Even though the tax year is over there are still certain decisions that you can make now to favorably impact your tax liability. Here are some elections and actions that can be helpful when you file your tax return for 2009:

Expensing. If you purchased machinery or equipment in 2009, you can opt to deduct the cost in full rather than depreciating it over a number of years. This election is advisable only if you are profitable in 2009; the election cannot be made to create or increase a net operating loss.

Bonus depreciation. If you purchased machinery or equipment and the cost is not expensed, you can deduct 50% of the cost in the first year, along with a depreciation allowance for the other half of the cost. You can, however, choose not to claim bonus depreciation and instead depreciate the full cost. Again, this may be advisable if you expect to be profitable future years when a deduction will be more valuable to you. Find information about expensing and bonus depreciation in IRS Publication 946 at www.irs.gov/pub/irs-pdf/p946.pdf (the 2009 version is not yet available).

Net operating loss. If you suffered a business loss, you may be eligible to carry the loss back to offset income in up to five prior years. You have two elections: whether to make any carryback and instead carry the loss forward for up to 20 years, or carry the loss back for two to five years (although there are some limitations). If you anticipate that future tax rates as well as future profits will be higher, carrying the loss forward may produce greater tax savings. However, the carryback will give you an immediate tax refund, which is cash to run your business now. Find information about net operating losses in IRS Publication 536 at www.irs.gov/pub/irs-pdf/p536.pdf (the 2009 version is not yet available).

Installment sale. If you sold property on an installment basis where at least one payment is due after the year of sale, you report the gain over the period in which payments are made. However, you can opt to report all of the gain in the year of sale, regardless of when payments are received. This is done simply by reporting the full amount of gain on the 2009 return. Reporting the full gain may be advisable if you have losses in the year of sale to offset the gains. Find information about installment sales in IRS Publication 537 at www.irs.gov/pub/irs-pdf/p537.pdf.

Real estate professionals. If you own multiple rental properties that produce a net loss, you can escape the passive activity loss limitation imposed on investors by aggregating the properties to qualify as a real estate professional. To do this, you must attach an election to your return. Without the election, a reported net loss may be disallowed. Find details about passive activity losses in IRS Publication 925 at www.irs.gov/pub/irs-pdf/p925.pdf (the 2009 version is not yet available).

SEP contribution. If 2009 is a profitable year but you don't have a qualified retirement plan for your business, it's not too late to create and fund one. You have until the extended due date of the return to set up and add the deductible contribution for 2009. Find information about SEPs in IRS Publication 560 at www.irs.gov/pub/irs-pdf/p560.pdf.

Barbara Weltman, www.barbaraweltman.com  

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