MAKING CENTS: Business Owners year-end tax strategies

Many business owners are sitting on their hands when it comes to committing significant cash to any project; from expansion to hiring these owners commonly cite uncertain tax and regulatory policy as some of their biggest fears for the future growth of their businesses.  Regardless of future policies, there are still some tried and true tax planning opportunities available for owners to reduce their 2012 tax burdens now.

The first involves those who need equipment for their businesses.  This equipment can include office furniture, computers or any type of depreciable office or manufacturing equipment used in your workplace.  Under section 179 of the internal revenue code, businesses can deduct up to 100% of the cost of new equipment in the year that the equipment is placed into service.  The limit to this deduction exceeds $130,000 and is scheduled to drop to $25,000 in 2013. In addition to the up-front section 179 deduction, equipment purchases may also be eligible for a bonus depreciation deduction of up to 50% of the cost of the items placed into service.

The key for purchases made this year is that the asset is in fact placed in service.  Ordering today and installing in February 2013 will not help you.  The stuff has to be in your shop and ready to go by 12/31/2012.

Vehicle purchases can also qualify for vehicles placed in service before 12/31.  For large SUVs and trucks, the benefits are even better with both section 179 deductions and bonus depreciation rates available.

If you need to hire anyone, consider hiring a Veteran.  By hiring an unemployed Veteran, you may be eligible for tax credits from $2,400 to $6,600 depending on a few factors.  The Vet must begin work by 1/1/2013 for the employer to receive the tax credit.  More details on the tax benefits of hiring a Veteran can be found at www.dol.gov/vets/. 

For employers with benefit plans, take a look at upgrading your employee benefits.  This advice is sometimes a tough one for larger employers to swallow because it is typically a one way street.  That is once benefits get richer for employees, it is very difficult to scale them back during tougher times.  But if your company is fairly profitable, and you have none to only a few key employees, upgrading your benefit plans could be one of the best tax planning moves for you.  The candidates for upgrade may include your group plans for health, life, disability or dental.  Your retirement plan may also be eligible for a major upgrade increasing your annual contribution and the resulting deduction substantially.

Of course, no one really knows what is going to happen next year.  A rational approach to save taxes this year is to examine where you stand as of now, and attempt to forecast what your entire year will look like. With that knowledge, you can make a sound judgment about the magnitude of any tax savings move made now as opposed to waiting around to see what happens next near. 

John P. Napolitano is CEO of U.S. Wealth Management in Braintree, Mass., and 2012 president of the Financial Planning Association of Massachusetts. He may be reached at jnap@uswealthcompanies.com or on Facebook as JohnPNapolitano and US Wealth

John Napolitano is a registered principal with and securities offered through LPL Financial. Member FINRA/SIPC. He can be reached at 781-849-9200.

Securities offered through LPL Financial, Member FINRA/SIPC.

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