Michael Hanley, author of Effective Tax Planning for the MicroBusiness, is a CPA specializing in small business. We asked him for year-end tax planning tips that can help entrepreneurs and small buiness owners. Michael gave us his top five action items.
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Analyze You Business Structure: are you operating under the best structure for you business? Various items such as how much tax you will pay each year, your risk of being selected for a random IRS audit, and the level of protection of your personal assets are determined by the type of entity you operate. If you operate as a Sole Proprietor, DBA, Partnership, LLC, or C Corporation, this should be Priority #1 in your life. You could be overpaying your taxes by $10,000 if you are not operating under the best business structure.
- Tax Planning. If it's December and you have no idea where you stand for the year or how much tax you will owe or get back come April 15th, you should be putting together a quick tax plan for this year and speaking with your accountant about putting a formal tax plan in place for 2010.
- Equipment Purchases: Cash basis taxpayers should be looking ahead to any expenses and equipment purchases on the horizon. Any large expenses or big ticket items that you are planning to buy in early 2010, you should consider purchasing prior to December 31 if your tax plan shows that you will be at a similar or higher tax rate in 2009 than you will be in 2010.
- Speed Up Collections: As long as you can afford to report some extra income in 2009, you should step up your collections efforts during the next few weeks. This is the best time to convince your customers/clients to pay you as they have an added incentive to do so. Any monies that they pay to you prior to Dec. 31 are tax deductible for them in 2009.
- Estimated Tax Payments. Make sure to make state estimated tax payments prior to December 31. While the payment deadline for fourth quarter estimated tax payments in most states is Jan. 15, 2010, any payments made prior to Dec. 31, 2009 become itemized deductions for you in 2009. If you are subject to the Alternative Minimum Tax (AMT), you may not receive any benefit from accelerating this payment, so be sure to consult with your accountant if you are unsure.