One of the most important things a business owner can have is a plan for taxes, which, in the long-run, can end up saving the prepared owner thousands of dollars every year.
“Having a prepared tax plan isn’t for everybody,” said Pam Burns, a CPA and partner with ProActive Tax & Accounting, “but it is something almost every business owner should have. To be successful at managing them, owners have to be prepared.”
“Tax planning is a way to put taxes in your control to the extent that you can,” she said. “Unfortunately, most people allow taxes to happen to them.”
Last year, Burns said, ProActive saved over $100,000 for multiple businesses. A tax plan is unique to everyone, but a good tax planner can take an individual’s information and determine the best tax strategy.
A comprehensive plan isn’t needed every year, she said, but if a company goes into a higher tax bracket or has a very successful year, then it’s best to take a look at how things will change. The Affordable Care Act will change things significantly, and Burns said many business owners won’t be prepared for how it changes their status and they’ll be left to try to have a better strategy in 2014.
The most basic advice Burns can give is to be proactive and to not do something just for tax purposes — like buy a company car at the end of the year — because sometime it’s cheaper to pay the tax.
“Don’t let taxes happen to you,” she said. “People think they’re locked in, and don’t realize that there’s a benefit to having a plan.”
Here are a few more specific pieces of advice from ProActive:
· Businesses should consider making expenditures that qualify for 50 percent bonus, first-year depreciation if bought and placed in service this year. This bonus write-off generally won’t be available next year unless Congress acts to extend it. Thus, enterprises planning to purchase new depreciable property this year or the next should try to accelerate their buying plans, if doing so makes sound business sense.
· Nail down a work opportunity tax credit (WOTC) by hiring qualifying workers (such as certain veterans) before the end of 2013. Under current law, the WOTC won’t be available for workers hired after this year.
· Make qualified research expenses before the end of 2013 to claim a research credit, which won’t be available for post-2013 expenditures unless Congress extends the credit.
· If you are self-employed and haven’t done so yet, set up a self-employed retirement plan.
· You may want to consider deferring a debt-cancellation event until 2014, and disposing of a passive activity to allow you to deduct suspended losses.
· If you own an interest in a partnership or S corporation you may need to increases your basis in the entity so you can deduct a loss from it for this year.
· Businesses should consider making expenditures that qualify for the business property expensing option. For tax years beginning in 2013, the expensing limit is $500,000 and the investment ceiling limit is $2,000,000. Off-the-shelf computer software is eligible for expensing and a limited amount of expensing may be claimed for qualified real property. However, unless Congress changes the rules, for tax years beginning in 2014, the dollar limit will drop to $25,000, the beginning-of-phaseout amount will drop to $200,000 and expensing won’t be available for off-the-shelf computer software and expensing won’t be available for qualified real property. The generous dollar ceilings that apply this year mean that many small- and medium-sized businesses that make timely purchases will be able to currently deduct most if not all their outlays for machinery and equipment. What’s more, the expensing deduction is not prorated for the time that the asset is in service during the year. This opens us significant year-end planning opportunities.