2010 Year-end Tax Tips
Seeking new ways to boost your cash flow? As 2010 draws to a close, look no further than two recently passed government acts:
Hiring Incentives to Restore Employment (HIRE) Act: Under the HIRE Act, new tax benefits could save you money if you’ve recently hired certain previously unemployed workers. Through a payroll tax exemption, employers are exempt from their 6.2% share of Social Security tax on wages paid to qualifying employees Mar. 19, 2010 through Dec. 31, 2010. (See pages 47-50 of our payroll tax guide.)
This was good news for Deborah Osgood, Chief Knowledge Officer of the Exeter, N.H.-based Knowledge Institute. “We were able to save over a couple thousand dollars by hiring an individual who had been unemployed for a minimum of sixty days prior to working for us,” she says. Small Business Jobs Act: As a result of the new act, the tax break for capital investment allows small businesses to immediately write off up to $500,000 in business investments—an increase from the previous $250,000 limit.
5 Other Year-End Tax Tips
As an enrolled agent (EA) who works primarily with small business owners, Oakland, Calif.-based Jan Zobel has many suggestions for maximizing your cash flow through taxes. First, she is meticulous when it comes to putting any expenses that she wants to be able to deduct on the current year's return on her credit card by December 31.
Here are her top 5 year-end tax tips:
1. Temporary bonus depreciation. Equipment, furniture, and vehicle purchases made before Dec. 31, 2010 will be eligible for the temporary bonus depreciation, which allows an extra 50% of the cost of the item to be depreciated in the first year it’s used in your business. This is especially beneficial for business-related passenger vehicles, she says, since, without the bonus amount, depreciation on them would be limited to less than $4,000 in the first year.
2. 2010 deductions. The full cost of equipment and other expenses that are charged by Dec. 31 can be deducted on your 2010 tax return even though you won’t be paying the charge card bill until 2011. This is also true for items such as a car on which a loan is being paid off over time, Zobel says.
3. Independent contractors. According to Zobel, if you've paid any person or business $600 or more for services or rent in 2010, you’ll need to give them a 1099 form by Jan. 31, 2011. “My policy is to not pay anyone until I've gotten their address and Social Security number so that I don't have to struggle to get this information close to the due date,” she says.
4. Postpone some deductions. Typically, tax advisors recommend that, to defer paying taxes, you claim whatever business deductions you can before the end of the current year and defer whatever income you can to the following year. “However, 2011 is likely to see a tax increase, particularly for high income taxpayers,” she says, and may include a hike in the tax rate on business income—making a deduction claimed in 2011 more beneficial than the same one claimed in 2010.
5. Review estimated taxes. Have you paid enough in estimated tax payments? Although your fourth quarter estimated tax payment isn't due until Jan. 15, 2011, Zobel says that one way to avoid underpayment penalties is to increase tax withholding for the remainder of 2010 if you or your spouse work at a job where you're paid as an employee. “Withholding is considered to have been paid in equally throughout the year so it can reduce penalties for quarters in which you didn't make estimated tax payments or paid less than you owed,” she says.
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