As the year draws to a close, it’s important to review your business operations to determine which steps can be taken to effectively manage your current and future tax liabilities. Although business decisions should be made based on whether they make good financial sense, potential tax savings cannot be ignored. Here are some tax-saving devices that can be implemented on an annual basis:

Tax Savings Initiatives

  • In general, cash basis businesses should defer income and accelerate expenses when possible
    • Examples (assuming business calendar year)
      • Prepay January rent, mortgage and insurances in December
      • Make December purchases with a credit card, pay the credit card the following year
      • Defer income that is not constructively received in 2013
    • Exceptions
      • Expiring tax provisions
      • Increasing tax rates in future years will most likely reverse the deferral of income/acceleration of expenses rule of thumb
      • Potential utilization of net operating loss carryforwards may require foregoing the acceleration of expenses and, or make it advantageous to accelerate income into the current year
  • Accrual basis businesses may generally deduct in the current tax year cash payments made within 2 1/2 months after its tax year end for bonuses, compensation and long-term incentive plans
  • Accrual basis taxpayers should review their accounts receivable aging to determine whether write offs are necessary
  • Consider structuring the sale of business assets using the installment method
    • Recognizes gain as payments are received, thereby spreading the taxability over future tax years rather than in the year of sale
  • Consider a like kind exchange of long held appreciated business assets to defer gain recognition on disposition
    • Specific deal structuring is necessary
  • Evaluate whether there is sufficient basis in order to deduct a 2013 loss
    • If you own an interest in a partnership, LLC or S corporation, you can typically only deduct losses up to the value of what you’ve put into the entity plus undistributed income (plus loans in the case of an LLC or partnership)
    • Increase your financial commitment to the business in order to maximize 2013 loss deductions
      • In the case of an S Corp, by boosting capital
      • In the case of a partnership or LLC, by providing cash, by loaning, or by personally signing on the entity’s debt
  • Businesses may elect to currently deduct up to $10,000 in start-up expenditures, reduced by the amount by which the total exceeds $60,000. Start-up costs that are not currently deducted are amortized over 180 months, beginning with the month that the business begins operations.
  • Set up and, or maximize contributions to a retirement savings plan

If you have questions, please contact Bob Jahelka at 516-861-3707 or BobJahelka@dsjcpa.com or Victor C. Belgiorno at 516-861-3704 or VBelgiorno@dsjcpa.com.

 

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