6 Business Tax Credits and Deductions to Take Advantage of Before New Year’s Day

The end of the year is fast approaching, but there’s still time to take advantage of a variety of business tax credits and deductions – some of which are new for 2012. 

Here are just a few to consider, plus some best practices for maximizing your claims.

Take Advantage of 2012 “Section 179” Deduction Limits

Under the American Recovery and Reinvestment Act, Section 179 of the tax code provides tax benefits for equipment purchases made before the end of the year. Typically when you purchase an item for your business, you can claim a tax deduction for it. But fixed assets are not counted in the year of purchase. Instead, they must be depreciated over a number of years. Section 179, however, allows you to fully deduct the cost of assets such as computers, furniture, certain business software, vehicles, manufacturing equipment and more in the year of purchase – up to a certain amount. 

Section 179 deduction limits change each year. Here’s what’s new for 2012:

• For 2012, the limit for any individual piece of equipment is now $139,000, as long as total purchases in either year do not exceed $560,000. This means that if you buy or finance a piece of new or used equipment, you can deduct the full purchase price (up to $139,000) from your gross income.
• For expenditures above $560,000, the amount you can deduct is reduced by a dollar for each dollar over.
• A “Bonus Depreciation” provision allows you to deduct 50 percent of the cost of certain property after you’ve taken the Section 179 deduction and in addition to the standard depreciation deduction.

Review your inventory and equipment. If you find you need to replace obsolete or aging assets, this may be the time to do so. Be sure to talk to your tax advisor or accountant for more specifics on qualifying purchases and read more from the IRS about deducting business expenses.  To deploy this deduction, the equipment being purchased must be in place on or before December 31, 2012.

Get a Tax Credit for Hiring a Veteran before December 31, 2012

Late last year, President Obama signed into law specific tax credits for employers who hire unemployed veterans before December 31, 2012.

Under the Vow to Hire Heroes Act of 2011, employers who hire a veteran who has been unemployed for at least four weeks can claim a credit for 40 percent of the first $6,000 in wages (up to $2,400). If you hire a veteran who’s been unemployed for at least six months, the credit goes up to 40 percent of the first $14,000 of wages (up to $5,600).

If you plan to hire new employees before the end of the year, check out this employer-friendly plain English guide for more information on the skills veterans can bring to your company, and how to apply for the tax credit. 

Start a Business in 2012? Keep Good Records to Claim Start-Up Deductions

If you started a new business in 2012 you probably incurred costs before you even opened your doors. Unfortunately, non-operational businesses can’t deduct business expenses. Instead, you must wait until you are operational and generating income.  Only then can you deduct a portion of qualifying start-up costs – up to $5,000 in the year the business was launched. Any amount over and above that must be amortized over a period of 18 months.

If you started a business this year, or are planning to open your doors in 2013, make sure you keep good records of your start-up costs so you can leverage the deduction on your 2012 tax return. Read more about How to Write Off the Expense of Starting Your Business.

Log and Capture Business Travel Costs

There are numerous deductions you can claim over and above the current $0.55 per mile business mileage deduction. For example, the cost of laundering clothes on a business trip is also deductible! For tips on what constitutes a business travel or entertainment expense while on the road, read How to Deduct Business Travel Expenses.

Other expenses to record include advertising/marketing costs, educational expenses, banking fees and health insurance premiums.

Set Up or Grow your Retirement Plan

One of the best tax write-offs for the self-employed is to set up a retirement plan or, if you already have done so, contribute pre-tax money to reduce your 2012 taxable income. This year, self-employed individuals can contribute $17,000 as a 401(k) deferral, plus 25 percent of net income. Check with your plan administrator for limits and deadlines for different types of plans.

Contribute to Charity

With the holiday season upon us, now is a good time to consider making a business charitable contribution and benefit from the tax deduction. This blog explains more about what you can and can’t claim.

About the Author

Caron Beesley is a small business owner, a writer, and marketing communications consultant. Caron works with the SBA.gov team to promote essential government resources that help entrepreneurs and small business owners start-up, grow and succeed. Follow Caron on Twitter: @caronbeesley