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As year-end approaches, it would be worthwhile for corporations to consider if they could benefit from the following “last minute” tax-saving moves, including adjustments to income to preserve favorable estimated tax rules for 2012, deferral of certain advance payments to next year, and fine-tuning bonuses to make the most of the Code Sec. 199 domestic production activities deduction.

Accelerating or deferring income can preserve estimated tax break. Small corporations  can avoid being penalized for underpaying estimated taxes if they pay installments based on 100% of the tax shown on the return for the preceding year. Otherwise, they must pay estimated taxes based on 100% of the current year’s tax. However, the 100%-of-last-year’s-tax safe harbor isn’t available unless the corporation filed a return for the preceding year that showed a liability for tax. A return showing a zero tax liability doesn’t satisfy this requirement. Only a return that shows a positive tax liability for the preceding year makes the safe harbor available.

A corporation (other than a “large” corporation) that anticipates a small net operating loss (NOL) for 2011 may find it worthwhile to accelerate just enough of its 2012 income (or to defer just enough of its 2011 deductions) to create a small amount of net income for 2011. This will permit the corporation to base its 2012 estimated tax installments on the relatively small amount of income shown on its 2011 return, rather than having to pay estimated taxes based on 100% of its much larger 2012 taxable income. Also, by accelerating income from 2012 to 2011, the income may be taxed at a lower rate in 2011, e.g., at 15% instead of at 25% or 34%. However, where a 2011 NOL would result in a carryback that would eliminate tax in an earlier year, the value of the carryback should be compared to the cost of having to pay only a small amount of estimated tax for 2012.

Accrual basis business can take a 2011 deduction for some bonuses not paid till 2012. An accrual basis corporation can take a deduction for its current tax year for a bonus not actually paid to its employee until the following tax year if (1) the employee doesn’t own more than 50% in value of the corporation’s stock, (2) the bonus is properly accrued on its books before the end of the current tax year, and (3) the bonus is actually paid within the first 2 1/2 months of the following tax year.

For employees on the cash basis, the bonus won’t be taxable income until the following year. The 2011 deduction won’t be allowed, however, if the bonus is paid by a personal service corporation to an employee-owner, or by an S corporation to any employee-shareholder, or by a C corporation to a direct or indirect majority owner.

Accrual-basis taxpayers can defer inclusion of certain advance payments. Accrual taxpayers generally may defer including in gross income advance payments for goods until the tax year in which they are properly accruable for tax purposes if the income inclusion for tax purposes isn’t later than it is under the taxpayer’s accounting method for financial reporting purposes.

Taxpayers may have to prequalify for this provision and planning before year end is generally necessary to make the proper elections.

Making the most of the domestic production activities deduction. Businesses taxpayers can claim a domestic production activities deduction under Code Sec. 199 to offset income from domestic manufacturing and other domestic production activities.

The Code Sec. 199 deduction equals 9% of the smaller of the taxpayer’s “qualified production activities income” or QPAI, for the tax year, or the taxpayer’s taxable income (modified adjusted gross income, for individual taxpayers).

Qualified production activities eligible for the deduction include most manufacturing, construction, real estate development, along with certain other activities.

Taxpayers also need to factor the Code Sec. 199 deduction into other year-end tax planning strategies. For example, when determining whether to defer or accelerate income, a taxpayer must determine the marginal tax rate for each year. For this purpose, the Code Sec. 199 deduction will have the effect of decreasing the taxpayer’s marginal rate.