Year End Planning

Year End Planning For Our Valued Business Clients


As you may know, year-end planning has been complicated by uncertainty over the future availability of many tax incentives. This year is no different! Many of the tax incentives extended in 2010 are either expired or are scheduled to expire. You need to be aware of the upcoming changes and develop a tax strategy that prepares for the future of these incentives.

Code Section 179 expensing gives businesses the option of claiming a deduction for the cost of qualified property all in its first year of service or claiming depreciation over a period of years. For 2010 and 2011, the Sec. 179 dollar limitation was $500,000 with a $2 million investment ceiling. The limitation for 2012 is $139,000 with a $560,000 ceiling. Under current law, the dollar limitation is scheduled to drop to $25,000 for 2013 with a $200,000 maximum.

Bonus depreciation is scheduled to expire after 2012. This deduction was 100% of the cost of qualified property in 2011 and 50% in 2012. Qualified property includes new property depreciable under MACRS and which has a recovery period of 20 years or less. There are additional bonus depreciation limitations to consider for business autos and trucks.

Capitalization policies on repairs and equipment have a new de minimis rule effective in 2012. The new rule limits the amount a taxpayer may deduct as an expense, rather than capitalize. The aggregate amount of small tools & equipment must be less than or equal to 0.1 percent of total financial statement gross receipts, or 2 percent of the total financial statement depreciation, whichever is greater.

Business tax incentives scheduled to expire include Research Tax Credit, Work Opportunity Tax Credit, and the 15-year recovery period for leasehold, restaurant and retail improvement property. While these may be extended, there is much uncertainty on how Congress will react in the coming months.


Social Security tax rates for employee withholding will increase on January 1, 2013 to 6.2% from the current rate of 4.2%.

Mileage rates for business use of autos is 55.5 cents per mile in 2012. The rate for medical travel is 23 cents per mile and the rate for charitable travel is 14 cents per mile. 2013 rates have not been set at this time.

Estate tax exclusion amount for 2012 is $5,120,000. This is also the lifetime exclusion amount for gifts and generation skipping transfers. These amounts are set to return to 2003 amounts of $1,000,000 beginning in 2013. The current estate tax rate is 35% and will go to 55% in 2013 unless Congress extends these amounts and rates or sets in place new law for these provisions before year end.

Please let us help you with your business tax strategies. We are here to evaluate and develop your tax planning opportunities to maximize these provisions before year end. Call us at 425-822-6557.

Sincerely,

Hersman Serles Almond, PLLC