2009 Year-End Tax Planning for Businesses and Individuals
As we approach the end of another year, it is appropriate to take stock of your financial situation and consider ways for reducing your income taxes. By taking some small steps before the end of the year, you can potentially save money on your 2009 income taxes - both as a business and as an individual.
Business Planning Opportunities
Net Operating Loss Carrybacks – With the passing of the Worker, Homeownership, and Business Assistance Act of 2009, all businesses can now carry back any 2009 net operating losses up to 5 years. By doing so, you may receive refunds of income taxes previously paid. If you are an owner in a Partnership or S-Corporation and have an overall loss on your personal income tax return, you may also be able to carry back that loss up to 5 years.
Accelerating Anticipated Business Expenses – If you are expecting to incur certain expenses early next year, you might benefit from incurring those expenses in 2009 rather than waiting until next year. Some examples include repair and maintenance expenses, and business equipment purchases. By incurring such expenses now, the business can take deductions in 2009 and reduce its income tax liability (or increase its net operating loss) for the year.
Business Equipment Purchases – Another advantage of making equipment purchases now is the opportunity to take advantage of two accelerated depreciation deductions. "Bonus depreciation" allows you to claim a deduction of 50% of the cost of equipment in the year of purchase. This tax savings strategy ends after December 31, 2009. In other situations, you may be able to expense up to 100% of the cost of equipment purchased and placed in-service by year-end. There are various restrictions on these strategies, so contact your tax advisor.
Individual Planning Opportunities
Tax Rates Increase – Current tax rates are a result of a law enacted back in 2001. That law is set to expire at the end of 2010, and tax rates will revert to previous (higher) levels. Increased tax rates in future years should be considered when evaluating any tax saving strategies.
Year End Charitable Giving – Many charities ask for donations this time of year. Charitable giving is a great opportunity to create tax deductions, potentially reducing your income taxes. Be sure the organization is a tax-exempt organization, and request documentation from the organization to support the amount of your donation.
Prepaying Expenses – If you have the opportunity to pay some of next year’s expenses in this year, you may be able to a tax deduction in 2009 instead of waiting for 2010. Some examples include college tuition costs, property taxes, student loan interest, and mortgage interest. An income tax credit may also be available to you, if you spend money on certain energy saving improvements to your home.
As the New Year quickly approaches, it becomes difficult to find time to think about tax planning. However, a little time spent now may save dollars in the future – and that’s time well spent.
Originally published in the Washington State Restaurant Association Journal