Year End Tax Planning:
What Small Businesses Should Do Now
As the end of calendar year 2007 approaches, it's time to think about what can be done to minimize the amount of taxes paid to the IRS by your business. Although tax planning should be a year-round process, there are several year-end strategies you can take, particularly if you are an S Corporation.
Here are some things to think about as the end of the year approaches:
- Try to keep your inventory as low as possible on December 31st. Since you are taxed based on the value of your goods in stock, it makes sense to minimize your inventory.
- Accrual-based taxpayers may want to consider delaying end of December billing until early January. Since income is recognized when it is billed, you can delay the tax effects from 2007 until 2008.
- For the same reason, it makes sense to book all tax-deductible expenses and accounts payable before the end of 2007, rather than waiting until next year. This includes your personal expense report for December. Cash-based taxpayers must pay these expenses, while accrual-based taxpayers need only to receive and enter the bills.
- There is still time to set up a qualified retirement plan. A defined-benefit plan can be a good way to reduce taxes while preparing for your retirement.
Additional Year End Planning Tips
If you have kept track of your business mileage, the rate for 2006 is $.445 cents per mile, and the rate for 2007 is 48.5 cents per mile. Keep in mind that you must have kept a long of the miles you have driven to take this deduction.
Although not directly related to 2007 tax deductions, small business owners should taking some additional steps to ensure the the success of their businesses in 2008. If you expect a big change in your 2008 income, you should consult with an accountant now to minimize the tax impact. If you are a subchapter S corporation, you should plan to have the annual meeting of your Board of Directors as close to the new year as possible.
While this generic tax advice can be helpful to any small business, there are probably some specific steps your business can take to reduce taxes at the end of 2007. We have helped many small businesses in Atlanta and North Georgia minimize their tax liabilities and increase their profitablity. We would be happy to sit down with you and discuss your situation. Please feel free to call or contact us.
