Pub. 1 2013 Issue 3

28 San Diego Dealer Every tax law change creates a planning opportunity. The tax laws taking effect in 2013 are no exception. Dramatic as they are, they open the door to some significant ways to keep more of the money you earn—and automotive dealers are uniquely situated to take advantage of these opportunities. Let’s look at 10 strategies you can employ now to help ease your tax burden in the coming year. 1. The sharp rise in rates for certain taxpayers makes tax deductions that much more valuable. For example, you can purchase new equipment or furniture and fixtures in 2013 to take advantage of the extension of 50 percent bonus depreciation. You can also apply the bonus depreciation to qualified leasehold improvements with this accelerated depreciation method. The new law also extends the first-year $500,000 Section 179 deduction for new and used tangible personal property. 2. For many years, S corporations have increased in popularity. With the new 3.8 percent Medicare tax on investment and passive income, S corporations have become even more valuable as a tax-saving strategy. Make sure you’re active in your S corporation (generally over 500 hours of work), a requirement of excluding this income from the Medicare tax. 3. Now that you've made sure you’re active in your S corporation, are you paying yourself a low but reasonable salary (generally not less than your highest-paid employee)? Salaries paid, even out of your S corporation, are subject to a combined 3.8 percent Medicare tax when your wages or adjusted gross income exceed certain limits. 4. With the complexity of business entities, often one entity is profitable while another has tax losses. Unless you’ve made appropriate grouping elections, the losses may not be deductible. Consider reviewing and adjusting your grouping elections where possible to make sure you’re not losing out. 5 . The estate tax exemption of $5.25 million has been extended. If you didn’t previously take advantage of the increased gift tax exemption, with values of businesses and real estate still somewhat depressed, gifting continues to be very attractive. It’s a phenomenon in the tax law we haven't experienced in over a decade: the ability to find significant tax savings by shifting income to taxpayers in lower brackets. Consider gifting income-producing property to your children, who are presumably paying income tax at lower brackets. 6. Maximizing deductible retirement-plan contributions continues to be attractive for many reasons. Even if you’re already maximizing these types of contributions and your income level prevents you from making other types of retirement contributions, one solution might be right for you: taking advantage of the Roth IRA rules by first making up to a $6,000 ($6,500 for 2013) contribution (per spouse if married) to a nondeductible IRA, followed by a rollover into a Roth IRA. Use caution if you currently hold deductible IRA accounts. 10 Things Dealers Can Do Now to By Sid Tobiason, Partner, Moss Adams LLP $ ave on Taxes in 2013