6 Year-End Tax Tips for Businesses

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NEW YORK (MainStreet) -- Whether it's for personal or business tax returns, tax time can be daunting.

The Internal Revenue Service has carved out a section of its Web site designed specifically to help small businesses file their taxes correctly. The tax code is fluid and there are always exemptions being made -- and taken away -- during any given year.

For one, the Small Business Jobs Act of 2010 contains several tax provisions that took effect this year, while others will be implemented over the next few years.

Looking for some last-minute business tax benefits this year? Here are four that can lower your taxes if you take advantage of them by Dec. 31 and two other issues business owners should keep in mind for 2012.

1. Establish a retirement plan.

If your business is considering starting a retirement plan, do it before year-end and you'll be able to write off the setup expenses. The IRS says you don't have to start contributing, if that's what you intend, until next year.

"One of the things we're talking to clients about is the tax benefits that would be out there for a client that was going to set up a retirement or 401(k) plan. There are some relatively beneficial tax benefits in doing that," says Mike Trabold, head of compliance risk management at Paychex (Stock Quote: PAYX). "Usually you're able to get a credit for the first $500 of the setup fees."

2. Implement accelerated depreciation benefits.

Two favorable business deductions will be significantly rolled back in 2012 unless Congress moves to extend them: Section 179 expensing and bonus depreciation.

"If you're considering buying equipment, you should absolutely do it by the end of the year," Trabold says. "There is a degree of uncertainty those benefits will be available next year."

Section 179 expenses: According to tax code, businesses can take a deduction on the first $500,000 on new and used assets put in service before Dec. 31. Things such as office furniture, new phone systems and other equipment qualify.

Bonus depreciation: Bonus depreciation is an extra incentive for businesses that have invested in new, tangible property, such as equipment or space. The deductible can be used only in the first year the property has been bought, says Bill Smith, director of the national tax office at CBIZ MHM (Stock Quote: CBZ).

"The issue is really placing it in service," Smith says. "We've had companies order equipment that shipped from overseas. They thought they were fine but they didn't place it in service -- they didn't get it bolted down -- because it was still [en route]."

3. Hire a veteran.


One of the few pieces in President Barack Obama's jobs plan that got bipartisan support was the goal to get veterans working again.

The president announced in November that businesses that hire a veteran unemployed for at least four weeks will get a tax credit. Those who hire disabled vets or long-term unemployed veterans will get an even bigger tax credit.



4. Declare a bonus pool.

The IRS recently reversed a decision in Revenue Ruling 2011-29 saying an employer can establish there will be bonuses payable to a group of employees "even though the employer does not know the identity of any particular bonus recipient and the amount payable to that recipient until after the end of the taxable year," according to the IRS.

Essentially, a corporation can now deduct the entire amount of its employee bonus pool even though incentive payments for some employees would not be determined before the end of the year, according to a Nov. 23 article by CFO.com.

The ruling means businesses can refuse a bonus to someone who quits shortly after the new year. That employee's bonus would go back into the pool and be distributed among the rest of the eligible names, CBIZ's Smith says.

"As long as you designate a pool and the recipients and as long as you pay the entire pool out by March 15, you're OK," Smith says. "Let's say you have 10 executives and declare a bonus pool of $50,000 divided up among those executives still employed on March 15. You can then deduct the whole $50,000 even if only eight of them are left."

The ruling doesn't apply to business owners, Smith cautions.

The changed ruling is "pretty important and taxpayer-friendly, but you have to get your documentation in place by year-end," Smith says. "You're [likely] going to need board minutes that authorize the bonus pool and name the people and have that signed off by Dec. 31."

And don't forget ....

5. State unemployment benefits shortfalls.

Businesses that pay unemployment insurance taxes and are in one of the 20 states or the U.S. Virgin Islands deemed "credit reduction states" by the IRS will feel the pinch in 2012.

These states were forced to take federal loans under the Federal Unemployment Tax Act to cover unemployment benefits when their unemployment trusts were depleted. If those states did not pay back those loans to the government they are deemed "credit reduction states" and are getting hit with a federal unemployment surtax, Trabold says. The IRS identified those states in November.

What that means is businesses in those states "now have to pay an increase rate retroactive for all 2011 wages and that payment is going to be due this coming January," Trabold says.

"We're trying to make sure our clients in those states are aware of what might have been an unplanned-for expense that will be due in January," he says.

6. Uncertainty over payroll taxes.


Congress is still bickering over the outcome of the payroll tax cut extension, which at this point looks like they will delay until after the holiday to settle.

Trabold says small-business owners should look to their payroll services provider, if applicable, for direction. "If you're trying to do payroll on your own, it's going to be very complicated," he says.

Still, small-business owners shouldn't fret. It's likely that whatever terms Congress finally agrees to will be retroactive and most payroll systems "have the ability to self-correct," Trabold says.

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