Cindy Krischer Goodman | 11/14/2011

Buying

Ana Maria Martinetti-Katz

There's a huge tax incentive to make capital improvements in your business this year. If your company needs new computers, phones, machinery or other equipment up to the purchase price of $2 million, you can take a deduction on your 2011 tax return. This would be instead of recovering the cost of those investments through annual depreciation spread over many years. In 2011, you are able to take a deduction of up to $500,000. That's double the $250,000 allowed in 2009. "If you have the money, it's smart to buy equipment now to increase your tax savings," says Ana Maria Martinetti-Katz, of Cathy Pareto and Associates. Next year, the allowable amount of that deduction is set to drop to $125,000. However, King, of Lubitz Financial Group, cautions that one of the biggest tax concerns for small-business owners is mingling personal and business expenses — everything from dining out to mileage. "Make sure you keep good records, have separate accounts and pay for business expenses from your business account."

Retirement Planning

Business owners may want to consider creating a defined benefit plan before year-end. Depending on the amount of earned income in 2011, an owner may be eligible to defer more than $195,000 in 2012. While this may be costly to set up, it is advantageous in the long run because you will be able to contribute and deduct up to 10 times more than you would with a traditional 401(k). "I have worked with several law firms helping them decide if a defined benefit plan makes sense," says King. In one case, she says, a law firm was able to save $50,000 in taxes. By doing this, you are not only able to defer money for your retirement, but you also can save taxes for your company, she says.

Tax Preparation Changes

New IRS regulations designed to protect taxpayers now require that all paid tax return preparers are registered with the IRS and hold a personal tax identification number. Paid tax return preparers previously had no registration requirement with the IRS. Over the next two years, preparers who are not attorneys, certified public accountants or enrolled agents will be required to pass a minimal competency test and will also need to take annual continuing education courses to obtain registered tax return preparer designation.