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Year-End Tax Planning Moves That Can Save Your Business Money

December 5, 2011

The end of the year is rapidly approaching. For small business owners, that means more than just holiday festivities. December is also the time to get your tax planning wrapped up. Fortunately, it’s not too late to make some smart moves that can maximize your deductions and minimize your liabilities for the 2011 tax year.

Overall, what are the most important things that small business owners can still do to decrease their 2011 tax bill?
“Make significant contributions to a retirement plan, particularly a plan that favors the business owners,” says SBDC Business Advisor Charles Yacoobian. In addition, the amount that can be deducted under Section 179 of the IRS tax code has been increased for 2011. Section 179 allows your business to deduct the entire purchase price of qualifying equipment and/or software in the year it was purchased or leased, instead of depreciating it over time. If you’re considering buying or leasing equipment that qualifies under Section 179, Yacoobian says the time to do so is now.

Have there been any major changes to tax laws that will affect small businesses this year?
Yacoobian notes there’s been a significant increase in the Section 179 deduction for purchase of qualified business equipment. The maximum deduction has risen from $250,000 to $500,000. In addition, up to $500,000 of the first $2 million of certain business property purchased can be expensed in the current year. Finally, for 2011, the bonus depreciation allowed for certain qualifying property has been increased from 50 percent to 100 percent. All of this is welcome news, so if you’ve been putting off making investments in new equipment to grow your business, you might want to reconsider.

Another big change that took place recently was the passage of health insurance reform. How will the Affordable Care Act affect small businesses’ taxes for 2011?
“For 2011, the Affordable Care Act provides for a tax credit of up to 35 percent of a small business’s health insurance premium costs,” says Yacoobian. However, to qualify, small businesses must meet the following criteria: They must pay for at least 50 percent of the cost of healthcare coverage; have fewer than 25 full-time employees; and pay average annual wages of under $50,000. Also note that the Act’s original requirement for employers to report the cost of healthcare coverage they provide was made optional for employers for 2011. Even better news: A widely criticized provision in the original law that required businesses to file a 1099 for any purchase of goods and services over $600 annually was repealed mid-year, Yacoobian says. That’s a relief to those of us who didn’t want to have to send a 1099 form to Best Buy or Office Depot.

What are the most common mistakes small business owners make when it comes to year-end tax planning?
If you haven’t already done most of your tax planning, you’re not alone: Yacoobian says waiting until December to meet with a CPA is the most common mistake he sees business owners make. However, there’s still plenty of time to remedy the situation for next year. “Meet with your CPA to review your specific situation and start planning now for 2012,” advises Yacoobian.

Do small business owners really need the services of an outside accountant to prepare their tax returns? Can’t they just do it themselves?
While Yacoobian says a small business with an uncomplicated return can certainly prepare their business tax returns using a tool like Turbo Tax or a service like H&R Block, there are other considerations. “In many cases a qualified tax preparer may cover the cost of their fees by uncovering deductions that the business owner may overlook,” he explains. So get set for this year—and get a head start on next year— by meeting with a tax planner now.


Rieva Lesonsky is founder and President of GrowBiz Media, a media company that helps entrepreneurs start and grow their businesses. Before launching her business, she was Editorial Director of Entrepreneur Magazine. Follow Rieva at, read her blog at, and visit her website to get the scoop on business trends and sign up for free TrendCast reports.

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