More On Tax Planningfrom The Advisor's Professional Library
- Health Insurance: Health and Medical Savings Accounts A Health Savings Account is a trust created exclusively for the purpose of paying qualified medical expenses of an account beneficiary. Although they are popular, they are not without their pitfalls and the regulations can be complicated. Learn more about how to avoid federal taxation on the accumulation and distributions of HSA.
- Annuities: Variable Annuities Annuities are hot. The tax rules vary with the circumstances. Advisors must be aware of these intricacies when discussing annuities with clients.
The last few days of 2011 can be critical for business owners to take advantage of year-end tax planning options. MetLife suggests three areas in the current tax environment that are worthwhile for business owners to consider before the new year rings in and for 2012.
1. Pay Bonuses in 2012, but Deduct Them In 2011
The IRS' Revenue Ruling 2011-29 allows an employer who uses the accrual method of accounting to deduct a fixed dollar amount of bonuses in the current tax year even though the bonuses are not paid out until 2012.
MetLife notes that employers may deduct the expected bonuses even though they may not know until after year-end which employees will receive bonuses or the actual amount of any individual bonus. Doing this can give business owners much more flexibility in formulating their year-end tax and profit goals, salary deferral plans and nonqualified deferred compensation plans.
2. Take Advantage of 2011 Bonus Depreciation and Expense Limits
This year, business owners or self-employed individuals who buy new equipment or other property for business use may deduct their purchases in full, up to $500,000—but only until year-end.
Under IRC Section 179, they are allowed a first-year depreciation deduction equal to 100% of the cost of the property acquired and placed in service in 2011, up to $500,000. This first-year depreciation deduction will drop to 50% of the cost of property that is acquired and placed in service in 2012, with the maximum amount that can be deducted dropping to $139,000.
3. Minimize Personal Tax Rates on Dividends for S-Corp Business Owners
At present, S-Corp. shareholders can distribute gains, qualified dividends and prior C-Corp earnings to themselves and pay a low 15% personal income tax.