Understanding Small Business Taxes

Checklist: 2013 Year-End Tax Planning To-Dos

A handful of important tax changes were made that will have an effect on many small business owners’ 2013 tax returns. And those changes make end-of-year tax planning a must for small business owners.

“Many small business owners don’t realize the importance that the end of the year can play when it comes to getting the most out of available tax breaks and maximizing the year’s overall profitability,” says Alex Cruzet, CEO of Lawrenceville, Ga.-based ATLbookkeeper.com, a bookkeeping firm for small- to medium-sized businesses.

Set aside some time between now and the end of the year to plan for these changes. Use these expert tips to save time, avoid headaches–and maybe even lower your tax bill.

• Organize your files. No offense, but Scott Berger, a CPA and principal with Miami-based Kaufman, Rossin and Company, says small business owners aren’t always the best at keeping records. If that sounds like you, the end of the year is a great time to clean up your files and compile what you or your accountant needs come tax time.

• Find a good accountant. If you’re looking for a new accountant, start now because the best ones will be booked in February or March. “Your accountant is very important, and a bad accountant can be a big detriment to your business,” says Gail Rosen, president of Gail Rosen CPA in Martindale, N.J. Make sure any tax professional you choose has appropriate credentials, whether a certified public accountant (CPA), enrolled agent (EA) or tax attorney. And don’t forget to ask for references.

• Plan for higher tax rates. Earlier this year, the president signed a bill that averted the so-called fiscal cliff. That may seem like ages ago, but some of the provisions in that bill will increase taxes for some small business owners come April. “Plan for that now, instead of being surprised later,” Berger says.

• Open a retirement plan. One of the ways to offset higher tax rates is to contribute to a retirement plan, because depending on the plan, the contributions may be deductible. “Lots of small business owners think about reducing taxes by buying new equipment, but for some reason they forget about retirement plans,” Berger says. While the rules vary for different types of plans, most have to be established–but not necessarily funded–by the end of the year to reap tax benefits. If you’re interested in opening a retirement plan, talk to your accountant now so the account can be up and running by Dec. 31.

• Consider expiring tax provisions. If you’re thinking about buying new equipment or vehicles, it might make sense to do so before the end of the year. That’s because the increased Section 179 deduction is expiring at the end of the year, dropping from $500,000 for purchases made in 2013 to $25,000 for purchases made starting in January. The bonus depreciation provision is also set to expire at the end of the year. “Along with the sunset of general bonus depreciation, the additional $8,000 first-year depreciation cap for passenger automobiles that accounts for bonus depreciation will no longer be available for vehicles acquired and placed in service after December 31, 2013,” adds Sheri Shultz, a CPA with South Florida-based Fiske and Company. “For some businesses, this may provide a compelling reason to purchase vehicles and place them into service before year end 2013.”

But don’t think it’s now or never, says Rosen. Not only could Congress extend the Section 179 and bonus depreciation provisions, but it also might make sense to defer them. “I often see people who rush depreciation deductions, but that is not always in your best interest,” she says. “It may pay to save your depreciation deductions for future years when you expect to be in a higher bracket.”

Read about this small business tax article in OfficeMax.com.