Business Tax Planning Strategies - 2009

As your company’s profit or loss picture for 2009 becomes clearer, year-end tax planning presents a final chance to strategically fine-tune your income tax liability. With these trying economic times, and the uncertainty of where income tax rates are going in the future, year-end planning becomes even more important, and having C&G assist with that project is an investment in time well worth considering.

Strategies to consider for your business:
  • Take Advantage of Depreciation Tax Breaks
    • Section 179 Depreciation:
      • Your business may be able to deduct more in depreciation due to an increase in code Section 179.
      • For 2009, the maximum Federal Section 179 deduction is $250,000 (if acquired assets do not exceed $800,000).
    • 50% First-year Bonus Depreciation:
      • In addition to Section 179, your business may deduct 50% of all NEW equipment and software acquired and placed in service before the end of the year.
      • Unlike Section 179, Bonus depreciation can be taken even if your business will show a loss for 2009.
    • Planning point – not all states allow the increase in Section 179 and bonus depreciation.
  • Expanded Net Operating Loss (NOL) Carryback
    • NOL carrybacks are valuable when taxpayers are operating at a loss. NOLs can be used to obtain a refund of taxes paid in previous years and generate a much needed infusion of cash into the business.
    • Under normal circumstances, the carry back period is two years. Under new law, NOLs may be carried back up to 5 years.
    • Strategic planning to actually maximize your current year loss may increase your refundable tax.
    • See our article “Net Operating Losses – An Opportunity to Generate Cash?”
  • Avoid The Hobby Loss Rules
    • Many individuals are opening “side-businesses” to help supplement cash flow needs. Of course, the IRS will assess income and self-employment taxes on the profits from these activities.
    • However, the IRS has rules that will disallow the deduction of losses from these activities if the owner cannot prove that the activity is a legitimate business, and is entered into for a profit motive.
    • If the side-business generates consistent losses each year, the IRS will most likely examine your income tax return and disallow the loss. Proper documentation, planning and presentation on your tax return may prevent the IRS from disallowing such losses.
  • Consider Paying a Dividend from your C Corporation in 2009
    • Now is the perfect time to convert some of your C corporation wealth into personal wealth cash at a very manageable tax cost.
    • If the company pays you a taxable dividend, it is taxed individually at a maximum federal rate of only 15%.
    • Better yet, if the stockholder’s (or children’s) income is low enough, there may not be any tax on the income, assuming “Kiddie” tax does not apply.
    • The maximum federal rate on dividends is scheduled to skyrocket from the current 15% to 39.6% starting in 2011.

Especially during 2009, a year of tumultuous change for our economy and our tax laws, we consider a year-end tax checkup an essential service for our clients. If you would like more information on any of the planning strategies, or if you would like to explore how year-end tax planning can be customized to your company specific circumstances, please don’t hesitate to contact us.



CIRCULAR 230 DISCLAIMER
To ensure compliance with Treasury Regulations governing written tax advice, please be advised that any tax advice included in this communication, including any attachments, is not intended, and cannot be used, for the purpose of (i) avoiding any federal tax penalty or (ii) promoting, marketing or recommending any transaction or matter to another person.