A handful of important tax changes were made that will have an effect on many small business owners’ tax returns. And those changes make end-of-year tax planning a must for small business owners.
“Many small business owners don’t realize the importance that the end of the year can play when it comes to getting the most out of available tax breaks and maximizing the year’s overall profitability,” says Alex Cruzet, CEO of Lawrenceville, GA.-based ATLbookkeeper.com, a bookkeeping firm for small- to medium-sized businesses.
Set aside some time between now and the end of the year to plan for these changes. Use these expert tips to save time, avoid headaches — and maybe even lower your tax bill.
- Organize your files. No offense, but Scott Berger, a CPA and principal with Miami-based Kaufman, Rossin and Company, says small business owners aren’t always the best at keeping records. If that sounds like you, the end of the year is a great time to clean up your files and compile what you or your accountant needs come tax time.
- Find a good accountant. If you’re looking for a new accountant, start now because the best ones will be booked in February or March. “Your accountant is very important, and a bad accountant can be a big detriment to your business,” says Gail Rosen, president of Gail Rosen CPA in Martindale, New Jersey. Make sure any tax professional you choose has appropriate credentials, whether a certified public accountant (CPA), enrolled agent (EA) or tax attorney. And don’t forget to ask for references.
- Plan for higher tax rates. Earlier this year, the President signed a bill that averted the so-called fiscal cliff. That may seem like ages ago, but some of the provisions in that bill will increase taxes for some small business owners come April. “Plan for that now, instead of being surprised later,” Berger says.
- Open a retirement plan. One of the ways to offset higher tax rates is to contribute to a retirement plan, because depending on the plan, the contributions may be deductible. “Lots of small business owners think about reducing taxes by buying new equipment, but for some reason they forget about retirement plans,” Berger says. While the rules vary for different types of plans, most have to be established — but not necessarily funded — by the end of the year to reap tax benefits. If you’re interested in opening a retirement plan, talk to your accountant now so the account can be up and running by Dec. 31.