Tax season doesn’t have to be stressful for you and your small business. Why wait until late March to strategize those affordable tax breaks and write-offs when there are money-saving approaches to implement year-round? Below are some helpful suggestions and reminders from an in-the-know accountant, CPA, auditor and controller for cutting costs and making the most of a small business’ annual earnings.
Don’t wait to pay out bonuses and commissions. This deduction benefits both you and your staff for the current fiscal year, so you want to be timely. “Make sure that certain accrued expenses are paid before March 15th, otherwise these expenses cannot be recognized for tax purposes,” says David J. Schurr, Controller Superfici America, Inc, in North Carolina.
Take advantage of Section 179’s generous depreciation. That means buy the much needed expensive equipment this year. “Obama extended the capital expenditure break so businesses can still deduct 100% immediately in 2009,” says Rachel Solomon, CPA, LLC, a tax consultant at Watkins Meegan Drury & Co LLC in Maryland. “Dollar for dollar deductions are covered up to $250,000.” So get that copier, computer, software, truck and automobile while the tax break is hot! A caveat: the depreciation depends on your net income. “If you have a loss, you can only take standard depreciation amounts. 10-35% tax savings,” says Al Corrada, a CPA in Florida.
Consider a tax specialist vs. a CPA. Independent accountants and tax specialists can also be entrusted to handle your company’s taxes. “A CPA can be top notch for high-end tax work,” says Micheal Lovecraft, a former “Big Four” auditor in Texas. “When dealing with small businesses, I think CPAs can be an expensive overkill in certain circumstances. If you don’t have a lot of expenses and revenue streams, a CPA is just someone who is signing off with their credentials.”
Tack on a vacation to your business trip. If you can afford to stay away a few extra days, add some vacation days to your next business trip. But, play by the rules. The business trip gets you out there and covers you for the days you are working, however, the non-work activities and the few-day extension are not deductibles. “The best way to determine if it’s business travel is if what you’re doing qualifies as something ‘reasonable’ and ‘necessary’ for conducting business,” says Solomon. The rental car and dinners are totally kosher during those meetings, but not cool in those three days after. Enjoy the room service and poolside drinks during your work breaks. And feel free to sample that Michelin star-rated restaurant!
If you’re the sole proprietor, incorporate your business. That way you’ll save on payroll tax after paying yourself a decent salary. This is preferable to “having your entire net income taxed with your income tax bracket, plus a 15.3% payroll tax,” says Corrada.
Try not to make money. Sounds crazy, yes. But we’re talking specifically W-2 reported wages. “I had a client that was gainfully employed in the same year he started his small business,” says Lovecraft. “The issue was, though he got a nice refund that year, [but] he was not able to capitalize the losses on the new business. He owed big time [the next year].
Go green. That’s the way to reap some genuinely altruistic tax credits. Purchasing energy efficient appliances or HVAC systems, and replacing windows and doors will all qualify for tax credits. That’s $45-$250 per appliance, plus a 30% credit up to $1,500.
Keep thorough, ongoing records. Good record keeping throughout the year keeps the cost of your tax preparation lower. It also leaves more time for your tax specialist to prep you for the coming year. “You really want to estimate things and take a look at last year to see how that panned out so that you can figure out what your company needs the next year,” says Solomon. “Will you be increasing expenses because you need more employees? What are your goals? Do you want expenses down at any cost? This is what you need to think about.”
In reality, there isn’t a best time to prepare taxes. Your company should be keeping up on your records and paperwork year-round. Consider an end-of-fiscal-year deadline. And for procrastinators, “The retirement contribution can be made through the extension date of a business return, or Sept 15, 2010, for a 2009 expense,” says Corrada.