Get a jump on 2012 taxes.
1. Leverage retirement account tax savings. The IRS has increased the amount of money you can set aside for certain retirement accounts in 2012. Traditional retirement accounts like 401(k)s and IRAs still offer some of the best tax savings in the Code. Contributions reduce taxable income when you make them, and you don't pay taxes until you take the money out at retirement. The 2012 contribution limit for a 401(k) has increased from $16,500 (2011) to $17,000. Those 50 and older can make an additional "catch-up" contribution to their 401(k) of up to $5,500. The limit on an IRA contribution remains $5,000 for 2012, but the income limit for the phase-out of contribution deductions has increased. Taxpayers 50 and older can also make catch-up contributions of up to $1,000 to their IRAs.
2. Expense business investments. The rules for deducting investments in your business have changed for 2012. Last year, 100 percent bonus depreciation allowed businesses to fully deduct the cost of eligible equipment placed in service in 2011. This year, bonus depreciation reverts to 50 percent--meaning you will be able to deduct half the cost of eligible equipment placed in service in 2012, while the other half will be depreciated using normal rules. But Congress has talked about extending 100 percent bonus depreciation for 2012, so check with a tax adviser for the latest information. To qualify for bonus depreciation, the property you place in service must be new and generally have a useful life of 20 years or less under the modified accelerated cost recovery system (MACRS).
3. Understand your payroll tax withholding requirements. Tax withholding rules keep getting more complicated. Lawmakers recently extended a cut in the employee share of Social Security taxes through February, and were busy negotiating another extension in the beginning of 2012. Talk to a tax adviser to find out what's happening legislatively so you can withhold the correct amount from employee paychecks. It is also important to understand your self-employment taxes if you're self-employed. The Social Security tax cut applies all the way up to the Social Security wage limit of $106,800, and reduces self-employment taxes for self-employed business owners from 15.3 percent to 13.3 percent. It does not affect the deduction for self-employment taxes.
4. Low estate/gift taxes + high estate/gift tax exemption. Estate and gift tax rules were recently amended to provide a top rate of 35 percent and an exemption of $5 million. These are the lowest rates and largest exemptions in recent memory (besides the temporary repeal of estate tax in 2010), but they aren't scheduled to last. This is a good time for transfer tax planning. Consider as well that current low interest rates and depressed property values provide an excellent planning opportunity. Now's the time to make wealth transfers. There are also many estate planning techniques that can enhance this opportunity such as grantor retained annuity trusts, family limited partnerships, charitable lead trusts, and sales to family trusts.
5. New employer reporting requirements. Business owners with employees face new reporting requirements. For the first time, employers will be required to provide the IRS and employees with the total cost of 2012 group health coverage. This information must be reported on the Form W-2, which is used to report employee wages and withholding. The Form W-2 for 2012 is not due until Jan. 31, 2013, but you should start collecting the information on the cost of health coverage now in order to meet the reporting deadline next year.
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|Publication:||The Business Owner|
|Date:||Mar 1, 2012|
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