Before you file on April 17, have you considered the following credits and deductions to lower your overall small business tax bill?
The Hiring Incentives to Restore Employment (HIRE) Act was enacted in March 2010 to promote hiring, among other things. In 2010, the ACT provided a break to employers from paying the employer portion of the Social Security tax on newly hired eligible employees.
In 2011, the Act provides a benefit up to $1,000 per employee in to employers that continue to employ eligible employees for 52 consecutive weeks. This amount is obtained through a credit taken on the business return filed in 2011.
One of the key areas to examine is your capital expenditures. There are two tax provisions that provide for immediate expensing of qualified purchases that will allow many businesses to be able to deduct most, if not all, of their 2011 expenditures for machinery and equipment:
• Section 179 – a taxpayer can write-off up to $500,000 of qualified assets, either new or used, if the total capital expenditures did not exceed $2 million for the year. The maximum deduction has dropped to $139,000 for 2012, and beginning in 2013 the amount will be reduced to $25,000.
• Bonus Depreciation – a taxpayer can deduct 100 percent of their qualified asset purchases from 2011. In order to qualify for the bonus depreciation, the assets must have been new and placed in service before December 31, 2011. For 2012, the 100 percent deduction has decreased to 50 percent and it will be eliminated for tax years after 2012.
R&D Tax Credits
Companies that made qualified research expenses before the end of 2011 are allowed to claim a federal research and development (R&D) tax credit. This credit could result in a tax credit of up to six-and-a-half cents for every dollar spent on qualified research expenditures that offsets federal taxes on a dollar for dollar basis. The R&D provisions expired on December 31, 2011.
Consider this before making your 2012 Michigan estimated tax payment, due on April 17: Most businesses organized as pass-through entities that do not have a c-corporation in their structure by now are well aware they are not subject to the new Michigan Corporate Income Tax (CIT). However, another provision in the recent Michigan tax reform may provide an additional benefit. Beginning Jan. 1, 2012, business income reported under the individual income tax will be apportioned based on 100 percent of a sales factor, rather than the equally weighted, three-factor formula. This means that profitable businesses that have both Michigan payroll and property may have a lower Michigan apportionment factor under this new rule, particularly if they ship product, or perform services out of state.