Tax Planning On The Move

Guest Blogger: Adam Watson, Watson & Associates, PA, CPAs

This year marks my tenth year in the field of public accounting. As with many professionals leaving college, I quickly learned how little my schooling had to do with the real world. This is especially true in the field of tax planning and preparation. We are trying to help clients minimize taxes based on arbitrary and inconsistent rules passed by Congress and interpreted (and re-interpreted) by IRS. Oh, and the rules change all the time.

My first exposure to this was the passage of 50% bonus depreciation in March of 2002.  The law made the deduction available to all purchases after September 10, 2011.  The problem is, corporate returns are due by March 15.  By the time the rule had changed, most of the returns that would benefit had already been filed!

That used to be a very rare occurrence.  However, as Washington has become more and more polarized, it’s become more common to have major tax legislation passed at the end of the year, or even early into the next year.  As you can imagine, this makes for some interesting tax planning.

With that in mind, I’d like to mention a few tax provisions that are (currently) set to expire at the end of 2011.  All three of these have been set to expire (or have expired) before, only to be saved/brought back later.  So these may very well be extended in some year end tax legislation.  But, for planning purposes, we have to assume they’re going away.

The biggest deduction on the chopping block is primarily for businesses.   Qualifying business property purchased in 2011 is eligible for a 100% bonus depreciation deduction.  The big caveat for bonus depreciation is the item must be brand new.  If you’re buying used equipment, it doesn’t qualify.   For businesses this accelerated write off can provide a powerful incentive to go ahead and make a purchase in 2011.

For individuals, first up is the $500 non-business energy property credit.  This credit allows up to $500 for energy efficiency building improvements (insulation, exterior windows/doors, metal roofs or specially treated asphalt roofs).  It also allows for the following property expenses: $300 for energy-efficient building property (electric heat pump, central air conditioner, etc.) that meet specific energy standards;  $150 for a qualified natural gas, oil, or propane furnace or hot water boiler; and $50 for an advanced main air circulating fan.  This is a lifetime credit of $500, so if you’ve taken any or all of the credit when available ($500 credit in 2006, 2007, and 2009, and $1,500 in 2010), you may be out of luck this year.

Also set to expire at the end of 2011 is the deduction for sales and use tax purchases.  This deduction has been around for several years, and is particularly beneficial in States like Florida where no income tax deduction is available.   If you’re thinking of purchasing a big ticket item, such as a car, boat, mobile home, or building materials for your existing home, timing the purchase in 2011 may allow you to deduct the sales tax.

Lastly, the $250 above the line deduction for teachers is scheduled to expire.  While most teachers who utilize this deduction have already spent at least that much on their classrooms, any that want to take advantage need to make sure they stock up on supplies before year end.

We’ll have to wait and see what the end of the year brings.  But for now, if you can take advantage of any of these deductions, do it before they’re gone!

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