Year-End Tax Planning for Businesses - Tire Review Magazine

Year-End Tax Planning for Businesses

There are a number of end of year tax strategies businesses can use to reduce their tax burden for 2012. Here’s the lowdown on some of the best options.

Purchase New Business Equipment: Business should take advantage of Section 179 expensing this year for a couple of reasons. First is that in 2012 businesses can elect to expense (deduct immediately) the entire cost of most new equipment up to a maximum of $139,000 for property placed in service by Dec. 31. The maximum threshold amount for capital purchases in 2012 is $560,000, but in 2013, that amount drops to $25,000.

Also in 2012, businesses can take advantage of an accelerated first year bonus depreciation of 50% of the purchase price of new equipment and software placed in service by Dec. 31 that exceeds the threshold amount of $560,000. This bonus depreciation is phased out in 2013.

Qualified property is defined as property that you placed in service during the tax year and used predominantly (more than 50%) in your trade or business. Property that is placed in service and then disposed of in that same tax year does not qualify, nor does property converted to personal use in the same tax year it is acquired.

Note: Many states have not matched these amounts and, therefore, state tax may not allow for the maximum federal deduction. In this case, two sets of depreciation records will be needed to track the federal and state tax impact.

If you plan to purchase business equipment this year, consider the timing. You might be able to increase your tax benefit if you buy equipment at the right time. Here’s a simplified explanation:

Conventions –
The tax rules for depreciation include "conventions" or rules for figuring out how many months of depreciation you can claim. There are three types of conventions. To select the correct convention, you must know the type of property and when you placed the property in service.

• The half-year convention: 
This convention applies to all property except residential rental property, non-residential real property, and railroad gradings and tunnel bores (see mid-month convention below) unless the mid-quarter convention applies. All property that you begin using during the year is treated as "placed in service" (or "disposed of") at the midpoint of the year. This means that no matter when you begin using (or dispose of) the property, you treat it as if you began using it in the middle of the year.

Example: 
You buy a $40,000 piece of machinery on Dec. 15. If the half-year convention applies, you get one-half year of depreciation on that machine.

• The mid-quarter convention: The mid-quarter convention must be used if the cost of equipment placed in service during the last three months of the tax year is more than 40% of the total cost of all property placed in service for the entire year. If the mid-quarter convention applies, the half-year rule does not apply, and you treat all equipment placed in service during the year as if it were placed in service at the midpoint of the quarter in which you began using it.

• The mid-month convention:
 This convention applies only to residential rental property, nonresidential real property, and railroad gradings and tunnel bores. It treats all property placed in service (or disposed of) during any month as placed in service (or disposed of) on the midpoint of that month.

Partnership or S Corporation Basis:
Partners or S corporation shareholders in entities that have a loss for 2012 can deduct that loss only up to their basis in the entity. However, they can take steps to increase their basis to allow a larger deduction. Basis in the entity can be increased by lending the entity money or making a capital contribution by the end of the entity’s tax year.

(Caution: Remember that by increasing basis, you’re putting more of your funds at risk. Consider whether the loss signals further troubles ahead.)

Retirement Plans: Self-employed individuals who have not yet done so should set up self-employed retirement plans before the end of 2012.

Dividend Planning: Reduce accumulated corporate profits and earnings by issuing corporate dividends to shareholders, which continue to be taxed at the 15% rate through 2012.

Budgets: Every business, whether small or large should have a budget. The need for a business budget may seem obvious, but many companies overlook this critical business-planning tool.

A budget is extremely effective in making sure your business has adequate cash flow and in ensuring financial success. Once the budget has been created, then monthly actual revenue amounts can be compared to monthly budgeted amounts. If actual revenues fall short of budgeted revenues, expenses must generally be cut.

Tip: Year-end is the best time for business owners to meet with their accountants to budget revenues and expenses for the following year.


Richard L. Lipton CPA & Associates LLC,located in Florham Park, N.J., draws on its founder’s 10 years as a stockholder and manager of family-owned Sam’s Tire Co. in Paterson, N.J.

Richard L. Lipton CPA & Associates LLC “is structured to personally serve large and small clients who have a need for business consulting services as well as accounting and tax services. We have even developed aniche in the area of forensic accounting. Our clients have realized that this combination of skills is extremely valuable in providing the highest quality professional services in today’s and the future’s economy.” – Richard L. Lipton CPA

Contact Richard L. Lipton CPA & Associates LLC:
Call: 973-520-8123
E-mail: [email protected]
Web: www.liptoncpa.com

You May Also Like

Tire Industry Labor Shortage: Improve This to Keep Employees

I’ve spoken to many representatives from manufacturers, wholesalers and retailers who report that techs, counter people, drivers and even white-collar team members have walked off the job, failed to report, or given notice, and their businesses have been impacted by these departures. This isn’t just a tire industry issue—and goes beyond the tech shortage that

Tire Industry-Labor Shortage-Great-Resignation

I’ve spoken to many representatives from manufacturers, wholesalers and retailers who report that techs, counter people, drivers and even white-collar team members have walked off the job, failed to report, or given notice, and their businesses have been impacted by these departures. This isn’t just a tire industry issue—and goes beyond the tech shortage that has plagued the industry for decades.

Consider Software Solutions to Streamline Operations

Representatives from several software providers share how solutions drive efficiency and profitability, as well as what to look for when considering a system in your shop.

software-solutions-stock
How Data, Analytics Can Boost Profitability for Tire Retailers

By collecting and analyzing data about a dealer’s sales history, inventory levels and market demand, data and analytics platforms can analyze the performance of each dealer’s store and recommend actionable improvement opportunities.

How to Start the PPP Loan Payback Process

For many PPP loan recipients, it is time to start the repayment process—or file for PPP loan forgiveness. Read on to find out which portion of your loan may be forgivable and how to apply for forgiveness, as well as how to start the repayment process.

Creating a Positive Work Environment

Larry Sutton of RNR Tire Express shares seven different practices that have helped him create a positive work environment.

Other Posts

K&M Tire Dealers Go ‘All In’ at 2023 Conference & Trade Show

K&M Tire provided the fun, prizes and resources to dealers during its annual conference and trade show.

Synchrony Offers Four-Installment Payment Plans Through Clover App

Synchrony announced that merchants will now be able to offer a short-term, no-interest installment option, Synchrony “SetPay in 4,” via the Clover point-of-sale and business management system from Fiserv, Inc. This buy now, pay later (BNPL) offering will further expand the reach of Synchrony’s payments and financing options and enable select merchants that use Clover to accelerate

consumer financing auto shop
Using Data to Enrich the Customer Experience

Attaching data or a number to a vehicle’s service record adds a level of transparency to the discussion, and moves it from an “opinionated upsell” to a true, fact-based service need.

Coats Tread Depth Data
Microlearning Makes the Tire Industry Smarter, More Profitable

Microlearning modules can be customized to company and team member needs, where participants can learn through their own experiences and at their own pace.