How to Plan Year-End Taxes for Closely Held Businesses

John Stanfield is the managing principal of Stanfield & Associates LLC.  Chicago business entrepreneurs, I am one of you. I started my CPA firm in 2009 and face some of the same business and tax issues you do (albeit armed with some knowledge of the latter). With that, I thought it would be a good idea to share some knowledge that will hopefully help you in your venture.  With fewer than 30 days before year end, and the looming fiscal cliff, small business owners may be asking themselves “What should I do?” Despite all the uncertainties with what Congress will do before year end, there is still time to make some smart tax planning moves inside of your business.

Have your closely held corporation pay a dividend

With the dividend-tax rate in flux, firms that are organized as C corporations (or were C corporations but now are S corporations) should consider paying dividends before year end. This is because the preferred dividend tax rate of 15 percent is set to expire at the end of the year and return to the ordinary income rate (as high as 43.4 percent).

Buy depreciable equipment for a closely held business

Both Bonus and Section 179 depreciation deductions are set to drop a great deal in 2013. What are these? Subject to a dollar limit, the bonus and section 179 election allows you to deduct, in the tax year for which the election is made, the entire cost of qualifying property (tangible personal property) placed in service during the tax year.

The 2012 dollar limit is $139,000 under Section 179 for up to $560,000 of purchases (the amount of equipment you can purchase before the $139,000 deduction gets reduced), and after that bonus depreciation of 50 percent of the remaining purchase price can be taken.

Conversely, in 2013 the Section 179 deduction will be limited to $25,000 and the bonus depreciation will expire. If you need a new machine, computer, or any other tangible item, now is a really good time to buy it.

What else?

The above are only my top two moves and just scratch the surface on all the tax changes slated to occur. Some final parting advice is to speak with your CPA and other financial advisors. More importantly, coordinate their efforts so that you are positioned to make as many smart tax moves as possible before year’s end.

ExactCPA Comment:  As we wind down to year-end (have you finished your Christmas shopping?) and such uncertainty remains for year-end many tax practitioners are providing tax tips to their clients. Their hop is that this will help to "hedge the bets" of taxpayers, pending the outcome of the pending Congressional legislation.  John Stanfield provides a couple of useful tips that will assist small business owners in potentially alleviating some of the tax burden.