Top 5 Year-End Tax Planning Points for Small Businesses
1) Consider buying assets that qualify for 100% expensing (Section 179)
Certain property, such as machinery/equipment and furniture/fixtures, qualifies to be expensed 100% in the year purchased as opposed to being depreciated and expensed over several years. Currently, for purchases made in 2015, you can only expense up to $25,000. Over the past several years, the limit has been $500,000. Taxpayers will need to keep a watchful eye on Congress between now and December 31. Last year, Congress passed an extenders bill in December which increased the 2014 limit from $25,000 to $500,000.
2) Deferring income and accelerating deductions
Depending on your tax situation, it might be desirable to either defer income or accelerate deductions. Consider the following:
a) Delay sending invoices until after year end (for cash method taxpayers) or hold off on providing a good or service until after year end (for accrual method taxpayers).
b) For accrual method taxpayers, defer the income on any advance payments on goods or services that you won’t actually provide until after December 31.
c) Pay employee bonuses before year end (for cash method taxpayers). Accrual method taxpayers have until March 15, 2016 to pay bonuses that are for the 2015 tax year.
d) For flow-through entities (i.e. partnerships, S Corps) and sole proprietors, consider paying your projected personal state income tax before year end so that you can deduct it on your 2015 individual return.
3) Review past due accounts receivable
If you are an accrual method taxpayer and there are receivables that have a high probability of being uncollectible, consider writing these receivables off as bad debt expense. Otherwise, you will be taxed on the revenue associated with these receivables on your income tax return.
4) Review repairs, maintenance, or improvements to buildings
Discuss with your accountant any repairs, maintenance, or improvements you have made to a building. These costs might be deductible in the current year as an expense (instead of capitalized and expensed over several years). Under new regulations, expenses for repairs, maintenance, or improvements are currently deductible if their cost does not exceed the lesser of $10,000 or 2% of the building’s original cost. As a general rule of thumb, it is usually more desirable to expense a purchase instead of capitalizing a purchase as an asset.
5) Check in with your accountant
The 4 points above apply to most all businesses, but the most important thing you can do is to meet with your accountant before year end to discuss the unique needs of your business. It might be a good idea for your accountant to close out your books preliminarily for purposes of projecting your 2015 tax liability. This will allow you to make informed tax and financial decisions before the end of the year and prepare you for this coming filing season.