Planning for the End of the Year When You Own a Business

Another year is coming to a close, and as we deck the halls for holiday celebrations, business owners should also be wrapping up their year-end books. As a business owner, you want to be ahead of the game this tax year so you can be prepared to file in early 2016. Here are some tips to keep in mind as you wrap up the tax year with your business.

• Know if your business files taxes on an accrual basis or cash basis. If you are accrual-basis business, you report your expenses in the year they occur not necessarily when you pay them, and income when you invoice it not when you are paid. If this is the case for your business, if you want to increase your income, get all those invoices off to customers before year end; if you want to decrease income make sure you advise your vendors to bill you before year end. For cash basis tax payers, to decrease income pay all the bills you have before year end and send your invoices late in the month so you won’t actually be paid until 2016.
• Don’t overspend on business items just for the tax break. Don’t let the tax code drive your business decisions. Tax issues should just be one factor in business purchase decisions with the most important factor being do you need the item. Tax breaks for business expenses are not dollar for dollar. Each dollar of business expenses does earn you a one dollar reduction in taxable income, but that may only equate to a savings of $0 to $.60 of tax savings, depending on your tax bracket, state of operation and business structure.
• Consider deferring income to the next year. For cash-basis businesses, you can delay your income by sending out invoices very late in the year, so that the payments will not come in until early in the following year. If you have an accrual-basis business, and if you can hold off on providing goods and services until January 1st, you can defer your income to the next tax year.
• Give bonuses. If you have a cash-basis business, consider paying your employees bonuses before the end of the year. If your business is on an accrual basis, you may be able to deduct employee bonus payments within 2 and ½ months of year-end, but in order to do this the liability to pay the bonus must be fixed and determinable before the end of the year.
• See if your small business qualifies for an Affordable Care Act benefit. Some small employers may qualify for the Sec. 45R credit to help pay for employees’ health insurance. If you have fewer than 25 full-time employees whose average income is less than $50,000, you may qualify for this credit. If you’re eligible, you can claim this credit for two consecutive tax years by filing form 8941 Credit for Small Employer Health Insurance Premiums.
• Follow Congressional happenings in the news. Some tax extenders for 2015 were supplied to Congress by the Senate Finance Committee in July, but the House of Representatives did not approve them and wants permanent provisions. If Congress votes on the 2015 tax extenders before the end of the year, or even in 2016 and makes them retroactive, you may be able to take advantage of one of the provisions that have been extended. Hopefully bonus depreciation will be included. Remember that the safe-harbor for expensing tangible personal property is $500 in 2015 and is increasing to $2,500 in 2016 for businesses which do not have audited statements. Among other extenders are the research & development credit, and special shorter depreciation terms.

Owning a business and prepping for the end of the year can be complicated. Get help. Contact Myerson & Myerson, CPA’s today to get your plan underway.