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TIP - Year-End Business Tax Checklist

Tip of the Month

December 2004

TIP - Year-End Business Tax Checklist

Your to-do list for the Holiday Season may seem endless, but our quick business tax checklist is worth your time. These moves can help minimize your tax liability for 2004 and beyond.
  • Legal organization of your company
    Is it time to make a change in the way your business is organized from a legal standpoint? If your business has evolved or changed, perhaps you should consider incorporating or forming a limited liability company? Get legal and tax advice to determine your best option.

  • Accounting
    Review your business accounting methods with your tax and accounting consultant. It may be possible for some businesses to switch to the cash method of accounting to simplify record keeping.

  • Major equipment purchases
    There is still time to purchase computers or other equipment, and realize substantial tax write-offs - but hurry. You may be able to deduct up to $100,000 of the cost of equipment that is put into service before December 31. You might also be able to claim an additional first year write-off - check with your tax professional for more details.

  • Distributions and employee bonuses
    Make decisions regarding distributions. If you’ve had a profitable year, decide whether you want to accumulate earnings for expansion, or if you want to distribute them to employees, and/or shareholders. Bear in mind, that corporate dividends are taxed to shareholders at no more than 15 percent. Determine employee bonus amounts. If you use an accrual basis for accounting purposes, you may be able to deduct these payments to employees from this year’s tax bill, as long as bonuses are paid out before mid-March next year.

  • Qualified retirement plans
    If you’re considering setting up a retirement plan, contact your tax professional and financial advisor to help you set up and finalize a qualified plan before December 31. If you do, you may be able to make contributions as late as the due date of your tax filing.

  • Health and employee benefits
    Tackle escalating health care costs head-on. Consider shifting some of the costs to employees, assisting them with the cost of their premiums, and giving them the means to pay their portion on a pre-tax basis. If you have sufficient funding for additional benefits next year, ask your tax advisor to help identify other types of plans - like tuition assistance for continuing education, or funding for kids’ education needs - that could yield tax benefits for your business.

  • Charitable contributions
    You may be able to deduct charitable donations from this year’s tax bill, yet wait until early 2005 to hand over the cash. This provision applies only to C Corporations using an accrual accounting method, and payments to the charity must be completed 2 ½ months after this year ends. If you’re still deciding where to make a contribution and how much to give, check out www.Charitywatch.org or www.Give.org (the philanthropic division of the Better Business Bureau) to find out how various non-profits spend their money.
The above are designed to give you fuel for thought. As always, before taking action, consult your tax professional to determine what is right for your specific business needs and circumstances.
 

These articles are intended to provide general resources for the tax and accounting needs of small businesses and individuals. Service2Client LLC is the author, but is not engaged in rendering specific legal, accounting, financial or professional advice. Service2Client LLC makes no representation that the recommendations of Service2Client LLC will achieve any result. The NSAD has not reviewed any of the Service2Client LLC content. Readers are encouraged to contact their CPA regarding the topics in these articles.

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