Guest Post by Perry Sheraw (learn more about Perry at the end of this post).
Many of the business owners we work with say they’re ready to get 2011 behind them. January 2012 beckons as business objectives glisten with potential revitalization and realignment. The drudgery of doom and gloom financial news has worn us all down and we welcome a little holiday frivolity, frugal as it may need to be this year.
Plenty of good news remains in 2011 for business owners yet to capitalize on three last minute tax planning tips that keep more cash on hand for 2012. It is imperative to work with trusted advisers to determine set the best course for you and your company, but these tips lower taxable income and, in some cases, lower the company’s or business owner’s tax bracket.
1.) Defer Income – Seasoned seasonal guidance, yet many business owners overlook it. The US legislature failed to settle on an agreeable tax reform plan in 2011, and tax reform during a tax year is about as popular as a centipede in a sock. Chances are tax rates will remain the same until 2013; thus, if you can afford the luxury of deferring income now, push it into 2012 and reduce your 2011 taxable income immediately. Two examples:
- Defer pending invoicing, if possible, until January.
- Max out contributions to 401(k) or other retirement plans. Don’t have one? Tap myriad benefits now by starting before you sing “Auld Lang Syne.” Increase business deductions, defer personal income and be a hero to your employees by starting a plan with or without a matching fund component. Execute the plan by year-end and many plans will allow contributions by you and your staff for 2011 for months into 2012.
2.) Accelerate Expenses – Sage advice in any tax year – for both personal and business tax planning. This can make a dramatic difference in your total taxable income if you qualify for deductions. A couple of examples include:
- Buy now; cut your tax bill later. Purchase extra, necessary items such as Q1 2012 inventory or pay 2012 property or E&O insurance early.
- Purchase lager equipment or opt for early renewal of subscription software
Of course, cash-strapped companies may not have this luxury, but those who often also find themselves getting more for less by scoring year-end promotional pricing.
3) Charitable Contributions – If you have computers, cell phones, motor pool vehicles or other old equipment you no longer use, consider donating them to charity. Cash contributions, year-end auctions and other forms of donation count as well and may be just what you need to trip the trigger on a lower tax bracket for you and your business. In some cases, the deduction passes through to your personal tax filing, but not if you own a “C-Corp.” If you own a C-Corp, the business takes the deduction.
That brings up another great year-end task: evaluate your corporate structure. If you own a C-Corp and ever plan to sell your business, start discussing a change in entity classification now. A nasty double taxation penalty shocks many C-Corp owners at the closing table. If you make the election now, you face a 10-year recapture period before escape paying twice the tax upon the sale of your business.
Here’s to stronger 2012 as entrepreneurs worldwide gain more experience navigating the new global economy!
Perry Sheraw is the Executive Vice President of Corporate Development at eBusiness Appraisals, a top online source for business valuations and strategy. Still an active writer in the business and financial investing fields, Perry began her writing career at the Cincinnati Enquirer as a Personal Finance and Business reporter. She now lives in Washington, D.C.