Year-end tax planning tip #3 - Expiring Provisions

On December 31, 2009, several tax deductions and credits will expire under current tax law. As with any tax law, these could be extended at the last minute. Even so, it pays to know what they are and have the option to take advantage of them before they disappear. Here are a few of the most popular provisions:

1. $250,000 Section 179 expensing limit for purchases of machinery, equipment, and certain vehicle for use in your business will decrease. This expensing option will not expire at 12/31/2009, but the limit will decrease to $125,000 for years beginning after that date. You might be able to increase your immediate expensing amount by making major purchases and putting the assets into service before 12/31/2009.
2. 50% bonus depreciation will expire on 12/31/09. You will want to coordinate this deduction with the Sec 179 deduction to maximize its effect on your tax bill. Unlike the Section 179 option, though, this one completely disappears so you definitely need to move quickly to take advantage of it.
   
3. The above-the-line tuition deduction of up to $4,000 will expire on 12/31/09. If your adjusted gross income is less than $80,000 for single filers or $160,000 for joint filers, then you might benefit from paying college tuition for the Spring 2010 semester before 12/31/09. Tax credits for tuition payments will still be available after 12/31/09, so not everyone will be better off by pre-paying. Careful planning needs to take place to maximize your tax impact.
4. The option to deduct sales tax instead of state and local income tax expires on 12/31/09.
5. The special allowance to deduct sales tax paid on the purchase of a new vehicle only applies to purchase made on or before 12/31/09.

Feel free to contact me to discuss any of these provisions and how they might impact your personal tax situation.