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Business Tax Credits and Deductions to
Take Advantage of Before New Year’s Day
The end of the year is fast
approaching, but there’s still time to take advantage of a
variety of business tax credits and deductions – some of
which are new for 2012.
Here are just a few to
consider, plus some best practices for maximizing your
claims.
Take Advantage of
2012 “Section 179” Deduction Limits
Under the American Recovery
and Reinvestment Act, Section 179 of the tax code provides
tax benefits for equipment purchases made before the end of
the year. Typically when you purchase an item for your
business, you can claim a tax deduction for it. But fixed
assets are not counted in the year of purchase. Instead,
they must be depreciated over a number of years. Section
179, however, allows you to fully deduct the cost of assets
such as computers, furniture, certain business software,
vehicles, manufacturing equipment and more in the year of
purchase – up to a certain amount.
Section 179 deduction limits
change each year. Here’s what’s new for 2012:
- For 2012, the limit for
any individual piece of equipment is now $139,000, as
long as total purchases in either year do not exceed
$560,000. This means that if you buy or finance a piece
of new or used equipment, you can deduct the full
purchase price (up to $139,000) from your gross income.
- For expenditures above
$560,000, the amount you can deduct is reduced by a
dollar for each dollar over.
- A “Bonus Depreciation”
provision allows you to deduct 50 percent of the cost of
certain property after you’ve taken the Section 179
deduction and in addition to the standard depreciation
deduction.
Review your inventory and
equipment. If you find you need to replace obsolete or aging
assets, this may be the time to do so. Be sure to talk to
your tax advisor or accountant for more specifics on
qualifying purchases and read more from the IRS about deducting
business expenses. To deploy this deduction, the
equipment being purchased must be in place on or before
December 31, 2012.
Get a Tax Credit for
Hiring a Veteran before December 31, 2012
Late last year, President
Obama signed into law specific tax credits for employers who
hire unemployed veterans before December 31, 2012.
Under the Vow to Hire Heroes
Act of 2011, employers who hire a veteran who has been
unemployed for at least four weeks can claim a credit for 40
percent of the first $6,000 in wages (up to $2,400). If you
hire a veteran who’s been unemployed for at least six
months, the credit goes up to 40 percent of the first
$14,000 of wages (up to $5,600).
If you plan to hire new
employees before the end of the year, check out this employer-friendly
plain English guide 
for more information on the skills veterans can bring to
your company, and how to apply for the tax credit.
Start a Business in
2012? Keep Good Records to Claim Start-Up Deductions
If you started a new business
in 2012 you probably incurred costs before you even opened
your doors. Unfortunately, non-operational businesses
can’t deduct business expenses. Instead, you must wait
until you are operational and generating income. Only then
can you deduct a portion of qualifying
start-up costs – up to $5,000 in the year the business
was launched. Any amount over and above that must be
amortized over a period of 18 months.
If you started a business
this year, or are planning to open your doors in 2013, make
sure you keep
good records of your start-up costs so you can leverage
the deduction on your 2012 tax return. Read more about How
to Write Off the Expense of Starting Your Business.
Log and Capture
Business Travel Costs
There are numerous deductions
you can claim over and above the current $0.55 per mile
business mileage deduction. For example, the cost of
laundering clothes on a business trip is also deductible!
For tips on what constitutes a business travel or
entertainment expense while on the road, read How
to Deduct Business Travel Expenses.
Other expenses to record
include advertising/marketing costs, educational expenses,
banking fees and health insurance premiums.
Set Up or Grow your
Retirement Plan
One of the best tax
write-offs for the self-employed is to set up a retirement
plan or, if you already have done so, contribute pre-tax
money to reduce your 2012 taxable income. This year,
self-employed individuals can contribute $17,000 as a 401(k)
deferral, plus 25 percent of net income. Check with your
plan administrator for limits and deadlines for different
types of plans.
Contribute to Charity
With the holiday season upon
us, now is a good time to consider making a business
charitable contribution and benefit from the tax deduction.
This blog
explains more about what you can and can’t claim.
