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YEAR END TAX PLANNING AND PREPARATION FOR BUSINESSES - Tax Tips for 2011

Now is the best time to start thinking about your year-end tax planning for your business. See "WHAT HAPPENS IF I DON'T FILE" below if you believe that is an opton. These tax strategies can be put into effect by the end of the year and some as late as when the tax return is due. Planning now will save you money and reduce your tax liability not only with your federal taxes but also with your state taxes. Here are tax tips that will help you accomplish your goal.

DEFER YOUR INCOME INTO 2011

If you don't receive payment until the first week of January for cash basis tax returns and don't bill until January for accrual basis tax returns, you have effectively deferred your income. This works well if your 2012 income is equal to or less than it was for 2011. If not, you are delaying the inevitable and potentially putting yourself in a higher tax bracket for 2012.

ACCELERATE DEDUCTIBLE EXPENSE INTO 2011

Anything charged on your business credit card December 31st and prior is deductible in 2011 even if it is paid in 2012. You can also write a check on December 31st that you would have normally paid in January. You may want to get a confirmation receipt from your post office to prove you mailed those checks in 2011. This works well if your 2012 income is equal to or less than it was for 2011. If not, you are delaying the inevitable and potentially putting yourself in a higher tax bracket for 2012.

OPEN A RETIREMENT PLAN ACCOUNT

See SMALL BUSINESS RETIREMENT PLANS for an example of what you can do with that available profit tax deferred until retirement. This is a fantastic option for those who have the cash and want to contribute money into their personal retirement account and deduct that contribution from their corporate earnings. Does it get any better than that?

SELF-EMPLOYED HEALTH INSURANCE PREMIUMS

Self-employed individuals are allowed to claim 100% of the amount paid during the taxable year for insurance that constitutes medical care for themselves their spouses and dependents as an above-the-line deduction without regard to the 7.5% of AGI floor.

BUY EQUIPMENT AND SOFTWARE BEFORE YEAR END

If you are in business and purchase equipment you may make a "Section 179 Election," which allows you to expense (i.e. currently deduct) otherwise depreciable business property. In general, you may elect to expense up to $500,000 in 2011 and $125,000 (adjusted for inflation) in 2012 of section 179 property. You'll want to evaluate whether it is better to purchase in 2011 given the change in the maximum deduction allowed.

NOL CARRYBACK PERIOD

If your business suffers net operating losses in 2011 you may apply those losses against taxable income in previous years. For example, the loss could be used to reduce taxable income—and thus generate tax refunds.

GET ORGANIZED

If you haven't already done your accounting and reconciled it to your bank statements, you have some catching up to do. Knowing where you are at financially is the true measure of your performance. It allows you to make better business decisions and to be more successful financially.

WHAT HAPPENS IF I DON'T FILE?

It's important to understand the ramifications of not filing a past due return and the steps that the IRS will take. This includes income tax returns as well as payroll, sales or gross receipts tax.

Penalties and interest will be assessed and will increase the amount due.

The IRS will file a substitute return for you. But this return is based only on information the IRS has from other sources. Thus, if the IRS prepares this substitute return, it will not include any additional exemptions or expenses you may be entitled to and may overstate your real tax liability.

Once the tax is assessed, the IRS will start the collection process, which can include placing a levy on wages or bank accounts or filing a federal tax lien against your property.

Even if the IRS has already filed a substitute return, it still makes sense for you to file your own return to make sure you take advantage of all the exemptions, credits and deductions you are allowed. The IRS will generally use the information you provide to correct your account. Avoid the hassle - reach out for the help you need and file your tax return today.

TAX PLANNING FOR YOUR INDIVIDUALS

Go to YEAR END TAX PLANNING FOR INDIVIDUALS for what you can do to prepare your personal taxes for year end.

These are just some tax tips you should consider when thinking about your year-end tax planning for your business.

This article was intended to provide general information about year-end tax planning. It does not contain all the rules and exceptions that may apply to your situation. If you have further questions regarding year end tax planning, I can be reached at www.dgoodmancpa.com.

About the Author

Dianne Goodman, CPA, FCPA - Specializes in servicing Small Businesses and Individuals. Visit www.dgoodmancpa.com for relevant and current information on a variety of financial and tax issues focusing on small businesses and individuals or call at 1-888-851-1975.

CONTACT INFORMATION:

Dianne Goodman, CPA, FCPA
Comprehensive Small Business Solutions, PC
505 323-2307
1 888-851-1975 toll free
www.dgoodmancpa.com