Owners of small and mid-sized mortgage companies can get a head start on their taxes for this year—remember, the filings due on April 15 are for tax year 2011.
James Duggan is an attorney with Duggan Bertsch LLC, a Chicago-based business, tax, estate and wealth planning law firm.
He suggests meeting with your advisor early in the year, not year-end or tax time. Tax planning requires an actual plan. There needs to be a review of the prior year's financials, upcoming year forecast and budgets so the owner is able to pursue the upcoming year's objectives from a tax perspective.
Another suggestion is to take a divided from the business. Duggan notes that in 2012, taxpayers will still benefit from “qualified dividend” treatment, which means corporate dividends are taxed at 15%, the same rate as capital gains. In 2013, that beneficial rate is scheduled to expire and dividends will be taxed as ordinary income at the higher graduate rates. The top bracket for 2013 is scheduled to be 39.6%. For those with built up corporate profits, it would be best to have a plan in place to maximize dividends during this low tax year, he said.
Make a contribution to your retirement plans. He noted if you failed to give the maximum amount to your retirement plans in 2011, there is still time in 2012 to do so for that tax year. Generally, contributions to IRAs, SEPs, and Keogh plans for the prior year can actually be made up until April 15 of the current year.
Also, retirement planning options change regularly. People should review current changes with advisors to ensure they are achieving the maximum contribution/deduction opportunities, Duggan said.
Maximizing the 179 deduction was another suggestion as it is scheduled to be cut next year. Business owners generally have to depreciate equipment, machines, and similar capital items over a period of years. This amortization rule spreads the deduction over many years and therefore reduces the upfront benefit of the acquisition.
Duggan explained Section 179 of the Tax Code actually allows business owners to fully deduct, rather than depreciate, such purchases up to $125,000 in 2012. This depreciation exception is set to be reduced to only $25,000 in 2013. Therefore, it is important for business owners to plan to maximize their capital acquisitions in 2012 while the limit is at the higher amount.
Another exception to the traditional depreciation rules is the ability for business owners to take what is known as “bonus depreciation.” Rather than spreading the depreciation deduction out evenly over a period of years, current law allows an upfront deduction equal to 50% of the purchase price. Since this bonus depreciation is scheduled to be eliminated in 2013, it is important to maximize capital expenditures in 2012, Duggan said.
While there are certainly other tax planning opportunities based on one's unique facts, the time to explore those opportunities for the current tax year is now, not at the end of 2012, he said.
