Year-End Tax Moves for Your Small Business
If you own a business, now is the time to begin thinking about your 2011 tax return. Before you know it, the end of the year will be here and tax season will be under way. Advanced planning and preparation can help ensure that your business is ready for tax season.
Here is a look at what you should be doing between now and the end of the year in order to properly prepare for your 2011 tax filing:
Review Your Books
Hopefully you or your accountant have been keeping the books for your business up-to-date this year. If you haven't, you need to act now. Get your business finances in order. Some of the factors that you may want to consider include:
- Did you make or lose money this year?
- Did you make your ?
- Does it look as if you are going to owe taxes at the end of the year?
These are all questions that you will want to answer so that you can determine which actions you must take in order to keep your year-end tax bill manageable.
If you have an accountant who does the books for your business, set up a meeting with him or her so that you can find out the answers to the above questions. Once you know the answers, you can develop a strategic tax plan to finish out this year and prepare for next year.
Make Moves to Lower Your Tax Bill
After your books are updated, if it looks like you are going to owe a tax bill this year, you will want to take action to reduce the amount due. Here are some ideas to consider:
- Purchase and upgrade business equipment and supplies: One great way to help reduce your tax bill is to purchase and replace business equipment that is getting old or outdated. Take a look at all of your business equipment and supplies, and make some purchases now so that you can include them on your 2011 tax return.
- Pay up all of your bills: Make sure that all of your business bills are paid up. Then, as the end of the year approaches, consider paying bills due in early 2012 before December 31st. Any bills that you pay during 2011 will count as business expenses for the 2011 tax year.
- Consider making a donation to charity: Businesses, like individuals, can make charitable donations and receive credit for them on their year-end tax returns. Since there are limits to the amount of charitable donations that are eligible for the tax credit, you will want to check to see what the contribution limits are for your business type. Additionally, make sure that you donate to a qualified charity and clearly document your charitable contributions.
- Make contributions to your retirement account: As a small business owner, you have the option to contribute to various types of retirement accounts with varying contribution limits and tax benefits. A Simplified Employee Pension (SEP IRA) is typically the preferred retirement account for small business owners. Money contributed to the pension account can be deducted from your business earnings. For 2011, the IRS limits contributions to 25 percent of your compensation, or up to $49,000.00. You can open an account right up until the day that you file your tax return and still be able to claim the contribution as a tax deduction.
- Hold off on invoicing: As the year comes to an close, you may want to hold off on invoicing late-December payments until the beginning of January. This is especially true if you have had a good income year, as it will help keep your total income down slightly for your 2011 tax return.
Start Planning for Next Year
Finally, it is never too early to start planning for next year. As a business owner, you should always be planning ahead. Look at the financial trends of your business over the 2011 tax year in order to help predict sales and tax liabilities for next year. Then, keep your books up-to-date and make strategic tax moves throughout the year. This will help to relieve the stress and burden normally felt as the year comes to an end.
