–Make sure that you avoid penalties by paying enough in estimated tax this year. You can avoid being penalized for underpaying your 2011 tax if you pay 100% of the 2010 tax liability in estimates for 2011. Otherwise, the IRS goes by 100% of the 2011 tax. This 100%-of-last-year’s-tax only works if your tax return showed a tax liability for the previous year.
Following along these lines, what you could do if your corporation anticipates a small net operating loss for 2011 and a large income for 2012, is accelerate some of that income for 2012 into 2011 (or defer a couple of 2011 deductions). This would mean that you would owe a small amount of tax for 2011, but your 2012 estimates would be based on that small amount. Be careful, though, if the net operating loss for 2011 would result in a carryback that would eliminate a tax in a previous year, it may be better to do that. Give us a call to help out with the details: 770-478-7424.
This tip only works for small corporations with less than $1 million of taxable income for any of the three previous years.
–If you are an accrual basis business, you can take a 2011 deduction for some bonuses not paid until 2012. You can take a deduction for a bonus not yet paid to your employee if:
- The employee doesn’t own more than 50% in value of the corporation’s stock
- The bonus is properly accrued in the books before the end of the year
- The bonus is actually paid within the first 2 1/2 months of the following tax year
This little tip won’t work for a bonus paid by a personal service corporation to an employee-owner, or by an S-Corp to any employee-shareholder, or by a C-Corp to a majority owner (direct or indirect).
There’s also another tax savings move for accrual basis corporations that has to do with deferring advanced payments. This one is a little more complex, so I’m going to recommend that you give us a call to help you out with this one.
–Domestic Production Activities Deduction. If you make stuff — you need to be aware of this deduction. If you are a contractor — this is for you!! This deduction is for 9% of either your “qualified production activities income” or the total taxable income (whichever is smaller).
You qualify for this deduction if:
- you manufacture, produce, grow or extract tangible personal property (clothing, goods, food, even computer software and music recordings) in the U.S.
- you are involved in the construction or substantial renovation of real property within the U.S. (including architectural firms and engineering firms). This includes both residential and commercial and infrastructure construction.
This deduction can’t be more than 50% of your W-2 wages that were earned as a part of producing the things I described above.
As I mentioned before, feel free to comment or send me an e-mail (firstname.lastname@example.org) or give us a call if we can help you through any of these deductions — regardless of your location in the country.