11/ 30/ 2007
by Barbara Weltman
Last-minute tax moves to lower your bill
If reducing the tax bill for your business is on your wish list this season, don't wait until Dec. 31 to act. The sooner you start to plan, the more choices you will have. Gather and review your tax records to date and schedule a meeting with your accountant so you can discuss these and other strategies:
Upgrade (and write off) needed machinery and equipment.
Your business will run more efficiently, and you'll be able to deduct the cost up to $125,000 for this year. The deduction opportunity applies whether you pay cash or finance the purchase, but you must place equipment in service by the year's end—not just order it—to qualify.
Boost your retirement savings courtesy of Uncle Sam.
Shelter your business profits (within limits) and build a retirement nest egg using a qualified retirement plan, such as a 401(k) or a defined benefit (pension) plan. To take full advantage of this deduction opportunity, you must sign the paperwork by the end of the year. Then you have until the extended due date for filing your 2007 return to fund the plan. Factor in the cost of covering employees who are eligible to participate. Further incentive for instituting a plan? There's a tax credit to cover the administrative costs of initiating it, as long as the plan covers at least one employee who is not an owner.
If you miss the Dec. 31 deadline, you will still be able to set up and fund a Simplified Employee Pension (SEP) by the extended due date of your return.
Share your profits.
If 2007 has been successful, spread goodwill among employees by distributing some profits to them in the form of year-end bonuses—deductible by the company. Calendar-year businesses on the accrual basis of accounting need only to declare the bonuses by Dec. 31 (by adding this to company minutes) to nail down a 2007 deduction. Then they have until March 15, 2008, to complete the payments.
If you're sharing the wealth with yourself, remember that bonuses for owner-employees in S corporations and majority owners in C corporations can only be deducted when actually paid, so complete these before the year's end to gain the write-off for 2007. Profitable corporations can consider paying dividends to shareholders. These payments are not deductible by the corporation, but shareholders will pay no more than a 15 percent tax rate on them—and, unlike salary and bonuses, there are no payroll taxes on dividends.
While you're at it, gear up to make 2008 an even better tax year by making sure you have proper recordkeeping practices, desired benefit plans and other measures in order by Jan. 1.
NFIB.com
For more about tax write-offs, visit "Tax Deductions" in the "Taxes" section of www.NFIB.com/toolsandtips.
