Tax Year 2009 is gone, but chances to save aren't
Tax planning generally involves taking action before the end of the year. However, you can generate significant tax savings by taking certain actions after the year end but before filing your tax return. Here are some strategies for your business to use.
Net operating loss carryback. Review your options if you had a net operating loss in 2009. Many businesses have the choice to apply such losses against income in earlier years and generate tax refunds. While the general rule allows the loss to be carried back just two years to 2007, special rules for 2009 may allow the business to choose to carry the loss back to 2004, 2005, 2006, or 2007. Additionally, even if you do not have a net operating loss, if you expect a refund for 2009, you may be eligible to apply for a “quickie refund” using IRS Form 4466.
Depreciation and asset expensing. Analyze 2009 asset additions to determine which options apply best for your situation. Section 179, also known as immediate expensing, allows you to write off up to $250,000 of new or used equipment purchases in 2009. However, the business must have income, and the immediate expensing of asset additions cannot create or increase a net operating loss. Bonus deprecation generally allows 50 percent of the cost of new equipment to be written off, in addition to taking accelerated depreciation on the other 50 percent. Bonus depreciation applies whether or not the business has income, so it can help generate a net operating loss.
Cost segregation. If you have acquired or constructed a building or other major asset, a cost segregation study can determine the correct depreciable lives and asset classes. The benefit is that you will identify more property that qualified for faster write-off.
Catch-up depreciation. Review depreciation taken previously to determine whether you have deducted the full amount available. If not, you can make a one-time adjustment to catch the depreciation up to where it should be. This can help decrease 2009 taxable income or add to or generate a net operating loss, which you can carry back to a prior year.
Cash method of accounting. This generally allows a business the best opportunities for planning to postpone taxable income and accelerate tax deductions. Recently, the IRS has become more liberal in allowing larger businesses to use the cash method. If you use the accrual method of accounting and would benefit from using the cash method, and if you fit IRS criteria, you may be able to change to the cash method for 2009. Generally this applies to businesses with $1 million or less of gross receipts, certain C corporations with no inventories having gross receipts of $5 million or less, and a select group of businesses with gross receipts of $10 million or less.
Prepaid expenses. If you use the accrual method and you have prepaid expenses that you have not deducted, you can change the way you treat those expenses for tax purposes. As long as the prepayment is for one year or less when you make the payment, you may be able to change your method of accounting for these items and make a one-time adjustment to expense the total amount immediately. In the future, you can expense the amounts as you pay for them. This can help you decrease 2009 taxable income or add to or generate a net operating loss, which you can carry back to a prior year.
Inventories. Obsolete inventory can generally be written down as long as the product is offered for sale at a reduced price within 30 days of the year-end. You do not have to sell it within those 30 days, but you should keep copies of advertisements showing the reduced prices.
Retirement plan contributions. Retirement plan contributions for 2009 can generally be deducted as long as they are made before you file the tax return. Although many times these are called “profit-sharing plans,” you do not have to have a profit to make such contributions, since the amount of the contribution is generally calculated on employee payroll.
These are just a few ways to reduce your tax burden after the year is over. Be sure to discuss these ideas and others with your tax adviser. 
Julie Welch is a partner in the Kansas City accounting firm of Meara Welch Browne.
P | 816.561.6868
E | Julue@meara.com
Return to Ingram's January 2010