Tax Planning Begins Now
With the approaching holidays and the end of the year approaching, November is the time to begin reviewing business tax strategies for the end of 2014. Once December arrives it becomes increasingly difficult to reserve the time and focus to assemble the information necessary to perform a complete and thorough tax evaluation and to act on the strategies.
Take the time now to perform a check of where your business stands so that there are no surprises at tax filing time. Remember, it is the responsibility of the business managers to stay informed about relevant tax rules and changes to the Internal Revenue Code (IRC). Here are some actions you can take to make the process easier:
- Count inventory now rather than at the end of the year. This accomplishes two objectives: the physical count will be compared to the General Ledger for accuracy, and secondly, the company will be able to identify obsolete, damaged, or unsellable items than can be expensed.
- Keep a close eye on the cash balances. The risk of fraud and embezzlement grows during the holiday season.
- Reconcile Accounts Receivable: Make a push to collect late accounts now. Customers sometimes use the holiday season as an excuse for delaying payments.
- Consider selling old or unused assets, such as furniture. The proceeds from the sale will increase cash flow and the sale may result in the recognition of a loss for tax purposes. Selling business assets before the end of the year also eliminates their inclusion on county tangible property tax reports (ie Florida DR-415) for 2015.
- Evaluate the advantages of making major purchases in 2014. Electing IRC Section 179 could accelerate deductions and provide an immediate tax benefit.
- Estimate the tax liability based on the year-to-date income. Compare this year’s income to last year’s to determine a budgeted tax liability. As long as the company’s income is not seasonally affected (ie. Christmas tree sales) the third quarter year-to-date profit can serve as a starting point for estimating the year-end income.
- Review prior year tax returns for carry forwards and credits available in 2014. Last year’s tax return may hold benefits that can be carried into 2014.
- For pass-through entities, (S-corporations and partnerships) consider charitable contributions of inventory or cash for 2014 that can serve as a deduction on the shareholder’s or member’s personal tax return.
- Set up Simplified Employee Pension (SEP) plans before the end of the year. Consult a qualified financial advisor for more information. A SEP may be set up by the due date(including extensions) of your business income tax return for the year you want to establish the plan (IRS Publication 560).
- If a tax liability is expected for 2014, include taxes in the budget for the remainder of the year and make estimated payments as soon as possible. The Internal Revenue Service can assess interest on underpayments or on payments not consistent with the “pay as you go” principle (IRS Topic 306).
- Review payroll and vendor records for contact information updates, such as changes in address, phone, e-mail, etc. The completion of vendor reports (Form 1099-MISC) and employee reports (W-2) could be delayed if the payee contact information is incorrect.
- Take the time to be aware of the important tax filing dates in 2015. The business planning calendar for 2015 should include all important filing dates for sales taxes, payroll reports, income tax returns, and state and local corporate compliance.
- Do not procrastinate. This is the most important step.
Be sure to make an appointment with your tax professional and financial planner as soon as possible.