You still have time to make smart tax moves to reduce your 2012 taxes owed!

By Jeffrey Brooks, CPA, CFP, MBA for Brooks Wealth Advisors, PC, a Professional CPA and CFP Firm 602-687-9900 x101 Please consult with your professional tax CPA regarding your specific circumstances!

It is confusing what steps to take before year-end. First, we do not know who will win the election. Second, we do not know what the future holds regarding our income. If we knew that 2013 would be a bad year, we would continue to do what we have done in the past and shift income out of the current tax year into next year.

What are some year-end moves to save taxes now that we in the final two to three months?

1. The most over looked tax savings comes from the heath savings accounts. Although the amount is not large, it is the easy “low hanging fruit” that takes little effort. Of course you need to make sure that you qualify for a heath savings account. Go to search on my blog and enter “health savings account” and you will find some help.
2. The remainder of my article will discuss purchasing assets by 12-31-12. Why?
3. There is still a 50% bonus depreciation!
4. Your business can write off half of the cost of qualifying assets put in service by December 31st. What could go wrong? You buy the asset but the delivery date shows a date after December 31st. The purchased asset can only be depreciated or written off when it is in place in your business by December 31, 2012!!
5. By the way, bonus depreciation is available on new assets with useful lives of 20 years or less such as furniture, fixtures and equipment, some leasehold improvements. Sometimes land improvements such as putting a stone walking path outside your building.
6. Many CPAs make a mistake and depreciate leasehold improvement over 39 years for the interior leasehold improvement that are cosmetic..that are not a structural bearing wall!

Did you know that bonus depreciation is scheduled to end after 2012. With the huge deficits, Congress isn’t likely to reinstate it. I think the chance of reinstatement is under 50%.

You have probably heard the code section 179.

What is Code Section 179? It allows expensing on form 4562 depreciation whether the purchased asset is new or used.

Although the Code Section 179 amount is not as large as last year, it is still a great tax deduction.

Why? Because businesses can expense up to $139,000 of assets put in use in 2012. However, I have to warn you that the ability to take expensing in lieu of depreciation phases out dollar for dollar once over $560,000 of assets are placed in service.

Congress has talked about raising the Section 179 amount from $139,000 and increasing the phase out above $560,000 but for now it is just talk.

I have been perplexed why Congress favors heavy SUVs by giving huge tax write offs. You would think they would try to decrease the number of people buying these “gas guzzlers”!

If you buy and starting using a SUV before the end of year, You can deduct much of the cost this year. Say your business pays $50,000 for a new SUV with a loaded gross weight over 6,000 pounds and puts it in use on December 31st 2012. The key is the business use percentage for the days used. If you used the car to drive around town on personal errands, you would not get a tax write off. Your write off would be zero!

But if you work from home and pick up the car and drive to meet a client at his office for the day, you would have 100% business deduction!!!

Your business can expense $25,000 plus 50% of the remaining $25,000 cost or $12,500. Then your business can depreciate the balance at 20%. Or $40,000 write off for one day of ownership! Not bad!!

Warning: Make sure your business owns the vehicle and not you. There is a North Carolina case where the IRS argued and won because the business owner but the vehicle personally but tried to depreciate the vehicle through his business. The Court’s ruling that is was an employee business expense. The employee business expense on Schedule A triggered the Alternative Minimum Tax!! Ouch!!!

.Although used SUVs don’t get bonus depreciation, they still generate a large amount of depreciation write off!

You can fully write off new pickups with loaded weights over 6,000 pounds and used heavy pickup trucks like Ford F-150 if the cargo bed is at least six feet in length.

For lighter vehicles, the maximum deduction in the first year is $11,060.

Did you know that you get punished if you buy too many assets in the last quarter of the year? When you buy too many assets in the 4th quarter and have fully maxed out the Section 179, you do not get to use bonus depreciation.

What percentage? If you make buy more than 40% of your asset purchases in the 4th quarter, regular depreciation must be figured on a quarterly basis.

What if you bought an asset on October 2nd that resulted in over 40% of the assets for 2012 being purchased in the 4th quarter?

These assets purchased in the 4th quarter will only get 1½ months of depreciation instead of six months’ worth.

Many tax planning newsletters are recommending that you shift income from 2012 to 2013. I do not agree. I think the key is to focus on the tax bracket you are in for 2012 and what you project your income and deductions are going to be for 2013.

My opinion is that whoever is elected president, will have to increase tax rates. I believe the 3.8% Medicare surtax used to pay for Obamacare isn’t going to be repealed.

Your CPA tax professional can help!

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About Jeffrey Brooks

Jeffrey Brooks, CPA, CFP, MBA since 1976 has specialized in helping clients save significant taxes, help businesses increase their cash flow, revenues and profits while increasing their control and satisfaction. Jeff and his accounting firm sincerely cares about the happiness of his clients.

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JBrooks Wealth Advisors, PC.

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Address: 4647 N 32nd Street, Suite B245
Phoenix, Arizona 85018
Phone: 602-292-2009