If The World Doesn’t End, You Still Have To Pay Your Taxes

Forget December 21, 2012, the date that some cornball doomsday conspirators identified as the last day of life on Earth. Their source? A ancient calendar from the Mayan civilization that has been thoroughly disproved at each turn.

Entrepreneurs live in the here and now, and what they need to focus on is nothing short of the end of times for small business. But unlike the apocalyptic prophecies of self-appointed experts, entrepreneurs have to worry about something much more tangible and real.

Taxmageddon.

That’s right, come January 1, 2013, entrepreneurs will be faced with a financial onslaught of taxes that threaten to extinguish small business as we know it. Providing there is no compromise on Capitol Hill, which isn’t an outrageous expectation, across-the-board tax rate increases will automatically kick in and entrepreneurs will feel the full force of the government’s stupidity.

On January 1, 2013, the maximum income tax rate for individuals will increase from 35 percent to 39.6 percent. The maximum tax rate on qualified dividends will follow suit, soaring from 15 percent to 39.6 percent. The maximum tax rate on long-term capital gains will also rise from 15 percent to 20 percent.

That’s enough to make any entrepreneur shake in his or her boots, but add in two more taxes mandated by the disastrous Obamacare and the expiration of key breaks like the Section 179 deduction, and entrepreneurs are facing nothing less than the end of small business as we know it.

However, Income.com knows how to count, and lucky for you entrepreneurs, there’s still a couple weeks left in 2012 to get your finances in order and take advantage of whatever existing tax breaks and strategies you can while there’s still time.

Bonus depreciation going out like the Dodo Bird
Under the Tax Relief Act of 2010, small-business owners were eligible to deduct 50 percent of purchased or leased qualified property that was paid for and put in service by December 31, 2012. For entrepreneurs, this means if you paid $100,000 for a passenger auto or light truck that is used 100 percent for business operations, you can deduct up to $50,000 of that cost.

However, entrepreneurs in businesses that require the use of vehicles better act quick. If you buy a truck or trailer for business purposes but get it into service one minute past December 31, 2012, that’s money left on the table. If you’re even thinking of buying a vehicle for the future of your businesses, do it now. Purchase it, put it into service and save money. Act too late, and you’ve might have lost your chance forever.

It’s the holidays, get in the giving spirit
The gift-tax exemption for 2012 stands at $5.12 million. However, as you might have guessed, this amount will plummet to $1 million in 2013, meaning gifts given by single-owner (S) corporations that exceed $1 million next year will be subject to a gift-tax rate as high as 55 percent.

So if you’re considering a generous gift in the near future, make it now. A Thomson Reuters economic advisor also suggested entrepreneurs can see similar tax benefits from transferring stock to a family limited partnership (FLP) and then gifting FLP interest to family members.

Pay dividends. Now!
As previously mentioned, if the country falls over the fiscal cliff, qualified dividends will be taxed as ordinary income, skyrocketing the tax rate from 15 percent to 39.6 percent. That should be incentive enough for owners of S corporations to distribute earnings and profits.

If your company has excess earnings and profits, you should consider making dividend payments before year’s end or else risk paying exorbitant taxes on such dividends.

Write off equipment under Section 179 while it lasts
This is another no-brainer for entrepreneurs looking to save money each and every way possible. The Section 179 deduction is the entrepreneur’s best friend, allowing for owners to deduct $139,000 for property leased or financed and put into operation between January 1, 2012, and December 31, 2012, similar to the bonus depreciation break.

However, without Congressional action – you guessed it – the amount is dramatically reduced to just $25,000. To take advantage of the rate while it lasts, purchase equipment and put it into service as quickly as possible. There’s a long list of equipment covered by Section 179: equipment purchases for business use, tangible personal property used in business, office furniture and office equipment. Even if it’s a fax machine, make purchasing equipment a priority if you want to save money.

However, Income.com knows there is one crucial caveat to this conversation: Just as entrepreneurs have a couple weeks to prepare, Washington has the same amount of time to get a deal done.

Still, that’s no excuse for leaving you and your business vulnerable to the whims and fancies of fat-cat politicians. You need to have a plan ready for execution.

The life of your small business will depend on it.