By now most of us have a pretty good idea how 2011 is going to come out for our businesses. That means now is the time to get serious about our tax planning. By the time you are gathering your information for your tax returns next year, most of the best tax-planning opportunities are behind us. Now is the time to take charge of your 2011 year-end planning.
First, make sure you have a good idea of how your income is shaping up. Wrap up your October financials and make an estimate of how the last two months will go. Then get out a crystal ball and take a shot at estimating your 2012 income.
Then get together with your tax advisor to see how that translates to taxable income. Many items have different tax treatment than financial statement treatment. Once you have a good idea of where your taxable income is headed, ponder your options.
Your options might include:
- Planning your cash-basis deductions: If you are a cash-basis taxpayer, you can move many deductions between years just by choosing which year you write the check.
- Take a close look at related party expenses: When you are an accrual-basis taxpayer, you still are on a cash basis with expenses paid to cash-basis related parties.
- Ponder fixed asset purchases: If you are going to be purchasing fixed assets anyway, 2011 may be the year to buy them. New business property is eligible for "100% bonus" depreciation in 2011, allowing you to deduct the entire cost in the year of purchase. Usually fixed asset costs are capitalized and deducted as depreciation over a period of years. Even if you are buying used equipment, you may be eligible to take a Section 179 deduction for up to $500,000 of business asset purchases.
- Consider retirement plans: If you have been looking to add a profit/sharing or 401(k) plan to your employee compensation package, you need it in place by year-end if you want to deduct contributions for 2011.
Last but not least,
- Consider your tax payments: It often is good to make your tax payments for the tax year during the tax year. This helps you match your deductions for taxes paid to your income, and it may help you avoid Alternative Minimum Tax. This is especially helpful when your income fluctuates from year to year.
The tax planning game is pretty much over at year-end. After that, it's mostly just adding up the score.