While your annual tax preparation may have just ended on April 15th, now is also a great time to take a look at what you did last year and anticipate what you might expect for 2012 tax liabilities.While your annual tax preparation may have just ended on April 15th, now is also a great time to take a look at what you did last year and anticipate what you might expect for 2012 tax liabilities. Typically performed in June for businesses on a January 1st to December 31st accounting year, the mid-year business review provides opportunities for both you and your small business adviser to do a little reality check with regard to how your business is performing against those projections you put together last December.
What to Look For
Based on your current year’s taxes, review what you paid in taxes. There’s a fine balance between giving too much or too little each year. If you gave the IRS too much money and you’re receiving a sizable refund, don’t look at it as a forced savings program. “Letting the government borrow your money interest-free for twelve months just isn’t good business sense,” says Steven Feinberg, CPA and owner of Appletree Business Services in Londonderry, NH. “Conversely, if you paid too little, you may end up paying additional interest and penalties that can cost your business thousands or worse yet, result in an audit of not just the current tax year but several years,” he continues.
Catch those little deductions – now.
As you’ve probably just experienced with your 2011 tax preparation, trying to remember why you have a receipt from August 2011 for lunch and a book, isn’t as easy as one might think. By putting a simple, easy-to-use filing system in place now, you’ll save yourself and your bookkeeper headaches next year. Try using one of those expandable coupon holders with tabs labeled, meals, entertainment, office supplies, and any other common purchases you make through the year. Keep it in your car or wherever you find most convenient. Then either make notes on the reverse of the receipt or keep a journal so you can easily track the who, what, where, when and why of those purchases. For the tech-savvy, try using a hand-held scanner to instantly scan the receipts at the end of your work day.
Build your nest egg.
Small business owners are often so busy trying to keep their company running that they forget that the whole purpose of having your own business is to build and plan for your future – and that includes your retirement. If you have an established payroll system and you receive a regular paycheck, have a portion of the check (even if it’s a very small portion) automatically transferred to a retirement account. If you never actually ‘see’ the money each pay period, you won’t miss it but it will continue to build over the months and years. The small payroll contribution is also much easier to plan and manage than trying to make large year-end contributions.
Plan for Capital Expenses
Looking to add new equipment? Move to a bigger facility? A mid-year review also allows you and your financial team to plan for large capital purchases and make corrections to the plan if things are happening slower or faster than you originally intended. Not only will you be better able to set timelines, but you can also take advantage of special Section 179 deductions and other qualifying deductions before they expire. The Section 179 limits that were raised as part of the 2010 Jobs Act will be reset as the clock strikes midnight on December 31, 2012. Section 179 limits for 2012 allows for businesses to write-off up to $139,000 of qualified capital expenditures. There is a dollar-for-dollar phase-out once the expenses reach $560,000. Additionally, the bonus depreciation was increased by 50 percent as part of the Tax Relief Act of 2010. The bonus depreciation is especially useful for small businesses that have not been profitable in the 2012 tax year, allowing them to use the 50 percent bonus depreciation and then carry-forward (or carry-backward) the loss to more profitable years. There is a five year forward or backward allowance for the deduction. If there’s a large purchase you’ve been putting off, 2012 may be the year you’ve been waiting for to take advantage of the best small business tax situation in decades.
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Please be advised that, based on current IRS rules and standards, any advice contained herein is not intended to be used, nor can it be used, for the avoidance of any tax penalty that the IRS may assess related to this matter. Any information contained in this article, whether viewed or subsequently printed, cannot be relied upon as qualified tax and accounting advice. Any information contained in this article does not fall under the guidelines of IRS Circular 230.
Copyright Information 2011 Professional Association of Small Business Accountants