There are two types of year-end tax planning moves: those that should be considered every year and those that apply only to the 2011 year-end. Before the inevitable year-end approaches, some good tax planning can save you some of your hard-earned money. Absent new congressional legislation, below are several tax provisions that will expire or be modified at 12/31/11.
The expiring tax provisions applicable to businesses actually have the greatest potential for saving taxes. The current provision to allow businesses to expense (Section 179) up to $500,000 of business machinery, equipment and furniture will be reduced next year to $139,000.
The current provision to allow businesses to expense (Section 179) up to $250,000 of certain real property additions, leasehold or restaurant improvements in the year of acquisition will expire after 2011. As usual, there are both caps and phaseouts for the Section 179 expensing options. Additionally, the provision allowing businesses to use 100% bonus depreciation on certain new assets will decrease to 50% next year. Another of the major expiring provisions is the Work Opportunity Tax Credit (WOTC), which currently gives employers a tax credit for certain workers hired before the end of 2011. However, as part of a new law signed by the President on November 21, 2011, the WOTC was extended by one year for hiring certain qualified veterans.
Individuals wishing to take advantage of expiring tax provisions should consider some of the following tax savings ideas. Individuals age 70½ or over are allowed to make a qualified tax-free charitable distribution of up to $100,000 from an IRA to a qualified charity before the end of the year. Although the deduction for higher education expenses expires at the end of 2011, the American Opportunity Credit for some of these same expenses extends through the end of 2012. The energy credit for homeowners who make energy efficient improvements to their main home will also expire on 12/31/11.
Tax planning strategies that apply to any year-end should also be considered. In the interest of keeping this blog to a manageable size, these will be included in the year-end company e-newsletter which will be available for download.