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5 tax moves to make now to cut your firm's April
IRS bill
By Kay Bell
• Bankrate.com
 As
the year winds down, it's definitely not business as usual.
In addition to regular end-of-month tasks, a
business owner also has to deal with year-end operational chores.
Then you have the distraction of looming holidays. Seasonal considerations
certainly cut into the time you need to finish up regular business.
And your accountant is bugging you to do a tax
review, too!
While we can't give you more time to complete
all your business chores, we can help you placate your accountant.
Here are five year-end tax moves that shouldn't eat up too much
time and could make your business's coming tax bill a bit smaller.
1. The holiday spirit can be deductible.
Unless your name is Ebenezer Scrooge IV, presents are the first
thing that comes to mind when Christmastime nears. That's a great
on-the-job idea, too. A gift to a business associate becomes a deduction.
You can write off up to $25 per person for business
gifts. There are plenty of thoughtful items you can hand out for
this price, making a nice holiday statement and cutting your tax
bill at the same time.
Don't forget your employees. A party to thank
the crew for work well done is fully tax deductible.
2. Visiting the relatives can be worthwhile.
Lots of folks travel over the holidays. If you have clients in the
same town where your in-laws live, set up some business appointments
right before or after the holiday festivities. That way you can
get some business deductions from your personal trip -- and provide
yourself a break when the family get-togethers become a bit too
much!
Combining business and personal travel is allowable,
but if the Internal Revenue Service questions you, make sure you
have all the right deductible answers. Substantiate the business
reason for the trip: Letters or memos detailing the appointment,
meeting notes and receipts of any business entertaining will help.
When it comes to writing off the actual transportation costs, it
generally will bolster your tax claim if you can work in a bit more
business than pleasure on the trip.
And unless your spouse and kids are legitimate
employees of your firm, their expenses can't be deducted.
3. Too much income? We all should be so
lucky.
Usually you want any money owed you as soon as you can get it. But
from a tax perspective, it might be worth the wait if you've had
a good year and December cash flow is fine.
If that's the case, push taxable income into
next year. Send out your final invoices in early January. You can
look at this as a holiday gift to yourself, to reduce your taxable
income, and one to your customers, who'll have one less bill to
pay.
4. Treat yourself to some new equipment.
Most business equipment must be depreciated over several years,
reducing the tax deduction value of the property.
But Section
179 of the tax code allows businesses to get an immediate break
on some capital costs. This provision allows a business operator
-- sole proprietor, partnership or corporation -- to fully write
off, up to a legislatively set limit, certain property in the year
it is purchased and placed in service.
This year, the expensing option has been dramatically
increased. The year started with the limit at $25,000, but tax law
changes in May hiked the amount of business expenditures that can
be immediately deducted to $100,000. Plus, there's a new 50 percent
bonus depreciation provision for qualified investments made after
May 5. Check with your company's tax attorney about how this could
help your particular business.
The key Section 179 requirement is that the
expenditures be for eligible equipment, defined as that material
which is used in the course of business, not the business' building
or its structural components. This covers a wide range of operational
costs, from office supplies and off-the-shelf computer software
(previously, it had to be depreciated over three years) to equipment,
furniture and fixtures. There's also a much-publicized tax loophole
in Section 179 for purchase of light trucks or large SUVs
purchased for business use.
So if you're not near the new $100,000 limit
and you've been postponing some purchases, now might be the time
to start shopping.
5. Look to the future with retirement contributions.
Finally, give yourself a long-range business tax gift through
your retirement plan.
Dec. 31 is the last day you can open a Keogh
or solo
401(k) retirement plan if you're self-employed, either full-
or part-time.
These savings vehicles are the self-employed
equivalents of corporate retirement programs. Keoghs are somewhat
complex to establish, so you should look into opening one now to
make sure you meet the deadline. A solo 401(k) application is manageable
without an accountant's help, but it can't be done in five minutes
either.
Many taxpayers prefer a Keogh or solo 401(k)
plan because they allow for larger retirement contributions than
the similar self-employed Simplified Employee Pension (SEP) IRA.
Regardless of which self-employment retirement plan you choose,
the earlier you set it up and start contributing, the more money
you can amass before it's time to close down shop.
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