Year-End Tax Planning For Businesses – Three Most Common Budgeting Errors

ABA Tax Accounting | Small Business Accounting | St. Paul, MN Accounting Firm

Small Business Tax Planning – When it comes to creating a budget, it's essential to estimate your spending as realistically as possible. Here are three budget-related errors commonly made by small businesses, and some tips for avoiding them.

Not Setting Goals. It's almost impossible to set spending priorities without clear goals for the coming year. It's important to identify, in detail, your business and financial goals and what you want or need to achieve in your business.

Underestimating Costs. Every business has ancillary or incidental costs that don't always make it into the budget--for whatever reason. A good example of this is buying a new piece of equipment or software. While you probably accounted for the cost of the equipment in your budget, you might not have remembered to budget time and money needed to train staff or for equipment maintenance.

Failing to Adjust Your Budget. Don't be afraid to update your forecasted expenditures whenever new circumstances affect your business. Several times a year you should set aside time to compare budget estimates against the amount you actually spent, and then adjust your budget accordingly.

Call our office if you want to discuss setting up a budget to meet your business financial goals. We're happy to help.

ABA Tax Accounting

Amare Berhie, Senior Tax Accountant

amare@abataxaccounting.com

612-282-3200

866-936-0430 Toll Free

http://www.abataxaccounting.com

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YEAR-END TAX PLANNING FOR BUSINESSES – Year-End Moves to Take Advantage Of

ABA Tax Accounting | Small Business Accounting | St. Paul, MN Accounting Firm

Small Business Tax Planning – YEAR-END TAX PLANNING FOR BUSINESSES – Year-End Moves to Take Advantage Of- Partnership or S Corporation Basis - Partners or S corporation shareholders in entities that have a loss for 2012 can deduct that loss only up to their basis in the entity. However, they can take steps to increase their basis to allow a larger deduction. Basis in the entity can be increased by lending the entity money or making a capital contribution by the end of the entity's tax year.

Caution: Remember that by increasing basis, you're putting more of your funds at risk. Consider whether the loss signals further troubles ahead.

Retirement Plans. Self-employed individuals who have not yet done so should set up self-employed retirement plans before the end of 2012. Call us today if you need help setting up a retirement plan.

Dividend Planning. Reduce accumulated corporate profits and earnings by issuing corporate dividends to shareholders, which continue to be taxed at the 15 percent rate through 2012.

Budgets. Every business, whether small or large should have a budget. The need for a business budget may seem obvious, but many companies overlook this critical business planning tool.

A budget is extremely effective in making sure your business has adequate cash flow and in ensuring financial success. Once the budget has been created, then monthly actual revenue amounts can be compared to monthly budgeted amounts. If actual revenues fall short of budgeted revenues, expenses must generally be cut.

Tip: Year-end is the best time for business owners to meet with their accountants to budget revenues and expenses for the following year.

If you need help developing a budget for your business don't hesitate to call us today!

ABA Tax Accounting

Amare Berhie, Senior Tax Accountant

amare@abataxaccounting.com

612-282-3200

866-936-0430 Toll Free

http://www.abataxaccounting.com

www.abataxaccounting.wordpress.com

Year-End Tax Planning For Individuals - Accelerating Income

ABA Tax Accounting | Tax Services | St. Paul, MN Accounting Firm

Federal, State, Local and International Taxes -Tax planning is always a good idea, but with the Bush-era tax cuts set to expire and tax rates set to rise to pre-2010 levels, it's more important than ever. With that in mind, accelerating income is one tax planning strategies you can use this year to help you cut your tax bill in 2013.

ACCELERATING INCOME

In most years, taxpayers adopt a strategy of deferring income, but with the Bush-era tax cuts set to expire on December 31, 2012, income tax rates and capital gains taxes set to rise, and a 0.9 percent Hospital Insurance (HI) tax applicable to earnings of self-employed individuals or employee wages in excess of $200,000 ($250,000 if filing jointly) effective January 1, 2013, it might make more sense to accelerate income into 2012 instead of deferring it to 2013. Here are some of the ways you can do this:

• Sell any investments on which you have a gain this year and take advantage of the zero percent long-term capital gains tax rate if you're in the 10% or 15% tax bracket, or a 15% tax rate for higher tax brackets.
• If you are expecting a bonus at year-end, try to get it before December 31. However, keep in mind that contractual bonuses are different, in that they are typically not paid out until the first quarter of the following year. Therefore, any taxes owed on a contractual bonus would not be due until you file a tax return for tax year 2013.
• If your company grants stock options, you may want to exercise the option or sell stock acquired by exercise of an option this year if you think your tax bracket will be higher in 2013. Exercise of the option is often but not always a taxable event; sale of the stock is almost always a taxable event.
• If you're self employed, send invoices or bills to clients or customers this year in order to be paid in full by the end of December.
• Caution: Keep an eye on the estimated tax requirements.

CALL US FIRST – This is just one of the year-end planning tax moves that could make a substantial difference in your tax bill for 2012. But the best advice we can give you is to give us a call. We'll sit down with you, discuss your specific tax and financial needs, and develop a plan that works for your business.

ABA Tax Accounting

Amare Berhie, Senior Tax Accountant

amare@abataxaccounting.com

612-282-3200

866-936-0430 Toll Free

http://www.abataxaccounting.com

www.abataxaccounting.wordpress.com

YEAR-END TAX PLANNING FOR BUSINESSES – Purchase New Business Equipment

ABA Tax Accounting | Tax Planning | St. Paul, MN Accounting Firm

Small Business Tax Planning – There are a number of end of year tax strategies businesses can use to reduce their tax burden for 2012. Here's the lowdown on the Purchase New Business Equipment option.

Section 179 Expensing. Business should take advantage of Section 179 expensing this year for a couple of reasons. First, is that in 2012 businesses can elect to expense (deduct immediately) the entire cost of most new equipment up to a maximum of $139,000 for property placed in service by December 31, 2012. The maximum threshold amount for capital purchases in 2012 is $560,000, but in 2013, that amount drops to $25,000. Also in 2012, businesses can take advantage of an accelerated first year bonus depreciation of 50% of the purchase price of new equipment and software placed in service by December 31, 2012 that exceeds the threshold amount of $560,000. This bonus depreciation is phased out in 2013.

Qualified property is defined as property that you placed in service during the tax year and used predominantly (more than 50 percent) in your trade or business. Property that is placed in service and then disposed of in that same tax year does not qualify, nor does property converted to personal use in the same tax year it is acquired. 

• Note: Many states have not matched these amounts and, therefore, state tax may not allow for the maximum federal deduction. In this case, two sets of depreciation records will be needed to track the federal and state tax impact. 

Please contact our office if you have any questions regarding qualified property and bonus depreciation.

Timing. If you plan to purchase business equipment this year, consider the timing. You might be able to increase your tax benefit if you buy equipment at the right time. Here's a simplified explanation:

Conventions. The tax rules for depreciation include "conventions" or rules for figuring out how many months of depreciation you can claim. There are three types of conventions. To select the correct convention, you must know the type of property and when you placed the property in service.

The half-year convention: This convention applies to all property except residential rental property, nonresidential real property, and railroad gradings and tunnel bores (see mid-month convention below) unless the mid-quarter convention applies. All property that you begin using during the year is treated as "placed in service" (or "disposed of") at the midpoint of the year. This means that no matter when you begin using (or dispose of) the property, you treat it as if you began using it in the middle of the year.

Example: You buy a $40,000 piece of machinery on December 15. If the half-year convention applies, you get one-half year of depreciation on that machine.

The mid-quarter convention: The mid-quarter convention must be used if the cost of equipment placed in service during the last three months of the tax year is more than 40% of the total cost of all property placed in service for the entire year. If the mid-quarter convention applies, the half-year rule does not apply, and you treat all equipment placed in service during the year as if it were placed in service at the midpoint of the quarter in which you began using it.

The mid-month convention: This convention applies only to residential rental property, nonresidential real property, and railroad gradings and tunnel bores. It treats all property placed in service (or disposed of) during any month as placed in service (or disposed of) on the midpoint of that month.

If you're planning on buying equipment for your business, call us first. We'll help you figure out the best time to buy it to take full advantage of these tax rules. Considering a Tax Professional? For no obligation free consultation contact us today!

ABA Tax Accounting

Amare Berhie, Senior Tax Accountant

amare@abataxaccounting.com

612-282-3200

866-936-0430 Toll Free

http://www.abataxaccounting.com

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Charitable contributions may help lower your tax bill – www.abataxaccounting.com

ABA Tax Accounting | Tax Planning | St. Paul, MN Accounting Firm

Federal, State, Local and International Taxes - If you made charitable contributions to a qualified organization, it may help lower your tax bill. Here are some tips to help ensure your contributions pay off on your tax return.

To get a tax deduction, you must give to a qualified organization. You cannot take a deduction for contributions made to specific individuals, political organizations or candidates; you must file Form 1040 and itemize the deduction on Schedule A.

A key thing to remember is, if you receive a benefit in connection with your contribution — such as dinner at a gala, merchandise, tickets to a ball game or other goods and services — then you can only deduct the amount that exceeds the fair market value of the benefit you received.  For

instance, if you make a contribution of $75 or more, the charitable organization should tell you the fair market value of any merchandise or other benefits you receive. 

Stock or other non-cash donations are usually valued at the fair market value of the property.

Clothing and household items must generally be in good used condition or better to be deductible. Special rules apply to vehicle donations.  

So, what do we mean by fair market value? This is generally the price at which property would

change hands between a willing buyer and a willing seller, neither having to buy or sell, and both having reasonable knowledge of all the relevant facts.

Another key thing to remember is regardless of the amount, to deduct a contribution of cash,

check or other monetary gift, you must maintain:

• a bank record, 
• payroll deduction records, or 
• a written communication from the organization containing the name of the organization, the date of the contribution and amount of the contribution. 

If you, by chance, made a donation through a text message, a telephone bill will meet the recordkeeping requirement as long as it shows the name of the receiving organization, the date of the contribution and the amount given.

If you want to claim a deduction for contributions of cash or property equaling $250 or more, you

must have:

• a bank record, 
• payroll deduction records, or
• a written acknowledgment from the qualified organization showing the amount of the cash and
• a description of any property contributed, and whether the organization provided any goods or services in exchange for the gift.  

One document may satisfy both the written communication requirement for monetary gifts and the written acknowledgement requirement for all contributions of $250 or more. 

If your total deduction for all noncash contributions for the year is over $500, you must complete

and attach IRS Form 8283, Noncash Charitable Contributions, to your return. Additionally, if you

claim a deduction for a contribution of noncash property worth $5,000 or less, you must fill out

Form 8283, Section A.

If you donate an item or a group of similar items valued at more than $5,000, you must also

complete Section B of Form 8283, which generally requires an appraisal by a qualified appraiser. Considering a Tax Professional? For no obligation free consultation contact us today!

ABA Tax Accounting

Amare Berhie, Senior Tax Accountant

amare@abataxaccounting.com

612-282-3200

866-936-0430 Toll Free

http://www.abataxaccounting.com

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