Another year is almost in the books, but before you close those books, consider if there is anything you can do before the end of the year to improve your 2014 tax situation when it comes time to file.
Filing day 2015 is too late to do much about your 2014 taxes. The time is now to get your house in order in preparation for the upcoming tax season. Most things you can do to change how you stand with the Internal Revenue Service must be done before the end of the year. Here are some possibilities to consider.
Get in a tax-time frame of mind.
First and foremost, make sure your business records are up-to-date and organized. Not only will this simplify the job at tax preparation time, it will give you a picture of where you stand and help you decide if anything needs to be done before the end of the year.
Tax codes are always changing. Have a chat with your accountant or tax preparer about ways your business changed in 2014 and how the tax codes have changed. If you prepare your own taxes, pay attention to financial news or do some Internet research on changes to the tax code that took effect in 2014. The Affordable Care Act and proposed changes to corporate tax rates are two issues that could have implications for your business.
Assess your income.
Determine if it would be to your advantage to defer some income. When figuring out what you owe in taxes for 2014, every dollar you bring in before Dec. 31 is considered. Any money that comes in after Dec. 31 counts as income for 2015, even if the work was done and the invoice sent in 2014. If you’ve had a good year and predict either a decline in your business or a drop in taxes in 2015, let those customers who owe you know they can take an extra couple of weeks to pay their bill.
If the opposite is true and you’d benefit from having more income in 2014 than in 2015, offer clients an incentive to pay outstanding invoices before the end of the year. If having more expenses this year would help their tax situation, they might just thank you.
Review your purchases.
How do your 2014 purchases compare to 2013? If you need to increase 2014 deductions, purchase items for your business now that you’ll need next year. Were you thinking of adding a trailer or a few units “someday soon?” Maybe sooner is better than later. What about the office? Would a new computer, printer or copier improve efficiency there? How about software, toner and other items needed to make that equipment hum? Consider purchasing now. And don’t just think major purchases, stock up on copy paper, postage stamps, bathroom tissue, chemicals and restroom repair parts. It all adds up.
Deduct or depreciate?
For major purchases you’ll need to consider how to structure your deduction, whether an immediate write-off is best or spreading out the depreciation over years. Either way, for any 2014 tax benefit, equipment must be purchased and in use by the year’s end. Be aware, however, that large items don’t have to be depreciated like they once did, but the cost of items you can deduct may have dropped dramatically from 2013.
For the past decade, Section 179 of the IRS code allowed small businesses to immediately deduct the entire cost of most computers, business equipment and machinery. For 2012 and 2013 the entire cost up to $500,000 could be claimed as a deduction in the year of purchase. However, the maximum Section 179 deduction was scheduled to fall back to only $25,000 in 2014 unless Congress took action. As of this writing they have not been able to agree on the deduction limit for Section 179, so you may want to check the IRS.gov website to get the latest Section 179 update if you’re considering a pricey purchase before the end of the year.
Find more deductions.
Other ways to boost deductions include prepayment or early payment of equipment maintenance contracts, subscriptions or supplies you order on a regular basis.
Check your inventory of paper and chemicals for write-offs. Goods that have gone down in value since their purchase because they have become damaged or obsolete can become a deduction. Check with your accountant or tax preparer.
Consider who prepares your taxes.
Maybe you’ve been a do-it-yourselfer but think it’s time to hire someone else to prepare your taxes. Or maybe you haven’t been pleased with your tax preparer in the past. The time to find someone is now … not in the middle of tax season.
To find a tax preparer you can trust, get recommendations from other business owners. Call some tax preparers to get a feel for their philosophy, personality, availability and hourly rate. If your accountant prepares taxes for 10 beauty salons and you, you might want to look around for someone who understands the realities of your world a little better. And try to find someone who will be available to advise you throughout the year, not just on the few winter days when they are working on your return.
If you handle tax preparation yourself, were you happy with the software you used to file electronically last year? If not, do some research on software and purchase a new package or upgrade your existing one now so you have time to learn how to use it effectively.
Consider other year-end strategies.
Make payments to your retirement plan or set one up before the year’s end to reduce your income for this year. Check the contribution limits for your type of plan. Discuss the best strategy with your financial planner or accountant.
Boosting charitable deductions can improve your tax situation. Only contributions made to qualified charitable organizations can be included as tax-deductible donations, however, so when you make a contribution ask the organization whether they are tax-exempt. If you’re not sure about an organization, Exempt Organizations Select Check is an online search tool at IRS.gov allowing users to search for and select an exempt organization and check information about its federal tax status and filings.
If you are planning to claim any in-kind contributions as charitable income tax deductions, you can find the fair market value of qualified items in IRS Publication 561. If you are making any charitable income tax deductions for a single item with a fair market value of $5,000 or more, a separate form must be completed.
Remember, the more you think about taxes before the end of the year, the less stressed out you’ll be in early 2015. Consider it a Christmas gift to yourself that will last well into the new year.
