Tax advisors view future with caution: previous cuts, new legislation on congressional plates.

• Author: Kalytiak, Tracy
• Position: FINANCIAL SERVICES

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The 2010-2011 tax-planning season so far has been an unusual one for Chad Estes, tax manager for Mikunda, Cottrell & Co. in Anchorage. The Bush tax cuts, as of November press time, were due to expire at the end of 2010, and Congress had not yet taken action on those or other unfinished tax issues that could potentially affect business owners.

"The uncertainty right now is a scary prospect for a lot of folks," Estes said. "The giant shift of the election, all the expiring tax breaks, the struggling economy, it's just kind of a very uncertain time for people and nobody likes uncertainty. The overwhelming issue is thinking it's going to change, but until you see it in writing and that the president signed it, it's hard to advise clients on how to proceed."

Tax rates were set to rise about 4 percent at the end of 2010, if Congress did not act to extend or modify the Bush-era tax cuts.

"In order to grow the economy, raising taxes is not a viable option," Estes said, adding that the cuts could be extended for a year or two. "Something could happen retroactively in 2011 if Congress can't get through the lame-duck session by the end of (2010). It could be January, February, before they get around to passing something. There's been big changes in the past, but this late in the year is a new twist."

How TO SAVE ON TAXES

With that uncertainty in mind and an eye on what's ahead in Washington, D.C., Estes discussed with business clients before the end of 2010 options that could save them money. Foremost among those options were the following, as listed and explained by Mikunda Cottrell in the company's tax-planning guide:

* Enhanced Section 179 depreciation deductions: Under Section 179 of the Internal Revenue Code, a business can currently deduct the cost of qualified property placed in service during the year, within an annual limit. Prior to enactment of the Small Business Jobs and Credit Act, which President Barack Obama signed into law Sept. 27, the limit for 2010 was $250,000, although the maximum deduction was subject to a phase-out for annual purchases above $800,000. The new law increases the maximum deduction to $500,000 for 2010 and 2011 with a phase-out threshold of $2 million. Eligible assets include computers, office equipment and furniture; most vehicles, construction and manufacturing equipment also qualify. Certain real estate improvement costs now qualify for Section 179 deductions of up to $250,000.

Estes said in November that he had been telling clients it would be a good idea to recognize more income for 2010 rather than 2011, because of the tax rate uncertainty pertaining to individual tax rates as well as taxes on long-term capital gains and dividends, which (as of November press time) were expected to go up.

"It's...