If there’s one thing you don’t want to think about in summer, it’s taxes, right? Not only is this your busy season, but when you do get a rare free hour, you want to enjoy the season, not be cooped up inside with a calculator.
But checking your company’s financial vital signs midyear goes a long way toward making tax time easier and less costly. Use this handy checklist and make a few tweaks to your operation now to optimize your tax position later. Then you can get on over to the barbecue, whether you are servicing it or just enjoying it.
THE HANDY-DANDY MIDyear FINANCIAL CHECKLIST:
1. Consider your estimated tax payments for 2012. If you pay estimated quarterly taxes, review what your business has made year-to-date and forecast the remaining months. Then look at the schedule of estimated tax payments you’ve set up and adjust as necessary to avoid underpayment penalties or overpayments.
2. Take charge of your recordkeeping. To make the most of your business tax deductions, you’ll need thorough and accurate records. If you haven’t been keeping track of business expenses, get caught up now. If you can’t find the time to do it yourself, assign the task to someone else. Consider making the chore easier by investing in technology solutions, like new accounting software or a receipt scanner. Dedicating just 30 minutes each week to expense tracking for the rest of the year will make a major difference come tax preparation time.
3. Consider purchasing equipment. Generous business equipment deductions put in place for 2011 to help stimulate the struggling economy have been extended. Business owners and self-employed individuals are allowed a first-year depreciation deduction of 50 percent of the cost of qualifying property acquired and put in service in 2012. The maximum amount that can be expensed under IRS tax code Section 179 is $139,000 for 2012. However, this is the final year for these kinds of limits since Section 179 is slated to decrease in 2013 to $25,000.
If you want to take advantage of this generosity, evaluate yourequipment needs now. If there was something you were planning to purchase in a year or two, it might be worth it to buy it this year instead. This isn’t a snap decision you want to make at the end of the year, however, and if you buy it now, you can use new equipment this busy season and maybe alleviate some problems in the field.
4. Call home and ask what your kids are doing for the rest of the summer. You can hire your teenager to work in your business and deduct reasonable compensation paid to them for work performed. Teens don’t have a lot of work opportunities in this labor market and may be grateful for the opportunity. And if you’re self-employed, you won’t owe any FICA or FUTA taxes on wages paid to your child if he or she is under age 18.
5. Review compensation packages and think about bonuses. In the past few years, many companies held wages steady or reduced them. If your business is more secure now, raises or bonuses may be warranted. Determine how this would affect your tax picture before writing out the checks.
6. Plan for retirement. Contributing to an Individual Retirement Account (IRA), Keogh, simplified employee pension (SEP) or other retirement plan is an effective way to plan for your future and reduce your taxable income. If you already have a plan, reassess your contributions for 2012. The specific rules, contribution limits, and deadlines vary by plan and your company’s legal structure. If you need help or advice, make an appointment with a financial planner to discuss retirement options.
7. Review your health coverage. If you are currently paying part of the premiums for employees, ask your accountant or the IRS whether additional payments would entitle you to a tax credit. Also weigh the benefits of offering alternative health plans, such as Health Savings Accounts or Health Reimbursement Accounts, which can save the company money while providing tax benefits.
8. Give something away. Take advantage of deductions through charitable giving now, in a planned way, and not just at the end of the year when you hear The Salvation Army bells ring. Some donations of food, books and computers to certain organizations actually qualify for enhanced deductions through the end of this year. Check with the IRS to see if you qualify for any of these enhanced deductions.
SPARE TIME
Once you’ve done all this organizing and reviewing, make one more plan. Think of something you want to do in all your spare time early next year, when for once you won’t be running around trying to locate receipts and calculate ways to reduce your tax bill. Winter vacation anyone?
