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Business Tax Tips "12 Business Tax
Planning - 2007"
Before business owners celebrate this holiday season, they should first take a moment to review these Twelve Tips of Business Year-End Tax Planning. These could save the average business thousands of dollars! It’s important to act quickly – once the bell tolls for the New Year, these opportunities for potential savings will be gone! 1. Accelerate deductions from 2008 into 2007. A business can do this by making payments this year for expenses such as office supplies, repairs, maintenance, and advertising. 2. Consider setting up a qualified retirement plan. It is one of the best ways for businesses to save on taxes. There are many options, so picking the right plan for your business is the key. Some plans are required to be set up by year end. 3. Reduce or defer year-end income. For cash basis businesses, deferring billing for services until the end of December or January can shift the income into the next year, as the income is reported in the year it is actually received. Also, delaying shipping of merchandise until January moves income into the next year. 4. Accelerate purchase of equipment. If you anticipate business income to be higher in the current year versus next year, it makes sense to accelerate the purchase of equipment and other assets into this year. The benefits of Section 179 depreciation can mean large tax deductions, thus making the tax savings significant. Businesses can elect to “expense” part or all of qualified assets purchased during the year. 5. Review fringe benefit plans. A Section 125 “cafeteria” plan can benefit both the employee and employer with pre-tax savings for health and dental insurance, out-of-pocket medical costs, dependent care, and other benefits. 6. Write off bad debts. Businesses that use the accrual basis method of accounting may have uncollectible past-due accounts. These businesses can deduct these bad debts when they become partially or totally worthless. These accounts should be identified before year-end and the business should keep a detailed record of the debt-collection efforts. 7. Write off old inventory. Review the business inventory for obsolete and un-sellable items. A business may write down inventory below market if in the regular course of business the company has offered the merchandise for sale at below-market prices. 8. Review building depreciation. If your business has purchased or substantially renovated a building in the last 10 years, conduct a Cost Segregation Study. The study analyzes the components of a building or renovation to gain larger depreciation deductions based on shorter depreciation lives. 9. Explore like-kind exchanges. If you are considering replacing old equipment or buildings with newer ones, take advantage of the like-kind exchange rules. Trading assets is one of the best tax shelters available to businesses and investors. The section 1031 like-kind exchange rules are very strict and must be followed exactly. 10. Review your business entity classification. Check to see if your business classification (sole proprietorship, C-corporation, S-corporation) and your accounting method options (cash basis vs. accrual basis) are the most advantageous for your business. Tax laws change constantly and reviewing the alternatives could significantly impact your taxes. Any change in ownership of the business is also a good time to review your options. 11. Finalize the budget. Compare income and expenses for the current year to the previous year and prepare a budget for the coming year. A budget will help a business reach its goals. 12. See your accountant or tax advisor. There are many ways to save tax dollars and consulting with a tax professional who is experienced and familiar with the latest tax law changes can help you minimize taxes and maximize your bottom line. Effective tax planning can make a material difference in your company’s cash flow. Call or send a message
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