Will end-of-year business tax moves matter?
First, keep in mind that there really is no one-size-fits-all solution to federal tax issues. If you haven't done so lately, talk to your accountant.
Second, if yours is one of the nearly two-thirds of U.S. businesses that are Subchapter S Corporations where profits (or losses) flow directly to the shareholders, weigh the fact that any late-in-the-year business tax moves will impact your personal 1040.
But, say two top suburban CPAs, there are some tax steps to at least consider before year-end. The two are Greg Dowell, managing partner at Bass, Solomon & Dowell LLP in Palatine and Tony Massaro, tax partner at Porte Brown LLC in Elk Grove Village.
For example, the bonus depreciation on new equipment expires at year-end, and the Section 179 expensing that can help make qualifying equipment purchases more palatable nearly expires. (Section 179 allows you to expense up to $139,000 of qualifying purchases this year, but the number drops to $25,000 in 2013.) The kicker is that the equipment must be in place and productive by December 31.
That's tight for punch presses and grinders, likely less tight for smaller purchases.
The real issue seems to come with your own income. "The landscape will change on January 1," Dowell says. "We just don't know how." Some 2013 increases are virtually certain, Massaro and Dowell say, because they are part of the Patient Protection and Affordable Care Act the Supreme Court left standing in June.
A new 3.8 percent tax on investment income that applies to married taxpayers filing jointly and having adjusted gross income taxable over $250,000 is part of the health care financing plan.
"That's the first time the Medicare contribution has gone on unearned income (basically rents, royalties and interest)," Dowell says. "That's not a small bump, either. Two young suburban professionals each earning $125,000 but facing child care and the usual family expenses probably don't think of themselves as high income, but they are the target."
In addition, a .9 percent Medicare increase that applies to the same AGI shows up in January.
Those increases "are going to happen," says Massaro.
In addition, the Social Security payroll tax reduction that dropped the rate from 6.2 percent to 4.2 percent expires December 31; in rare agreement, both Republicans and Democrats in Congress say the tax cut will be allowed to expire. Consequently, Massaro says, "Households will have less cash available to take home and spend."
That could be painful, especially if you're in retail.
Assuming at least some taxes — maybe many, depending on whether the government falls over the fiscal cliff — will be higher, should you make the classic move and accelerate income into this year and push expenses into 2013? Both Massaro and Dowell talk time value of money in answering the question — essentially asking what you would gain from the "extra" funds you'd have over the next year.
It really is time to talk to your CPA.
• Jim Kendall welcomes comments at JKendall@121MarketingResources.com ©2012 121 Marketing Resources Inc.
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