Year-end tax planning – 100% bonus depreciation
As tax year 2011 starts heading toward an end, the annual expectation arises that year-end tax planning can somehow help lower tax liability and maximize certain tax opportunities that may end with the New Year. Important to year-end tax planning is an identification of what tax opportunities may be expiring at the end of this year.
Although many taxpayers have become conditioned to expect a group of provisions known collectively as “the extenders” to regularly and routinely be given new life by Congress. The extension of provisions expiring at the end of 2011 may be a more difficult sell to a Congress concerned over deficit spending. Some, such as extension of an Alternative Minimum Tax exemption amount or equivalent and the additional R&D credit, appear likely to be extended. Others, such as the more generous small-business stock exclusion or Section 179 expensing, seem less likely to be given automatic renewal. Those that may be extended likely will be done late in 2011 or even retroactively in early 2012.
One of the provisions not likely to be renewed is the 100 Percent Bonus Depreciation. The bonus rate for qualifying assets acquired after Sept. 8, 2010, and placed in service before 2012, was increased by the 2010 Tax Relief Act from 50 percent to 100 percent. For assets placed in service in 2012, the bonus rate is scheduled to drop to 50 percent. No bonus depreciation is scheduled after 2012.
In addition to bonus depreciation and enhanced expensing, the following additional tax benefits will expire at the end of 2011 if not extended by Congress:
The 20 percent credit for excess qualified research expenses
The 100 percent exclusion of gain for small-business stock acquired before 2012;
The Work Opportunity Tax Credit available to employers
The reduction in the S corporation recognition period for built-in gain
Contributions of conservation real property, food inventory, book inventory or computer equipment to certain charities or schools;
Basis adjustment to stock of an S corporation making charitable contributions of property
A variety of energy-related incentives.
Please contact our office if you have tax planning needs, questions about bonus depreciation, or questions about any of the tax provisions that are about to expire.