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Tax planning now allows time for adjustments

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Summer is just now winding down, but local accountants agree now is the perfect time to review and make final preparations for year-end taxes.

“You never want to wait until the last minute,” said Michael Roberts, a certified public accountant and senior accountant with Abacus CPAs LLC, 1835 E. Republic Road, Ste. 200. “It’s a good time of the year to review your prior-year taxes and do some long-term planning. If you’re looking to change firms, it’s also a good time of the year to start to develop that relationship.”

Once tax time rolls around, business owners and individuals can still develop relationships with accountants and firms, but demands of the season make it more difficult, Roberts said.

Thinking about taxes now also means there is time to adjust any plans set at the beginning of the year, consider tax law changes and examine clients’ individual circumstances.

“There’s the economy and how they fit into it. Some clients have had business slower than usual, but there are (others) that have been stimulated despite the economy,” said Carol DeHaven, a CPA with Samek & Co., 1900 S. Ventura Ave.

“Some construction-related firms, for example, have had an unexpected boom due to disasters in the area,” she added.

One change this year that could have a big impact for some businesses is a Missouri tax rule that enables companies to take a deduction between $10,000 and $20,000 for each full-time employee hired in the past year, said Joe Tucker, CPA with Tucker & Co. PC, 636 W. Republic Road, Ste. B-108.

“The law says that regulations will be published to give guidance on how to take the deduction, but it appears we’ll be able to compare employee numbers from this year to the previous year,” he said, noting that the deduction amount would vary depending on whether a company offers health care coverage for employees.

In December 2010, extension of some tax cuts were extended by Congress, making it difficult for CPAs to help their clients with 2011 tax planning. Now that the tax cuts have been extended through 2011 and 2012, planning is easier, Tucker said.

“It gives us some stability in tax planning for this year and next,” Tucker said.

Most of the tax cut extensions and modifications enacted in December were designed to stimulate the economy.

For example, DeHaven said, the Social Security rate for employee contributions has been cut by 2 percent, to 4.2 percent, giving employees a little more take-home pay. The amount the employer covers wasn’t changed.

For 2011, businesses may make specific capital improvements up to $250,000 and use them as deductions.

“If a business is planning some type of improvement, timing is important now, but they still have the opportunity to take advantage,” Tucker said.

The tax code allows bonus depreciation this year of 100 percent on some types of new equipment. That’s important to note now, Roberts said, because in 2012, depreciation will revert to 50 percent. In certain situations, companies can choose to accelerate the depreciation or maximize it over several years, he added.

Brenda Logsdon, tax partner with The Whitlock Co., 3271 E. Battlefield Road, Ste. 300, said another extension included changes in capital gains rules.

“If someone has long-term capital gains or qualifying dividends, they get a special tax rate of 15 percent,” Logsdon said. “The tax rate is now zero for those who fall within the 10 percent to 15 percent tax brackets, and that was extended through 2012.”

Another change at the end of 2010 was the reversal of a new law that required businesses to file 1099 forms for any goods the company purchased for more than $600, instead of just for contracted services.

“We had clients preparing to send a 1099 to everyone, but Congress reversed that requirement as it would have put an unreasonable paperwork burden on everyone,” DeHaven said.

Some tax cuts for individuals also have been extended to 2011 and 2012.

“Higher-income people were set to have the personal exemption eliminated, but that was extended and right now, they will get that personal deduction,” DeHaven said.

Tucker said individuals may want to talk with their tax professionals about converting traditional individual retirement accounts to Roth IRAs, which do not provide deductions but also are not taxed when drawn on at retirement.

“The lower the value on the date of conversion, the lower the tax, but it may not be for everyone, as it requires some planning,” Tucker said.

Another tax-planning step individuals may want to consider is donating appreciated stock rather than selling it, Logsdon said.

“You get to deduct the fair market value and don’t have to report the capital gain,” she said. “Donations are limited to 30 percent of adjusted gross income.”

Beyond 2012, many in financial planning believe there will be some changes to the tax laws, not only because of the recent debt ceiling crisis, but because of an upcoming election year. Advisers may be discussing accelerating income and deferring expenses for the long term, Roberts said.

“2012 is an election year, so they will be discussing tax rates again. We’ll just have to see what happens,” he said.[[In-content Ad]]

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