Businesses will have to act soon on a bevy of tax breaks before they expire at the end of the year.

I talked last week with Lambert Boyce, a partner at Clifton Gunderson, and he noted that many of the tax incentives that Congress put in place in the American Recovery and Reinvestment Act are set to disappear unless Congress takes action quickly to extend them.

Those include the standard or itemized deduction for state sales tax and excise tax on the purchase of motor vehicles; the above-the-line deduction for qualified education expenses; 50 percent bonus depreciation for most new machinery, equipment and software; expensing limitations that will soon plunge from $250,000 to $134,000; and a research and development credit that will expire unless Congress acts soon.

Boyce believes businesses should accelerate their capital purchasing plans and take advantage of today’s generous expensing limits before they change. Companies should also take advantage of the credit offered for increasing their research and development activities.

In addition, they should accelerate their buying plans and take advantage of the bonus depreciation deduction, and they should clean up their balance sheets to remove uncollectible debt and dispose of or donate obsolete inventory.

Small businesses should also be aware of the estate tax law that is supposed to expire in 2010 before returning at a higher rate in 2011. Boyce noted that Congress is proposing to extend the law as it exists today into 2010. In fact, Congress may be voting as early as Thursday on a bill that would permanently extend the current top rate of 45 percent on estates of over $3.5 million.

However, Boyce believes that even if the extension goes through, many estate planning techniques may be evaporating pretty soon.

“What this mean for the small businessman is that where he is fragmenting the ownership of his business and using devices such as the family loan or partnership in giving a minority interest to his children, those discounts or intrafamily transfers are probably going to go away,” he said. “So if you have any idea of doing that, I would probably do that now. Also, the other type of advanced planning techniques, which are certainly within the law, like grants or annuity trusts, if you were thinking about it, you’d better do them now. I would assume I would not have any discounts for family transfers and that sales of defective grantor trusts are probably not going to work anymore.”

The end of the year is always such a busy time, but it should also be time to call clients and tell them to act fast before all those good tax breaks expire.

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