Property management companies and property managers should prioritize for end of the year tax planning, and keep more money in their pockets by taking advantage of the tax benefits available to them. Take action before the December 31, 2011 to save on taxes!
Congress has been generally frozen on the tax front in 2011. One of the good steps taken by Congress in 2011 is the repeal of the onerous expansion of 1099 reporting rules. One of the earlier legislation, the Small Business Jobs Act of 2011 included many tax incentives that benefit property managers and property management companies in 2011. Property Managers and Property Management Companies can take advantage of tax incentives such as 100 percent bonus depreciation, an employee payroll tax holiday, enhanced expensing and other relief for small businesses
1. Income timing is a time-honored year end plan. In future, tax rates are expected to increase from current historical low rates. If you are in the top tax bracket, it might be better to accelerate income. However, those in the lower tax brackets should follow the traditional tip of deferring income. Income timing is not easy, and you should be sure to consider its impact on various deductions and any tax credits.
2. Accelerate Expenses: Accelerate expenses to reduce your business’s taxable income. Purchase goods and services needed by the business. Pay early bills like cell services, subscriptions, rent, insurance, utilities, and office supplies. You can also stock up on any office supplies, like printer paper and ink cartridges.
The acceleration or deferral strategy depends on the projected profit and losses for your business and the legal structure (LLC, Partnership, S Corp, C Corp, etc). Check with your tax professional to make sure that you get the best benefit out of this strategy.
3. Equipment Expensing and 50% Depreciation: Thanks to the Small Business Jobs Act of 2010, you can deduct up to $500,000 of equipment purchased in 2011. In addition to first year expensing, write off half the cost of new equipment on top of the regular depreciation allowance. This tax break applies only to equipment purchased in 2011.
4. $8000 Bonus Depreciation on Vehicles: Purchase a new car, light truck, or van before Dec 31, 2011 and if it is used more than 50 percent for business, take an additional $8000 bonus depreciation deduction.
5. Employee Tax Credit: Take advantage of tax credits available for hiring new. For every qualified employee, business owners are exempted from 6.2% Social Security tax, and an additional tax credit of $1000 is available.
6. Health Insurance Credit: Take advantage of the small business health insurance credit, which provides a credit worth up to 35%of a small business premium costs in 2011. The credit phases out gradually for businesses with average wages between $25,000 and $50,000 and for firms with the equivalent of between 10 and 25 full time employees.
7. Contribute to Retirement Plan: Some retirement plan contributions can be made until the day taxes are due, while other require the plan to be set up before the end of the year. Do contribute to your retirement plan, or set one up before the end of the year. Check the contribution limits and deadlines for different types of plans – 401ks, IRAs, Simple, SEP, Roth IRA and Keogh.
8. Carry Back Credits for 5 Years: The Small Business Jobs Act of 2010 allows a five-year carry back of any unused 2011 eligible small business tax credits. These credits may be used to offset Alternative Minimum Tax (AMT) in the prior year. Previously this tax credit was only allowed to be carried back to offset tax paid in the previous year.
9. Convert to Roth IRA: Roth IRAs are unique in that withdrawals from Roth IRAs are not taxed. In 2011, there is a difference from 2010 conversions as you cannot spread out the tax payments due to conversion to Roth IRA. If the taxes will rise in the future for you, it might be worth to pay some taxes now. However for others it may make sense to pay taxes in smaller amounts later.
10. Qualifying dividend tax rate: If you have a C corporation, pay yourself a qualifying dividend so you can take advantage of the lower dividend tax rate that might end in 2011. Do not forget to take advantage of the lower C corporation tax bracket on the first $75,000 of income each year. In some cases, payments from a C Corporation to an owner before the end of the year can be assigned to dividend or a loan
Bonus Tip: Was the property management business started in 2011?
If so, deduct up to $10,000 of expenses paid before opening of business by taking advantage of increased deduction of startup costs.
Bonus Tip: If your business experienced a loss due to slow economy in 2011, use the loss to your benefit. Do not forget to take these losses – losses on sale of business assets, casualty and theft losses including natural disaster losses, uncollectible debts, and capital losses.
Remember to take action before December 31, 2011!
Everyone’s tax situation is different, and this information should not substitute professional advice. Property Managers and Property Management Companies should always consult with their tax advisors to consider specific factors that might affect their situation.
2011 Year End Tax Planning Guide for Property Management Companies and Property Managers is brought to you by TReXGlobal.com, maker of the world's easiest Property Management Software.