelerate Expenses and Defer Income

Corporations expecting profit in 2012 may want to review their ability to accelerate expenses or defer revenue to the extent prudent and appropriate. There is some flexibility for bonuses, particularly with respect to closely held corporations. However, in light of the distinct possibility that tax reform could raise individual income tax rates in 2013 it may be prudent for corporations to deduct a bonus in 2012 and for individuals to recognize the income in 2012.

5. Review Potential Impacts Tied to Employer Mandate for Health Insurance

Generally, under health care reform an employer can be taxed up to $2,000 per full time employee (with the first 30 exempt) if it carries insufficient or no health insurance for its employees. This tax does not start until 2014 and it only applies to applicable large employers, which are those employers who have, on average, at least 50 full time equivalent employees during 2013. Nevertheless, companies should review their employment levels now and in early 2013. There may be steps that can be taken throughout 2013 that could mitigate or, in limited circumstances even eliminate, the potential for tax in 2014, DiSalvo says.

5 Year-End Tax Tips