Oftentimes, management and business owners don’t think about taxes until the end of year. It’s not a surprise given the time demands and attention given to running the business, managing issues and maintaining strong client relationships. While all of these are important, it’s essential to invest some time in addressing tax planning. This exercise can help your company reduce income tax liabilities and make tax saving moves throughout the year. To help clients, prospects and other identify tax saving opportunities; JLK Rosenberger has provided a summary overview of the most common tax saving activities below.
- Utilize business losses or take tax-free distributions. It may be possible to deduct losses that would otherwise be limited by your tax basis or the “at risk” rules. Also, if you have tax basis and have already been taxed on the income from a partnership, limited liability company, or S corporation, you may be able to take tax-free distributions from it.
- Time your income and deductions appropriately. If your cash-basis business expects to be subject to a higher tax rate in 2015 versus 2016, you can delay billing until January 2016 for services already performed, which defers your tax until next year. Alternatively, if you expect to be in a higher tax bracket next year or the AMT applies this year, you can accelerate billing and collections to take advantage of the lower tax rates now.In the same way, you can either prepay or defer paying business expenses so the deduction applies during the year you expect the higher tax rate. If cash flow is a problem, consider charging expenses on your credit card so you can take the deduction in the current year, even though you may pay the bill after December 31.
- Consider buying new equipment so you can write it off now. Businesses are allowed to deduct the full cost of equipment up to $25,000 as an expense instead of capitalizing and depreciating it over a period of time per Section 179. The equipment must be placed into service – not just purchased – before January 1, but there’s still time to make a purchase and get the equipment integrated into the business. It’s also possible the government will reinstate a previously extended tax provision allowing an equipment purchase write-off of up to $500,000, but there’s no guarantee and time is running out for end-of-year purchases.
- Deduct business interest. If you have debt related to your business expenditures — including debt used to finance the capital requirements of a partnership, S corporation, or LLC or finance charges on items that you purchase for your own business using your credit card — you can deduct the interest “above-the- line” as business interest rather than as an itemized deduction. This reduces your income directly and in full, even if you reside in a state that limits or disallows all of your itemized deductions.
Although tax planning is best implemented on a year round basis, that doesn’t mean your company can not benefit from taking actions in December. For this reason, it’s essential to consult with a qualified advisor that can optimize your position for 2015 and the coming year. Interested in assessing your tax planning opportunities? JLK Rosenberger wants to help. For additional information on tax planning opportunities, contact us at 818-334-8623, or click here to contact us.