If you think the election was confusing just wait for doing your 2014 business tax return. Challenging is the term being used. Why, because Congress hasn’t yet determined the fate of many tax issues. They have twp months now to get ‘er done. Usually Congress routinely extends the various tax issues that face termination but this year Congress has been busy doing other things. Not sure what, but it makes for extremely challenging end-of-year tax planning.
We do know some things won’t change so this article will highlight some of the last minute things you can do to save taxes for your business.
Empty out that shoebox. Before you can start to strategize on saving taxes you first have to have credible financial information. Turn those loose receipts and post-its in your shoe box into a balance sheet and a profit and loss statement. Once you know how much profit you have and what assets and payables you have, determining your best angle to save taxes becomes a lot easier. Do it now so you have enough time to put your tax-saving strategies in place before going to that New Year’s Eve party.
Don’t spend money just to save taxes but if you are going to spend money, do it so it saves taxes. Unless you are in a 100 percent tax bracket, a $1 spent will not save you $1 in taxes. Consider charging year-end purchases on a credit card. This type of “payable” is the one that the IRS allows as a deduction when charged even if not paid for until 2015.
Purchasing equipment before year-end has some advantages, but only if you need that new equipment within 12 months anyway. Under new IRS laws, equipment, materials and supplies must now be written off over their life-time if the cost is over $500 ($5,000 if your company has audited financial statements). That would mean that equipment that will last 5 years is only partially deductible each of the 5 years. Even though Congress has not yet increased the Section 179 “expensing” of equipment beyond the current level of $25,000, it may still be important to purchase needed equipment before year-end as the “first year bonus” law will still allow you to secure a half-year’s worth of depreciation. We have our fingers crossed that Congress will also increase this $25,000 ceiling.
Not all the money your business spends is tax deductible. If you have a limited amount of cash to spend by December 31 don’t bother paying owner draws/distributions, dividends, additional loan amounts or paying off credit cards hoping to save taxes. None of these expenditures reduces your taxable net income. Instead, consider accelerating all January 2015 expense payments to December 2014. If your business qualifies for the domestic production activities credit, check to see if you should increase W-2 wages before the end of the year. Owner-shareholder bonuses might be a win-win for everyone.
Let someone else pay your taxes. Tax credits are a $1 for 1$ reduction in your tax liability. It keeps those dollars in YOUR pocket instead of the IRS’. Check to see if you might qualify for the Disabled Access Credit, FICA Tip Credit, Investment Credit, Small Employer Pension Start-up Credit, Employer Provided Child Care Credit, Energy Credit or Small Employer Health Insurance Credit. As various requirements apply to all of these you should check with your professional tax preparer.
There is no #1 rule of thumb for year-end tax planning. Be aware that all your planning should be done with credible financial information with your tax preparer. A few dollars spent with your professional now could save you big bucks April 15.
Chris Telfer has been a CPA in Central Oregon for over 30 years. Chris can be reached at www.ChrisTelferCPA.com, Chris@ChrisTelferCPA.com and 541-389-3310.
