There are a few weeks left for small business owners to get ready for tax season before the year closes. If you’ve been thinking about making a major move, such as buying equipment or a vehicle, or giving money to heirs, for instance, take a look at these tax tips before you leap.
The 2009 tax year has some unique features that will likely go away in 2010. Some changes came in earlier this year with the passage of the American Recovery and Reinvestment Act of 2009, better known as the stimulus bill.
If you’re contemplating a major purchase, get moving. First-year deduction limits for business equipment purchases doubled in 2008 to $250,000, and the stimulus bill keeps that limit for 2009. We don’t yet know what will happen to this provision in 2010, so it may be wise to purchase now and get the write-off right away.
This deduction covers any purchases over $250,000 that you would like to write off the first year. Like the purchasing deduction, bonus depreciation doubled in 2008, allowing 50 percent of any remaining purchase price to get the first-year write-off. The ARRA extended this to 2009. Like the purchasing write-off, this deduction is slated to expire at year-end; yet another reason to think about making major purchases now.
If you’re thinking of purchasing a new car or truck, either for business or personal use, know that there are special higher write-off levels just for 2009. You can write off roughly $11,000 on new car and truck purchases. There is also a write-off for the sales tax paid on new car purchases. You can deduct sales tax up to $49,500 of the vehicle’s purchase price, though there’s a phase-out for high earners at $250,000 for couples or $125,000 for singles.
Alternative Minimum Tax
Originally created to prevent the wealthy from paying no tax, the alternative minimum tax wasn’t indexed for inflation, and more middle-class families get socked with this high tax rate each year. Families with incomes over $150,000 are at risk for landing in the AMT. Often there’s down-to-the-wire drama about getting it renewed at a higher exclusion rate, but the stimulus bill took care of this early this year. For 2009, married couples filing jointly stay out of the AMT if their adjusted gross income is below $70,950, singles if they’re below $46,700.
If you think you may be dangerously near the AMT limit, see if you can defer income into next year, or look for AMT-allowable deductions to add to reduce your gross income. Note that mortgage interest and child-care expenses are two big deductions that don’t count against the AMT.
We’re in a strange situation with the estate tax. In 2009, the estate-tax exclusion is $3.5 million, substantially higher than the 2008 level of $2 million. As the laws currently stand, the estate tax is repealed entirely in 2010, only to return in 2011. But experts expect the scheduled estate tax holiday in 2010 won’t really happen, as President Barack Obama is pushing to keep the 2009 exclusion level for 2010.
Given the political football this tax has become and the unknown outcome for 2010, experts say the best plan is to focus on systematically reducing the size of your estate each year. Give gifts to heirs within the tax-free limit; this year, it’s $13,000 per heir. You can also make gifts to charities to reduce estate size.
Business reporter Carol Tice contributes to several national and regional business publications.