Strategies for the year-end
By Don Sadler
YEAR;END HAS traditionally offered opportunities for small-business owners to save big
money on their tax bills. This year, however,
the uncertainty surrounding future tax rates
makes year-end planning a little trickier.
“This uncertainty makes 2010 very
unusual from a tax-planning standpoint,”
notes Roger W. Lusby III, tax partner and
managing partner of the Alpharetta, Georgia,
office of Frazier & Deeter LLC.
However, if the tax rates are extended
into 2011 and perhaps even beyond, the traditional strategy of deferring income is still
usually a smart move. At press time, Congress
had not taken action on possible extension of
the tax cuts.
In addition to marginal income tax rates,
the rates on long-term capital gains and dividends are also scheduled to rise on January 1,
2011—long-term capital gains from 15 to 20
percent and qualified dividends from 15 percent to the applicable ordinary income rate
(as high as 39. 6 percent). “If these rates rise as
scheduled, it may be advisable to realize capital gains by selling appreciated stock and
other assets, including real estate or shares in
a closely held business, before the end of the
year in order to have them taxed at the lower
rates,” says Lusby.
it through the end of 2011 and raised
the limit from $250,000.
One tax break that hasn’t been
affected by legislative uncertainty is
contributions to qualified retirement plans. “These are still one of
the best legal tax shelters available
to business owners,” says Gross.
The Simplified Employee Pension plan (SEP) is an especially popular small-business retirement plan.
Sole proprietors can contribute as
much as 20 percent of their net business profit in 2010 (up to a total of
$49,000) to a SEP, while owners of
corporations can contribute up to 25
percent of their salary to a SEP. Even
better, individuals have until their
tax-filing deadline, plus extensions,
to set up and fund a SEP.
Another good option for small-business owners is the solo 401(k).
Owners can contribute up to 100 percent of
the first $16,500 of their 2010 business income
(or $22,000 for owners who are age 50 or
older), plus another 20 percent of their net
profit, up to a total of $49,000 (or $54,500 for
owners who are age 50 or older).
Lusby says that all of the uncertainty
swirling around tax legislation makes things
very much a “wait and see” game. “It’s a real
political football,” he says, “so we’ve just got to
sit tight and see what, if anything, comes out
of Washington.” C
Don Sadler is a freelance writer in Atlanta
specializing in business, finance and
Traditional year-end tax strategies involve
deferring income into the following year in
order to delay some amount of tax payment
for a year, allowing owners to hold on to their
cash longer and boost their cash flow.
In 2010, though, this traditional strategy
could be turned on its head. If the lower tax
rates that were established in 2001 and 2003
(commonly referred to as the Bush tax cuts)
expire as originally scheduled on January 1,
2011, Lusby says, instead of deferring income
into next year, when it may be taxed at a higher
rate, business owners might be better off accelerating it into this year whenever possible.
HIRE Act: Small businesses that hire
unemployed workers this year may qualify
for a 6. 2 percent payroll tax exemption on
wages paid from March 19, 2010, through
December 31, 2010.
Some good news
Jeffrey Gross, a partner in the Green Bay,
Wisconsin, office of Wipfli LLP, points out
some good news on the tax-planning front:
the extension and expansion of the Internal
Revenue Code Section 179 expensing limit.
“Small businesses can now immediately
deduct up to $500,000 of the cost of qualifying property, rather than depreciate it over
several years,” he says.
Section 179 was originally scheduled
to expire on December 31, 2010, but the Small
Business Jobs and Credit Act of 2010 extended
Small Business Healthcare Tax Credit:
This credit is worth up to 35 percent of
insurance premiums for small businesses
that paid at least half of the cost of healthcare coverage for qualifying employees
The Costco Connection
Costco members can save money setting
up a small-business 401(k) plan through
ShareBuilder. For complete details, go to
Costco.com and search “401k.”
Section 179D “green building” deduction: Energy-efficiency upgrades that
reduce a commercial building’s total
energy costs by at least 50 percent may
qualify for a deduction of up to $1.80 per
square foot of the property.—DS