Today's post is by guest blogger, DeAnna Grant of Grant’s Financial Services, who provides Accounting, Taxes and Consulting for Small Businesses. Ms. Grant is passionate about the success of small business, so we tapped her brain for ideas about what small businesses should be doing since the year is coming to a close.
1. Get Organized
Update your accounting records: It is important as part of your year-end tax strategy to have a good understanding of your company’s financial situations. It won’t hurt to plan time with your accountant for year-end advice, particular to your operations. Gather your personal records including:
o Bank Statements
o Credit Card Statements
o Invoices for Fixed Asset Purchases over $ 1000
o Vehicle Mileage info
o Information for 1099’s (vendors paid over $600 annually)
o Avoid IRS Late Filing Penalty
2. Minimize Taxes Owed, Maximize Deductions
Make year-end purchases for your business. Purchase items that your business will require in the immediate future. Consider the following items:
- Office Supplies
- Paying bills early: cell services, subscriptions, rent, insurance, and utilities
- Equipment purchases
3. Take advantage of increased small business expensing
For 2010 and 2011, businesses can benefit from enhanced Code Sec. 179 small business expensing. Congress increased the amount of qualifying property that business that immediately expense to $500,000 (up from $250,000) for tax years beginning in 2010 and 2011. This amount is reduced dollar for dollar to the extent the cost of the qualifying property placed in service during the year exceeds $2 million (increased from $800,000). The increase in the expensing cap from $800,000 to $2 million for 2010 (and 2011) effectively opens up the availability of Code Sec. 179 expensing to many more businesses. If you have bought qualifying property - even computer software qualifies - or plan to buy property, consider doing so now to take advantage of the immediate tax benefit. You can also do so again in 2011, when tax rates are expected to be higher.
Also included in the definition of qualified Code Sec. 179 property (only temporarily though) is qualified real property, which is defined as qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement property. However, businesses are limited to expensing of up to $250,000 of the total cost of these properties. The dollar cap applies to the aggregate cost of qualified real property.
4. Shift and Split Income
Any payments your company can receive during the first week of January as opposed to December cuts your tax bill. Any deferral strategy will depend on your profit and losses for the year and the business legal structure (LLC, partnership, corporation, etc.) Split income by employing your children. Your child’s wages are fully deductible as a business expense. The income splitting tax strategy lets you take full advantage of the marginal tax disparities. This is an especially powerful tax strategy for small business owners with children of post-secondary school age.
5. Contribute to Retirement Account
Make payments to your retirement plan or set one up before the year-end to reduce your income for this year. Check the contribution limits for your type of plan. In the U.S.: 401(k), KEOGH plan, Roth IRA, or SEP's. Discuss the best strategy with your financial planner or accountant.
6. General Business Tax Credits
There are several business tax credits that are available such as: Empowerment and Renewal community employment credit, energy efficient appliance credit, work opportunity credit, new markets tax credit, credit for employer social security and medicare taxes paid on certain employee tips. See instructions for IRS form 3800.
The tax tips in this newsletter are of a general nature and should not be acted upon in your specific situation without further details and/or professional assistance.
Grant's Financial services offers a wide range of services including, but not limited to Bookkeeping, payroll, Quick Books support and training, and business and individual tax. Call us today 312-498-6580 or email deanna@grantsfinancialsvcs.com
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