Here’s a list of tips that can save you money, courtesy of Craig Castanos, whose full-service firm in San Diego advises small companies and individual clients in matters of accounting, tax, business, and financial planning.
1. Deduct expenses this year and defer taxable income, if you qualify. Most small businesses use the cash method of accounting for tax purposes. If that is your situation and you expect to be in the same (or lower) tax bracket next year, it’s a smart move to defer taxable income into 2013 and accelerate deductible expenses. This could include deferring some billings until Dec. 31, writing checks before the year ends to pay deductible expenses, and charging deductible business expenses on credit cards.
2. Set up a retirement plan and make the maximum contribution. Consider establishing a retirement plan for your business. Many pension companies will do a free analysis of which plan is right for you. If your business has an existing retirement plan, ask your pension administrator to figure out the maximum potential contribution for the 2012 year based on your staff size (and available budget). If you have no employees, consider establishing a “solo 401K” plan before the end of the year, as this type of plan typically permits a larger contribution than most retirement plans.
3. Deduct the expense of certain equipment purchased in 2012. Internal Revenue Code section 179 allows a business to elect to treat the cost of certain property (such as computers, office furniture, equipment, and machinery used for business) purchased this year as a
one-time deductible expense. Companies can expense up to $139,000 for 2012. The deduction is phased out dollar-for-dollar for purchases exceeding $560,000. So, for example, if your company bought equipment for $572,000, the maximum eligible 179 deduction would be $127,000 ($139,000 reduced by the $12,000 excess).
4. Take the allowed depreciation on new equipment. New business equipment and machinery put into service before year end qualifies for the 50 percent bonus first-year depreciation allowance. Unless Congress acts, this bonus depreciation allowance generally won’t be available next year.
5. Write off your heavy SUVs. Heavy SUVs (those built on a truck chassis and rated at more than 6,000 pounds gross-loaded vehicle weight) are allowed an immediate tax deduction of up to $25,000 in 2012. In 2013, these write-off rules may not be as generous.
6. Hire a vet to qualify for a tax credit. If you’re thinking of adding to your payroll, consider hiring a qualified veteran before the year ends to qualify for a Work Opportunity Tax Credit. Under current law, the WOTC for qualifying veterans won’t be available for post-2012 hires. The WOTC for hiring veterans ranges from $2,400 to $9,600, depending on a variety of factors.
7. Distribute dividends if you are an S- or C-corp. If the Bush tax cuts expire, the tax on “qualified” dividends of 15 percent is scheduled to end on Dec. 31. Therefore, corporations (C-corporations and certain S-corporations) with excess earnings and profits should consider making dividend payments in 2012.
8. Increase withholding to avoid estimated tax penalties. Small-business owners who have not withheld the appropriate amount from their salaries (or have not made the required amount of quarterly tax payments) may be subject to underpayment penalties. Income tax withheld from wages or salaries is treated as paid in equal amounts throughout the year. Therefore, the underpayment penalty can be eliminated if sufficient additional taxes are withheld from wages or salaries for the balance of the year.
May your small business prosper in the new year!