Year-end Tax Tips

Aside from visions of sugar plums dancing in their heads, this is also the time of year when money and taxes are on the minds of many small businesses. People are budgeting for next year, quarterly payments are due, and end-of-year expense reports are coming in (faster and easier than before, by the way), begging the question:

Is there anything you can do now to lessen your 2010 tax burden? You bet. There are plenty of ways to make your tax bite come April less, well, taxing. Consider:

Prepay: Not everyone had a tough year this year, not by a long shot. With the news that the Great Recession officially ended in June, that leaves us with the past six months of more typical economic activity, and I have heard from a lot of small businesses recently that things are indeed picking up.

So what can you do if that is the case in your business?

Well, one option is to increase your expenses now so as to have less net income for the year. If you have been putting off making a large purchase for instance, say, a new truck for the business, buying one before the end of the year can be a very smart financial move. Additional benefit: There are plenty of great deals to be had in December.

Similarly, paying bonuses for deserving employees lowers net income (and makes the staff happy) as does pre-paying taxes, medical insurance premiums, or other similarly large upcoming capital expenditures.

Other things to consider paying now: Extra office supplies, future rent, insurance, upcoming travel, and computers.

Defer income: The flip side to pre-paying expenses is deferring income, as it accomplishes the same goal: Reducing your net 2010 income. Here, the trick is to delay or defer any large payments or receivables that are scheduled to come in between now and January. If you have any big deals that are due to close, consider delaying the close, or deferring the payment, until after January 1.

Write-off outdated inventory: If you have products, inventory, or other goods that have either been damaged or become obsolete, it may be possible to take a significant write-off related to their reduced market value.

Beef up your retirement plan: Time is running out to contribute whatever you can to your IRA, SEP IRA, Roth IRA, Keogh, or 401(k). Some states have college savings plans that are similarly 100 % tax deferred. If you don’t have one of these sorts of plans, no time like the present!

And finally,

Get organized: Sure, if you are in retail, this is a busy time of year, but for many other businesses this is the slow season. Use that time. Plan for next year. Get accounts in order. Reconcile the books. Get outstanding accounts received.

Some pre-planning today will make your financial life much easier tomorrow.

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