5 End-of-the-Year Tax Credits and Deductions You Won’t Want to Forget!

Although we’re in the final days of 2012, there’s still time for business owners to take advantage of several tax deductions before the end of the year. With potential major changes to 2013 tax rates and exemptions, business owners would be smart to take advantage of as many deductions as possible before the close of the year.

Tax Tip #1: Start with Startup Costs

Opening a new business often requires a significant investment before the business ever opens, but startup expenses can’t be deducted until the business is in operation. If you opened a new business in 2012, you may be able to deduct expenses related to facilities, construction, capital equipment, supplies and anything else required to build the business. You can deduct up to $5,000 in qualifying startup expenses in the year you open your business. Any remaining expenses must be amortized over 18 months.

Tax Tip #2: Update Your Equipment

If you need to replace aging equipment or want to add new equipment to your business, this may be the ideal time to do so. Ordinarily, equipment must be depreciated over a number of years, but Section 179 of the American Recovery and Reinvestment Act allows you to fully deduct the cost of assets that are purchased before the end of the year. Section 179 also has a bonus provision that allows businesses to deduct 50 percent of the cost of certain property in addition to the Section 179 deduction and the standard depreciation deduction.

For 2012, the maximum for a single piece of equipment increased to $139,000, which means you can deduct up to $139,000 from your gross income as long as total purchases don’t exceed $560,000. For individual expenses over the limit, the amount you can deduct is reduced by a dollar for each dollar over.

If you’re considering new computers, software, furniture, manufacturing equipment and other large purchases, this may be the perfect time to buy. You must make your purchases by December 31, 2012 in order to be eligible for this deduction.

Tax Tip #3: Support a Charity

Contribute to your favorite charity before the end of the year to benefit both the charity and your business. Donations to qualified charitable organizations, such as churches, foundations and other nonprofit organizations are tax deductible. Donations can include cash and other monetary gifts; property and business inventory; and costs related to volunteering or donating services, such as supplies.

You should note that property and inventory donations are evaluated and deducted based on their fair market value and that you can’t deduct the value of donated services or volunteered time.  You may be required to submit additional forms to deduct charitable donations, based on the type of donation and its value.

Tax Tip #4: Make the Most of Your Mileage and Other Travel Expenses

In addition to deducting standard business expenses, you can also deduct mileage and business-related travel expenses. The IRS defines business travel as “the ordinary and necessary expenses of traveling away from home for your business, profession, or job.” For travel expenses to be deductible, you must travel away from the town in which your business is located for more than a day’s work and you must be away overnight.

You can deduct the cost of mileage using the IRS’s standard cost per mile, which they update at least once a year. In addition to mileage expenses, you may also be able to deduct the cost of plane, bus and train tickets; tolls and parking fees; lodging; dry cleaning and laundry costs; costs for business-related calls and faxes; and tips.

You can also deduct 50 percent of the cost of meals and business entertainment, but these deductions face a few more restrictions. You cannot deduct meal expenses that the IRS defines as “lavish or extravagant”. In addition, meals must be part of business entertainment or be associated with a necessary stop for substantial sleep or rest to properly perform your duties while traveling.

For entertainment, costs must be directly related to or associated with conducting business.  You must be able to provide a full record, including the purpose of the entertainment, the expense amount, the date and place the entertainment occurred and the names of the people in attendance and their business relationship.

Tax Tip #5: Give Yourself Some Credits

Several tax credits are also available, including tax credits for hiring unemployed veterans under the Vow to Hire Heroes Act of 2011. Employers that hire veterans who have been unemployed for at least four weeks can claim a tax credit for 40 percent of the first $6,000 in wages up to a maximum of $2,400. For veterans hired after six months or more of unemployment, the credit goes up to 40 percent of the first $14,000 in wages with a maximum of $5,600. To be eligible for this tax credit, you must hire before December 31, 2012.

Consult with a Professional

As with any tax-related or legal matters, it’s always best to discuss things with a licensed professional before making any business or tax decisions as the information above is meant for informational purposes only – we do not give legal tax advice. Professionals can guide you to make decisions that are best for your business and help you sort through the rules and regulations related to taxes and deductions.

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