There is always something new when it comes to tax rules and regulations that impact your real
estate and business transactions. Missing these items can also leave you paying more in taxes
then you are required to under the law. The following are a few changes, which will likely
impact your taxes in 2012. It is important to realize that discussing these with your tax
professional can save you time and money. So make sure to hire someone who knows what
they are doing when it comes to tax time and don’t leave money on the table!
Equipment write-offs: Section 179 of the IRS code is where you account for many of the
major purchases your business makes. Items such as restaurant equipment, lease-hold
improvements, and computers generally have to be capitalized and depreciated over
several years. But Section 179 allows some of those purchases to be treated as expenses,
which will decrease your taxable income this year. For purchases made during 2010 and
2011, the new law increases both the deductions you can take (up to $500,000) and the
kinds of items that qualify.
Faster depreciation: For business equipment purchased in prior years, or equipment that
does not meet the criteria for Section 179, you’ll still have to file a depreciation schedule
(Form 4562). But you may be able to depreciate the equipment faster than previously
allowed. There is a Section 168(k) allowance for additional first-year depreciation of 50
percent. Better yet, capital purchases made between September 8, 2010, and January 1,
2012, may qualify for 100 percent bonus depreciation. During calendar year 2012, first-
year bonus depreciation will be 50 percent.
Startup write-offs: If you’ve launched your business recently, you may have had to
depreciate legal and organizational expenses. Section 2031 of the IRS code now allows
you to expense up to $10,000 for startup costs. There are some limitations, and the
expense allowance decreases if your startup costs exceeded $60,000. Look for further
instructions on this topic under IRS code section 195(b). Startup expenses are reported as
“Other Expenses” on either corporate or personal (1040 Schedule C or F) returns.
Natural disaster tax relief: Storms, hurricanes, tornados, floods, and earthquakes. We had
them all this year, and if you were affected, you may qualify for special consideration,
including extra time to file. Rules vary depending on the event and where you live. You
may qualify if you live in Pennsylvania, New Hampshire, Massachusetts, Connecticut,
Vermont, North Carolina, New Jersey, New York, Virginia, Iowa, Texas, Kentucky,
South Dakota, Missouri, Nebraska, Montana, and Puerto Rico.
Cell phone taxation: Once considered a taxable benefit, company-sponsored cell phones
are no longer of concern to the IRS. The Small Business Jobs Act effectively removes
any tax consideration from providing cell phones to employees (or reimbursing
employees for personal cell phones), as long as there is a business need for the phone.
New mileage deduction: If you (or your employees) use a personal vehicle for work
purposes, be sure you’re claiming reimbursement. The maximum rate at which the
company can reimburse travel started at 51 cents per mile in 2011, then increased to 55.5
cents a mile for all business miles driven from July through December 2011.
Health insurance tax credit: The Patient Protection and Affordable Care Act includes a
tax credit, retroactively available for the 2010 and 2011 tax years, to offset the cost of
insurance paid by small companies for their employees. If you have 25 or fewer
employees earning an average of $50,000 or less, you may be able to claim a tax credit
equal to 35 percent of what the company paid. Next year the credit increases to 50
percent of premiums paid.
Carry-back and carry-forward: Various new tax rules allow businesses to “look
backward” and apply general business credits earned this year to prior years’ taxes paid.
You can now look backward up to five years. So if you can’t use all the credits you’ve
earned, dig up your old returns as far back as 2006 (as long as your gross sales were less
than $50 million). And if you can’t go back, you can still go forward. Specifically, this
year’s health-care tax credit can be applied through 2013 and for two additional years
beginning in 2014. Other credits may have different carry-forward periods.
IRS audits are on the rise: The Internal Revenue Service has hired approximately 16,000
plus new IRS agents. Moreover, the IRS has shifted its mission statement to make the
organization once again focused on audit and revenue collection. This is a big change
from their customer service oriented approach of the last 20 years and indicates a big
change for taxpayers going forward. New IRS audit focus includes, real estate investors,
high income earners, offshore assets and accounts, and payroll tax reviews. The bottom
line is that the taxpayer is well advised to go back three years and make sure all taxes
filed are complete and accurate and have documentation to support deductions. The IRS
has up to 3 years from the date you file your taxes to audit those returns under the current
statute of limitations. This statute of limitations increases to 6 full years of back tax
years if the individual or business has under-reported 25% , or more on any given years
tax returns! Given the Internal Revenue Services’ new mandate to collect uncollected
back tax revenue, paying for a tax professional to prepare and review your taxes may well
be the best deductible business expense tip yet!
Remember that these tax deductions and tax credits area complicated matters that require
understanding of the tax laws to apply correctly. Using a tax professional that has a full grasp
of these deductions / credits and who can apply them correctly to maximize your tax savings is a
Kingman Winslow, LLC has tax attorneys and accountants who are
committed to understanding the tax laws and applying them correctly to maximize your tax
savings and protect you in an audit. Call us if you have any questions about your taxes.