6 Tips to Help You Save on Corporate Income Tax

I was on a panel for the First Tuesday Connections meeting held November 1, 2011 at III Forks Restaurant in Dallas, Texas.  The topic was “Corporate Taxes: You Can Run, But You Can’t Hide”.  The moderator was Ronald Pyke, B2B CFO, and the other two panelists were Jim Smith of Smith, Jackson, Boyer & Bouvard, PLLC (CPAs) and Robert Ruhlin of Meadows, Collier, Reed, Cousins, Crouch & Ungerman, LLP (Attorneys).  The following was taken from my materials used.

Year-end 2011 tax planning is especially challenging because of the uncertainty over whether Congress will enact sweeping tax reform that could have a major impact in 2012 and beyond.  Even if there's no major tax legislation in the immediate future, next year Congress will have to grapple with a host of thorny issues.

Regardless of what Congress does late this year or early the next year, there are some solid tax savings to be realized by taking advantage of tax breaks that are on the books for 2011. These tax breaks may be gone next year unless they are extended by Congress. 

Here are six corporate income tax planning tips based on current federal income tax rules that may help save corporate income tax dollars as long as you act before the end of 2011.

1.  Businesses, not just corporations, should consider making expenditures that qualify for the business property expensing option.  For tax years beginning in 2011, the expensing limit is $500,000 and the investment ceiling limit is $2,000,000.  Also, a limited amount of expensing may be claimed for qualified real property.  However, unless Congress changes the rules, for tax years beginning in 2012 the dollar limit will drop to $139,000, the beginning-of-phase-out amount will drop to $560,000, and expensing won't be available for qualified real property.  

2.  Businesses, not just corporations, also should consider making expenditures that qualify for 100% bonus first year depreciation if bought and placed in service in 2011.  The 100% first-year write-off will become 50% for 2012 unless Congress acts to extend it.  Thus, enterprises planning to purchase new depreciable property in 2011 or 2012 should try to accelerate their buying plans as long as doing so makes sound business sense.

3.  Make qualified research expenses before the end of 2011 to claim a research credit, which won't be available for post-2011 expenditures unless Congress extends the credit.

4.  Delay year-end billing to clients so that revenues are not accrued or received until 2012.

5.  A corporation can accelerate deductions into 2011 by analyzing its business accounts receivable and writing off those receivables that are totally or partially worthless.  By identifying specific bad debts, a corporation should be entitled to a deduction.  The analysis can be completed after year-end as long as the write-offs are reflected in the 2011 year-end financial statements.

6.  Corporations should check for subnormal goods in their inventory.  Subnormal goods are goods that are unsalable at normal prices or unusable in the normal way due to damage, imperfections, shop wear, changes of style, odd or broken lots, or other similar causes, including second-hand goods taken in exchange.  If your business has subnormal inventory as of the end of 2011, you can take a deduction for any write-downs associated with that inventory provided you offer it for sale within 30 days of your inventory date.  The inventory does not have to be sold within the 30-day timeframe, just offered for sale.

Do you have questions?  Feel free to give us a call or ask questions in the comments section of this blog post.  Thanks!  David.

Comments

[Tax Filing]

This is a great post. I actually use my family’s taxes to increase our savings rate. My husband is an awful saver, and tends to spend most of what is left in his accounts after his half of the bills are paid. I’m the saver, and so am in charge of our investments and our liquid fund. I’ve always had him *increase* his withholding when he’s started new jobs. He forgets he’s paying more of our tax bill (especially since I also do our taxes). When our fat refund comes in February, he gets a little fun money, and I roll the rest into our IRA and house fund. This way, we both pay half the bills, and both save almost the same amount of money over the course of the year, without any arguments.