No one knows exactly what will happen to taxes on January 1, but if you are in business, you can probably bet that rates are not likely to be going down. President Obama and Congress are involved in negotiations to avoid the fiscal cliff, which would result in higher taxes if a deal is not reached. Since current tax rates will expire at the end of the year, it’s a good idea to consider these 5 tax steps to take before the 2013 tax time to reduce your tax liability in any event.
1. Pay out the Bonus Check before December 31
If the Bush tax cuts were to expire on January 1, the highest tax rate would jump overnight from 35% to 39.6%. Cutting a bonus check for your highest paid workers or married employees who may fall into this tax bracket in December can save them some money on their tax bill.
2. Accelerate Any Dividend Payouts
If you pay dividends to shareholders or yourself annually, consider accelerating the 2013 payment into 2012. The maximum tax rate on qualified dividends is 15%. One of the tax laws that would be expiring when the New Year rings in means those 2013 dividends would be taxed as ordinary income. Without this tax-saving strategy, you could be paying up to 43.4% in taxes next year on dividends.
3. Buy Equipment and Machinery Before the End of the Year
Section 179 of the tax law specifies that you can deduct up to $139,000 for equipment and machinery bought in 2012. Both new and used items qualify for the deduction. In 2013, unless Congress changes the law, the deduction limit drops to $25,000.
The 50% bonus first year depreciation that business owners can claim on large expenditures will disappear entirely in 2013. You would be able to take advantage of this tax break if you reached the limit allowed under Section 179.
4. Make Sure You are Taking Advantage of All Allowable Tax Breaks for Investors
As the year winds down, it’s a good idea to sit down with your accountant to make sure you haven’t overlooked any investment strategies you should be implementing. You’ve already done your homework to keep costs down, for example arranging for office space in San Francisco that is well situated and fits your budget. Now get some expert advice to make sure you are getting the maximum possible tax break from your investments.
5. Sell Off Some or All of Your Business Before the New Year
If you have decided to move up or move on from your current business venture, it’s a good idea to sell all or part of your enterprise before taxes go up in the 2013. This plan is probably only feasible if you have already taken steps to find a buyer or are negotiating with an interested party, but you may want to step up your effort to finalize negotiations if you are currently in the middle of talks to dispose of the company.
Research Analyst, Pacific Business Centers (rebranded as Pacific Workplaces)
Courtney’s research focuses on tracking emerging business trends and best practices – with an emphasis on how they affect business operations, technology, and virtual office trends.