By TIM RONALDSON | Business Trends
Paying taxes to the IRS is not a bad thing, and it’s a hump most people need to get over.
So says Mark Hendrix of Burkett, Burkett & Burkett Certified Public Accounts.
Instead of getting tied down searching for tax deductions, business owners should instead “worry about profits first and taxes second,” he said.
With only three months left in the year, now is the time when business owners often search for ways to defer taxes to next year, and one of the more popular ways to do so is through the purchase of equipment. Under Section 179, business owners can write off up to $250,000 of newly acquired assets, as long as they are put into use this year.
“You can do things right up to the very end, in terms of planning,” Hendrix says. At the same time, he warns that large purchases shouldn’t be forced only as a way to defer taxes.
“Let’s make sure there’s a need. And if there’s a need, let’s buy as cheap as we can,” he says.
Conversely, Hendrix said some of his clients find this time of year to be great for finding deals on equipment as retailers look to unload inventory.
Tax laws can change from year to year, and are oftentimes complicated. Hendrix suggests people visit the IRS Web site, www.irs.gov, and sign up for its free e-mail service, which keeps subscribers in tune with tax tips and reminders. The “Tax Professionals” tab of the Web site breaks down the new tax laws and gives descriptions as to who qualifies for what programs.
Under new law this year, until Oct. 15, small businesses can carry back losses up to five years, instead of two. And whereas in the past, these losses would have to be applied to the oldest year first and then work forward, the business owner can now pick the best year to apply the loss so as to maximize the best possible tax impact. While Congress is considering extending the Oct. 15 deadline, Hendrix said nothing has been finalized yet.
As opposed to years past, some individuals are accelerating income instead of deferring it because of impending tax law changes. As of Jan. 1, former President Bush’s tax laws will expire, and rates are almost certainly going to increase. As a result, some are looking to “push money into” 2009 – by speeding up collections on invoices, for example – instead of delaying doing so until after the new year.
People often get hung up on writing stuff off, Hendrix said, “but it’s nothing but timing.” Much like eating a pizza, taxes will eventually be paid, whether you decide to eat all eight slices now or “defer” some of the consumption by wrapping a few in the fridge.
Hendrix suggests breaking down your business’ revenue stream by categories, like the government forces you to break down expenses. Department stores, for example, figure out sales by square foot to determine floor space. Without this information, Hendrix said the stores wouldn’t be able to make effective business decisions.
Many business owners will look to do everything he or she can to adjust practices for a tax benefit, but Hendrix says it’s the individual tax return that shouldn’t get overlooked. Most business entities are conduits, Hendrix said, with the owners, managers or proprietors filing business gains, or losses, on individual tax returns; only C corporations file separate taxes.
“The tax law changes that affect the individuals, in essence, affect the businesses as well,” he said. “In many cases, both the individual and business changes will affect that.”
So taking advantage of tax credits and incentive programs related to energy efficiency, for example, can only improve a business owner’s overall tax picture.
While improving your tax situation toward the end of the year is not a bad practice, the best way to improve it long term is to monitor it year-round.
“Record keeping is a year-long thing. I make a focus on making money, and then you put a focus on the tax impact,” he said.
Hendrix gives his clients an accounting schedule with daily, weekly, monthly, quarterly and yearly tasks, and the daily tasks are as important as the yearly ones, he said: “Pennies are as important as dollars.”
November 22nd, 2009 at 11:50 pm
I’ve been involved in taxes for lengthier then I care to admit, both on the individual side (all my employed life history!!) and from a legal stand since satisfying the bar and pursuing tax law. I’ve rendered a lot of advice and righted a lot of wrongs, and I must say that what you’ve put up makes perfect sense. Please persist in the good work – the more individuals know the better they’ll be armed to deal with the tax man, and that’s what it’s all about.