Business owners should pay attention to the tax updates and provisions scheduled to expire before the end of the year. Business owners who are planning to make capital expenditures might want to do so by the end of the year to avoid the impact of the tax changes.
“By no means would we encourage companies to spend money they don’t have,” said Michael Burzynski, CPA, partner with Milwaukee-based Komisar Brady & Co., LLP. “But for those who know they are going to be buying significant amounts of equipment in the near future we are encouraging them to take advantage of these (tax) provisions now, before they expire at the end of the year.”
The 50-percent bonus depreciation allowed in 2009 is set to expire at the end of this year, according to Darci Middaugh, partner of RitzHolman CPAs of Milwaukee and Matt Rios, a senior manager with the firm.
The section 179 allows taxpayers to expense the cost of capital expenditures, up to $250,000 in 2009, used in their business. That includes computers, equipment, and even furniture. The amount is expected to decrease to $134,000 in 2010, said Rios. However, Rios said, the state of Wisconsin does not follow this federal law and the section 179 expense election limit for the state of Wisconsin will remain at $25,000.
The 50-percent bonus depreciation provision is similar and was also a part of the American Recovery and Reinvestment Act. It was used to extend the use of bonus depreciation until the end of 2009. This provision allowed taxpayers to write off 50 percent of the original cost of capital expenditures in the first year and normal depreciation of the remaining assets.
Burzynski does not anticipate the bonus depreciation provision being available next year unless new legislation is introduced.
Small businesses, defined as those with average gross receipts of $15 million or less per year over the last three are also able to carry back any 2008 net operating loss from their business five years instead of the normal two years, Middaugh said. Any losses that cannot be absorbed in the past five years are allowed to be carried forward 20 years using the net operating loss carryback provision, she said.
According to Burzynski, it is also important for business owners to take a look at their federal and state tax withholdings that may not be applicable anymore if it doesn’t account for the business income or the investment holdings being down.
“The state of Wisconsin increased its highest tax rate from 6.5 percent to 7.5 percent and applies retroactively to Jan. 1,” Burzynski said. “A lot of individuals may not have adjusted their tax withholdings for that rate increase, which means they could end up owing money. Double checking is just a way to avoid an unpleasant surprise.”
Many business owners want to put 2009 behind them, Burzynski said.
“It would be unwise to have all of these negative things happen during the year and not use them as a learning experience,” he said.
Businesses should take a look at the things that happened in 2009, before the year’s end and make the necessary changes.
“It’s wise to do a bit of an annual check up on the business at the end of the year. At year’s end you have a good idea of what the next year is going to look like, and it’s less like rehashing the negative,” Burzynski said. “Look at the services and product lines to see if maybe it doesn’t pay for you to do it anymore, cut those luxury expenses and re-evaluate all expenses to make sure you are operating on as slim a budget as you can.”
