Attention, small business owners! It's time to take advantage of tax-saving moves before year-end. Whether your business employs just one employee (you!) or one hundred employees, these last-minute tax moves can save you money, if you act now.
Although small business owners shoulder much of the tax burden, they also enjoy more flexibility when it comes to tax maneuvering. That's why proactive tax planning and working with a Certified Tax Coach is especially important for small businesses. Once the crystal ball doprs in Times Square on New Year’s Eve, there's little else to do but pay-up.
To help you take full advantage of tax saving opportunities, you should meet with your tax professional well before year's end. In fact, year-end tax planning should be a regular part of your year round business strategy. Here are some tax-saving tips to consider now.
Reducing your taxes may be as simple as deferring some of your income into next year. A cash basis taxpayer may want to delay client billing until early January, and pay your expenses before year end. Of course, the knife cuts both ways. By pushing income into next year, you may dramatically increase next year's taxable income, and tax rates are projected to go higher once the Bush Tax Cuts expire, so beware! Have your tax professional provide you with an analysis that tells you if you are better off deferring income, or accelerating income.
Take a Section 179 deduction
Best of all, small business owners should take advantage of the Section 179 deduction which allows you to deduct up to $139,000 for qualifying business equipment purchases in 2012.
Qualifying equipment for this deduction includes office furniture, computers, computer software, and office supplies for your business. However, to take the deduction, the equipment must be operating before year's end. So, if your office needs a copier, just be sure to have it delivered by December 31st. Plug it in. Make a copy. You can then qualify for the deduction.
Buy Now, Pay Later
Want to buy qualifying equipment but don't have the money in this year's budget? Use this time-tested tax tip: charge tax deductible items in December and pay for them in January. You can charge items on your credit card in this year and pay for them next year. However, note that your charges must be on credit cards, not on revolving store credit.
Another way for cash basis taxpayers to benefit from the 'buy now, pay later' tactic is to write your checks at the end of December so that they won't be cashed until next year. Be sure to send your checks by certified mail so you can prove to Uncle Sam they were sent before year's end. Doing so will allow you to qualify for the deduction this year and pay next year.
Setup a retirement plan
You can secure other tax savings by implementing a retirement plan. Contributions to a profit sharing plan, SEP IRA, or Keogh are tax-deductible for the employer. (Sorry, but unless your SIMPLE IRA was in place by October 1st, contributions won't qualify this year).
If you are the sole employee of your small business, stashing cash in a retirement fund is an excellent way to reduce your tax liability. Solo 401ks permit you to contribute to the plan both as the "employer" and as the "employee." As the employer you can contribute either 20% of self employment income or 25% of compensation income, depending on the structure of your business. Plus, as the employee, you can contribute another $17,500 ($22,500 if age 50 or over).
Additionally, setting up an employee retirement plan may qualify your business for a tax credit to offset some of the expenses associated with setting up a new pension plan. A tax credit of up to $500 is offered to employers (with 100 employees or fewer) to help defer set-up costs for the retirement plan in its first three years. A retirement plan, other than a SEP IRA, must be established prior to December 31st to reduce 2012 taxes.
To discuss these and additional tax planning strategies to reduce your annual tax bill to the legal minimum, give me a call at 203-767-7197 or visit my website at www.ConciergeTax.com
Robert A. Gambardella, CPA CTC
Recently awarded The American Institute of Certified Tax Coaches 2012 Tax Coach of the Year Award!