End-of-year tax planning for corporations is especially difficult this year because many significant tax provisions are set to expire at the end of the year and it is not clear what Congress intends to do. Important rules expired at the end of 2011, including the business research credit, and others will expire at the end of 2012, including the bonus depreciation allowance, expensing allowance and Bush-era tax cuts.
"The lack of certainty makes year-end planning more challenging," says Marian Rosenberg, a senior tax analyst for Thomson Reuters. "However, there are steps businesses can take before the end of the year to lock in low tax rates for shareholders, avail themselves of the work opportunity tax credit and secure generous depreciation and expense deductions."
* Stock Redemption * Closely held corporations should consider taking money out of the business through a stock redemption before the end of 2012, to qualify for the 15 percent tax rate on the distribution.
A corporate purchase of its own stock can result in long-term capital gain or a dividend for its shareholders depending on a number of factors.
In 2012, the maximum tax rate applicable to both capital gain and dividend income is 15 percent, but if the Bush-era tax cuts expire at the end of 2012, long-term gains will be taxed at a 20 percent rate and dividends will be taxed as ordinary income at a rate of up to 39.6 percent.
* Work Opportunity Tax Credit (WOTC) * Employers planning to hire new employees should consider hiring qualifying veterans before year-end, to qualify for this tax credit.
Under current law, the WOTC for qualifying veterans will not be available for post-2012 hires. The WOTC for hiring veterans ranges from $2,400 to $9,600, depending on a variety of factors.
* Bonus Depreciation * Companies should consider putting new business equipment and machinery in service before year-end to qualify for the 50 percent first-year depreciation allowance (or bonus depreciation allowance). Under current law, a bonus depreciation allowance generally applies to...