The Small Business Jobs Act and the pending tax hikes for 2011 may throw a wrench in your normal year-end routine as an entrepreneur or small business owner. But not to fear, here are four tips to weigh when delving into your tax-time paperwork.
1. Rev up your income. You may be re-reading this right now. Yes, that's right, rev up your income. In the past, the standard advice is to delay income, and there are still many cases where this practice still applies. However, every taxpayer will be exposed to the largest tax hike in United States history slated for 2011 — unless Congress addresses the hike before the end of the year. Income taxes and various credits and deductions, capital gains taxes, dividend taxes, and even estate taxes are all scheduled to inflate, barring one more major piece of legislation from Washington, DC in 2010. For instance, if legislation is not passed, and you are currently in the highest tax bracket of 35 percent, this bracket will balloon to 39.6 percent if the tax cuts expire. This means it would be advantageous for you to move income in the current year when it will be taxed at a lower rate. If you are self-employed, you have more wiggle room as to when you receive income more than other workers do. As we approach the year's end, make sure you bill your customers and clients immediately and follow up on past-due accounts. If you are in the midst of negotiating for new business or a new project, attempt to receive advance payment.
2. Invest in your business. The end of the year is also a good time to purchase items your business will need in the immediate future to maximize deductions for this year. In fact, small businesses that invest in equipment and other assets can capitalize on the 50 percent "bonus depreciation" deduction until the end of 2010 — thanks in part to the Small Business Jobs Act. Additionally, new businesses can deduct more money and recoup start-up costs up front, with the allowable amount of start-up cost deductions rising to $10,000 in 2010. The expensing election also has an impact. It has been extended through 2011, and the allowable amount has been elevated to $500,000 and the investment limit to $2 million — the highest amounts ever allowed. Small businesses can choose to elect expense costs in either year that best fits within these new increases and their budgets.
3. Audit your inventory. You may want to check your inventory for goods that have been damaged or have become obsolete, depending on what type of company you own. The fall in market value of the inventory can produce added deductions for your company.
4. Contribute to your retirement plan. Add more money to your existing retirement plan or set one up before year's end. Consult with your financial planner or accountant to arrive at the best strategy for optimizing deductions.
With all of the chaos and excitement the holiday season brings, make sure you make a point of setting time aside to end the year on a good note financially.
Julie Henningfield is a member of the Marketing Team for BizFilings, the preferred online incorporation experts for over 500,000 small business owners. Read more about Julie here.