Do some year-end business tax planning

By David Fulton, CPA

You’ve guided your business through a tough economic climate and kept it profitable. Now it’s time to turn your attention to tax planning so you can keep those profits in your pocket.

Here are three 2009 tax-cutting moves to consider.

Section 179 deduction. If you purchased business equipment or vehicles — or intend to before year end – increased Section 179 expensing can ease your cash flow.

Section 179 provides a write-off of up to $250,000 of the cost of new or used assets placed in service during your 2009 tax year. The amount you can deduct is limited when annual asset purchases exceed $800,000.

Planning tip. Under current law, in 2010 the Section 179 deduction will revert to $125,000 (plus inflation adjustments).

Bonus depreciation. In addition to Section 179, you can claim bonus depreciation, which gives you a deduction of up to 50% of the cost of new assets. Used assets don’t qualify.

When you buy equipment eligible for both tax breaks, you first reduce the initial basis by the amount of Section 179 deduction claimed, then apply the bonus percentage to the balance. Any remaining cost is expensed over the asset’s life.

Bonus depreciation is scheduled to expire December 31, 2009.

Planning tip. Bonus depreciation can result in an operating loss that you might be able to carry back to prior years for a tax refund.

Health insurance. To establish your deduction, have your S corporation reimburse you for medical, dental, and certain long-term care insurance premiums that you paid out-of-pocket.

Planning tip. Be sure your S corporation issues a 2009 Form W-2 “Wage and Tax Statement” that includes the premiums.

Other year-end planning includes taking advantage of credits for energy-efficient vehicles and building improvements, making sure you qualify for the home office deduction, and scheduling corporate distributions. Please contact our office for guidance in order to maximize your tax savings.

David Fulton is a Certified Public Accountant that graduated and became a CPA in the early 1980s. He earned a Master of Science in Taxation degree. He has operated his own business, a CPA practice, for 22 years, located at 320 Spanish Street in Sutter Creek. You can reach him at 209-267-0305.

COPYRIGHT 2009 AMADOR COUNTY CHAMBER OF COMMERCE