Starting Off the New Year Right

Author: Jenny Shilling

While many people think of April 15 as their tax preparation day, small business owners know that Dec. 31 is the day that really matters. After all, the end of the year is when your income and expenses get rolled over into a new tax year. With that in mind, tax planning needs to start before the end of the year. Here are a few ways that you can get started now.

• Contact your CPA or tax professional to start building strategy for the rest of the year. You might want to prepay expenses, buy large items or accelerate billing depending on whether you want to earn more income this year or defer it to next year. A tax professional can help you figure out what to do between now and the end of the year.
• Start compiling your records. Even if you plan to file an extension so that you can delay your tax preparation and send in your return as late as October, you will still need to pay any tax due on April 15. If you get a head start on putting your tax records together, it will be easier for you to figure out what, if anything, you owe.
• Plan on making capital expenditures. The Section 179 deduction, which lets small businesses expense certain capital expenditures instead of depreciating them, will go down from the 2012 level of $125,000 to $25,000 in the 2013 tax year, barring Congressional action. With this in mind, 2012 is a great year to offset profits by buying large items like vehicles for your company, computer equipment, machine tools and the like.
• Shift your income and expenses. If you are enjoying an extremely profitable year, it might make sense to delay billing customers until next year while paying extra expenses. Conversely, if you know that next year will be especially good, you might want to move income into this year.