A person doesn’t know how much he has to be thankful for until he has to pay taxes on it. –Author Unknown
Now is always a fine time to assess your corporation’s eligibility for tax credits. You want to save money for all those nice end-of-year gifts and bonuses, right?
When I went to school, and yes, as my law clerks would say I rode a woolly mammoth to school, I was an accounting major. I was not your typical accounting major, but I was a good student. While audits, debits and credits were interesting, my passion and strength was always taxation. When I took my income tax course, the professor, who is still at Bucknell, told me: “If you go into doing taxation, you’ll kill yourself in three years.” With that, I determined to go to law school, and get my LL.M. in taxation.
I may have turned away from a career in accounting, but as a tax attorney, I fully understand the value of establishing deductions and credits before the end of the year.
Here’s what has worked for me and my clients:
First and foremost
Meet with your accountant and get direct attention before other clients. Best to schedule an appointment after October 15 – the end of the 2014 tax season.
This is the time to review your situation to minimize taxes. Clear some time over the course of a week by mid/end of October to have him/her come by to meet with you and, if applicable, your accounting department and go over your books. Extend the offer to his/her associate as well. There’s a solid chance some of the bookkeeping and reviews are being passed on to a junior member, and you may as well put a face to the name.
That new contact may be very helpful down the line, especially if you like their work and communication.
Once the sandwiches have been downed, here are some matters to discuss to help get your credit numbers up:
Put away enough money in estimates
If you are having a profitable year, there’s a good chance you will owe tax for 2016. A little tax planning and usage of available credits and deductions can help to minimize the last quarter’s estimate.
Get a little creative and ask questions
Did you know that there’s a sizeable credit given for using a clean electric vehicle? Or maybe those of you in the Greater New York area have seen the commercials for Start-Up NY which aims to bring entrepreneurs to set up shop tax-free for 10 years on or near eligible university or college campuses in New York State. Though some experts have been pointed out some of the program’s shortcomings, if you have or will expand in one of these protected zones, there is a possible long-term benefit. There are 49 other states that could have similar initiatives. Not asking about them, no matter how ridiculous it may seem, is truly a disservice to your business and the bottom line.
Keep an eye on December 31
Summer is on its way out and the world is still turning. New Year’s Eve will arrive in what will seem like a heartbeat. Put your business on protection payments before 12/31 to get deductions.
Deductions are – most likely – expenses. Paying those expenses as well as bills and clearing out your accounts payable will be a good start. Look at purchasing equipment. Normally, you need to capitalize purchases of equipment. You may recover the money spent through a process called depreciation. However, the Internal Revenue Service allows a limited deduction – if you make money in your business – where you can expense the cost of equipment up to a certain limit rather than depreciate it. Certain property qualifies, certain property does not qualify, and there are limits to the amount of money you could deduct. You should speak to your accountant to discuss the availability.
If you are a cash-basis taxpayer, paying the expense will be enough. However, if you are an accrual-basis taxpayer, you need to match income to expenses.
Don’t shell out more than you must
There are 18,000 pages of laws in the tax code. They can be confusing and overwhelming but you are not obligated to pay more than your share. You might think it helps to avoid an audit, but it will not guarantee you will fly under the radar of the IRS and the state.
The meeting(s) with your accountant should prevent a lot of unnecessary payments. For more ideas on how to save and spend wisely, contact us.