Year end business tax tips

 

1. It May be Time to Shop

For companies planning on acquiring property in 2012 or 2013, there may be enhanced savings by making the acquisitions in 2012. Under current law scheduled to expire on Dec. 31, a company can take “bonus” depreciation of 50 percent of the cost for qualified property acquired and generally placed in service by year-end 2012. A company is also allowed, under certain circumstances, to expense up to $139,000 of qualified property in 2012—an amount that drops to $25,000 next year.

2. Put a Veteran to Work

 

Hiring a military veteran is hugely beneficial to small-business owners this year. As part of the Work Opportunity Tax Credit, any money paid to a qualified veteran (check list for qualifications) can be written off, dollar-for-dollar. The Work Opportunity Credit of up to $9,600 is still available for hiring an unemployed veteran, but in order to be eligible for the credit, you must have the qualified veteran start work before 2013.

 

3.  Accelerate billing and collections.

If you report income on a cash basis method of accounting, immediately sending out bills to increase collections before the end of the year may result in significant tax savings.  Choose your best or most loyal customers out of the bunch and call them to ask for payment right away. Tax brackets will go up at least 5 percent next year, so if you can get your clients to pay you this year, you’ll pay less in taxes.            Provide clients with an incentive to pay early by offering them a small discount, say, 1 to 2 percent.

4.  Pay Your Children

Does your 10-year-old file papers at your office a few times a week? If so, your child could get you a nice tax write-off.  If your child makes $5,250 or less in a calendar year, you get to deduct the entire amount and your child doesn’t need to claim the earnings. What’s better: you can take up to $5,000 of what they earned and put it into an IRA. Most parents will pay their child $250 and put the rest into a retirement fund that the child can access when they are old enough.

5. Startup Expenses

Did you know that you may write off the expenses you incur in the investigatory or startup phase of your business? Eligible expenses include planning, consulting with professionals, training employees and all other ordinary and necessary expenses incurred to get your business off the ground. This deduction works once the business is operational, so if you are still in startup mode on Dec. 31, you must defer the deduction to 2013. The IRS defines an operating business as one that has opened its doors or is accepting transactions.

 

You can deduct $5,000 of business startup expenses. If your total exceeds that, you may amortize the remainder over 180 months. There are special rules and limitations, so discuss this area with your tax professional.

6. Set up or Fund your Retirement Plan:

Your business needs working capital, but don’t forget about funding your future. Contributions made to retirement plans reduce your taxable income. For 2012, self-employed individuals can contribute $17,000 as a 401(k) deferral, plus 25% of net income. Check with your plan administrator for limits and deadlines for different types of plans.

7. Holiday Party!

Holiday festivities provided for your employees are 100% deductible. Parties for clients and associates are 50% deductible. But there are rules. You must have a business purpose and that consists of more than just promoting goodwill or networking and the expense cannot be lavish or extravagant.

8. Expense Account Reimbursements:

Gather together all those receipts for business expenditures you paid out of personal funds and have your business reimburse you before year end. If your business is operating as a C Corporation, be sure you have an accountable expense plan in place. Post your expenses to a spreadsheet and total by category of expense. Attach all receipts to provide bona fide back up documentation and then cut yourself a check and know that you have just reduced taxable income.