Year-End Tax Items

By Len Pytlak

Another year has passed already, the leaves on the trees here in Ann Arbor have changed and will have fallen by the time this month’s column gets published. Our Wolverines are not doing to badly in football for a change, and neither are the Detroit Lions. So it must mean its time to consider some year-end tax planning items and see what’s coming up for 2012.

Thanks to Congressional inaction, it’s a lot easier to say what tax items will affect your 2011 returns than it is to say what is going to happen in 2012, but we will give it a shot.

Changes in Take-Home Pay
A big item that will affect all employees beginning in January is the termination of the one-year Social Security withholding reduction. For 2011, the percentage of social security tax that was withheld from employees’ paychecks was reduced to 4.2 percent from 6.2 percent. Currently, this withholding goes back up January 1, so all employees will be taking home less money in their paychecks. President Obama has proposed that this reduction be extended one more year, but it does not look like that is going to happen.

To avoid a lot of questions in January from your employees, I recommend you give them a note with one of their December paychecks explaining what is going to happen in January. If you go to my web page (lenpytlakcpa.com), I have created a note that you can print and provide to your employees in regards to this matter. (Click on “Articles” and then click on “Take home pay changes;” you will find a link to a PDF that you can print.)

100 Percent Depreciation
For 2011, you can deduct 100 percent of the cost of most fixed assets purchased this year. This deduction is currently set to expire for 2012 but could be extended. What this means is that if you plan to purchase new equipment soon, you may want to do it now to take advantage of this deduction. This deduction is different then the depreciation expense deduction allowed under Internal Revenue Code section 179 in that it can create or increase an operating loss.

To qualify for the deduction, the equipment must actually be used this year. It is what is described as “placed in service.” Ordering and paying for the equipment in 2011 will not give you the deduction if you do not actually use it this year.

There is a limit to the 100 percent deduction for automobiles, however since they are subject to what is called “luxury automobile” rules. The maximum deduction for an auto in 2011 will be $11,160.

1099 Reporting
There is some good news in regards to filing 1099 forms. In 2010 there was a law change that would have required businesses to issue 1099 forms to everybody and every organization, even if they were corporations. This would have created millions of 1099 forms to be mailed and processed without any means in place to reconcile them. That law has been repealed so we still only need to issue 1099 forms to sub-contractors that we pay more than $600 in the calendar year.

Other Year-End Items
Of course, other standard year-end tax steps still apply:
• You should review your accounts receivable if you have any house accounts and write off those that are not collectible.

• If you have inventory, discard any obsolete filters and such that you have had for years but may never use. If you do this, the items must be disposed of.

• Pay bonuses to owners/stockholders in December if the business is showing taxable profits.

• Dispose of any obsolete equipment you may still be carrying on the books that has not been fully depreciated yet.

LEN PYTLAK is a certified public accountant in Ann Arbor, Michigan, and author of more than 65 business and tax articles for numerous publications. He may be contacted at 734.663.1313 or: www.lenpytlakcpa.com