A little planning in the last few weeks before year-end can easily result in large savings when you file your business income tax return. Please call me if you have any questions or need any additional information on your specific situation.
1. Buying a new SUV by Dec 31 can generate huge write-offs. On a new $50,000 SUV weighing more than 6,000 pounds that is used 100% for business you can claim a first year deduction of $40,000 between bonus depreciation and regular depreciation. Used heavy SUV’s do not get the bonus depreciation.
2. Professionals can delay their year-end billings. If on an accrual basis, don’t bill until January. If on a cash basis, send the bills later in the month or close your office for the last week and don’t deposit until January.
3. Buy needed equipment. Load up on equipment before January 1st. Under the new law, a business can cash in a bigger section 179 deduction for 2008 plus 50% bonus depreciation. The section 179 first year depreciation is still $250,000 for 2009. One caveat – only buy equipment that will increase revenue or cut costs by increasing staff efficiency. Don’t spend a dollar to save forty cents in taxes.
4. Accrual based businesses can declare a bonus and pay it by March 16th. You can get a deduction in 2009 by setting the bonus amounts before January 1st and not paying it until March 15th. Get with your advisor to ensure that the deferred bonus arrangement satisfies deferred compensation plan rules.
5. Collect tax deductions for bad debts. With the business downturn it is getting harder than ever to collect receivables. An accrual basis business should look closely at their late receivables and write-off those that they feel have become partially or totally valueless. Document your collection efforts to support the worthlessness of the receivable.
6. Switch your inventory method. Get with a tax pro to determine if your company is using the proper inventory method. In general a company can use either “first in, first out” (FIFO) or “last in, first out” (LIFO) method. The choice can have a huge impact on your taxable income when prices are rapidly rising or falling. Once you choose one method it requires IRS permission to change it. In some cases it may be worth the hassle. LIFO is on the table for possible elimination. So if considering a switch you need to act fast.
7. Setup a Keogh plan. If you are self-employed, you can make a tax-deductible contribution to a Keogh plan. The plan must be in existence before year end, so complete the paperwork this month. You can deduct it in 2009 but don’t have to make the contribution to the plan until the due date of your return. Definitely get with your tax advisor before setting one of these up.
8. Stock your supply cabinets. Buy and pay for supplies you will use in the first few months in December. If on a cash basis, you must pay for them in 2009. One exception, you can charge them on your credit card and take the deduction in 2009 while paying for it next year.
9. Fix up your business premises. If you make minor repairs to your business building or equipment you can deduct it 2009. Remember large improvements must be capitalized. So keep your repair work separate.
10. Take advantage of job credits. Review your qualifications for new hires. Hire disabled veterans and older or high-risk individuals in order to qualify for Work Opportunity Tax Credit equal to $2,400 per employee. Also look at location based incentive credits that are based on where your business is located. This can add another $3,000 per employee for the Federal Empowerment Zone or $1,500 per employee for the Federal renewal Community Program.
11. Welcome customers to your home. A business can deduct 50% of entertainment and meal expenses that follow or precede a substantial business discussion with a customer. Invite customers to your home for a get-together. For this purpose, your business guests may include a client, their spouse or their associates, you and your staff members and their spouses.
12. Consider taking dividends from your corporation instead of salary. Even though corporations cannot deduct dividends this still may save taxes. If the corporation is in the 15% bracket and the stockholder is in a higher tax bracket, the stockholder tax savings due to the 15% tax rate on dividends can exceed the additional tax that is paid by the corporation.