Traditional Year-End General Business Planning

Self-Employed Business Income. If you are self-employed, it continues to be a good idea to defer as much income into 2012 as possible, if you believe that your marginal tax rate for 2012 will be equal to or less than your 2011 marginal tax rate. If you think that deferring 2011 income to 2012 will save you overall taxes, and you use the cash method of accounting, consider delaying year-end billings until 2012. However, if you have already received the check in 2011, deferring the deposit does not defer the income. Also, you may not want to defer billing if you believe this will increase your risk of not getting paid.

Establishing A New Retirement Plan For 2011. Calendar-year taxpayers wishing to establish a qualified retirement plan for 2011 (e.g. profit-sharing, 401(k), or defined benefit plan) generally must adopt the plan no later than December 31, 2011. However, a SEP may be established by the due date of the tax return (including extensions), and a SIMPLE plan must have been established no later than October 1, 2011.

Personal Use Of Company Cars. If your company provides employees with company-owned cars, the company is required to include the value of the personal use of the car in the employees’ W-2 income. However, this is not required if the employee reimburses the company for the personal use. Planning Alert! If your company does not report the employee’s personal use as W-2 income and the employee does not reimburse the company for the personal use, the IRS says the company’s deductions (for depreciation, gas, tires, insurance, etc.) are lost to the extent of the personal use. In addition, the IRS will include any unreimbursed personal use in the employee’s income even if the company is not allowed a deduction for the personal use portion. Tax Tip. If the employee chooses to reimburse the company for personal use of the car, the obligation for reimbursement should be established on or before December 31^st so the employee will not have income in one year and a deduction in the next. This can be accomplished by establishing a published policy for reimbursement of personal use. Furthermore, your company should obtain signed statements from employees listing their business and personal mileage for the company car.

Mileage Reimbursement Rates. Each year the IRS provides an amount per mile that employers may reimburse employees for the business use of their vehicles rather than reimbursing actual expenses. This standard mileage reimbursement amount for 2011 is 51 cents‑per‑mile from January 1, 2011 through June 30, 2011, and 55.5 cents-per-mile from July 1, 2011 through December 31, 2011.

Children Working In The Family Business May Reduce The Family’s Taxes! There has long been a tax incentive for high-income owners of a family business to hire their children to work in the business. Generally, the parents could deduct their child’s wages against their business income (which could be taxed as high as 35%), while the child would be taxed at rates as low as 10% (to the extent of child's unused standard deduction, the child’s wages may avoid federal income taxes completely). Furthermore, if a child is under age 18 and working for a parent's sole proprietorship or a partnership where the only partners are the parents, the child's wages will be exempt from FICA tax while, at the same time, reducing the parents’ self-employment (SECA) tax.

Please contact us if you are interested in a tax topic that we did not discuss. Tax law is constantly changing due to new legislation, cases, regulations, and IRS rulings. Our firm closely monitors these changes. In addition, please call us before implementing any planning ideas discussed in the recent blog posts, or if you need additional information. 

brad@mcarthurco.com

704.544.8429