It’s that time of year again: time to start working on those startup
tax estimates—otherwise known as that time of year when you need to
start getting your act together! If you engaged in mid-year tax
planning, great! You’re ahead of the game. But, if you didn’t, you’ll
want to start those estimates now so you can avoid any unwelcome
surprises come tax time.
Even if your company didn’t have much of a profit (or any profit at
all!) to show for the year, you still need to stay on top of your tax
obligations. In the case that your company has no taxable income, you’ll
want to try to maximize your losses, reducing the amount of book tax
differences. And of course you want to make sure you file in time to
stay in compliance.
Follow these steps to start the process of end-of-the-year startup tax planning:
1. Profit and loss analysis. Hopefully this isn’t
the first time all year you’ll be checking out your profit and loss
statement. Presumably you’ve been keeping track of all of your expenses
and income throughout the year. Once you’ve confirmed that these numbers
are current and reconciled, print out a current profit and loss
statement, reflecting the year-to-date with a comparison to the previous
year. Comparing your profit and loss statement to the previous year is
key in understanding how your business is performing, both in terms of
cash in and cash out. Note that whether you select cash or accrual
accounting will depend on your reporting of income and expenses for tax
purposes.
2. Project to year-end. Use the data in your
year-to-date profit and loss statement to project your income and
expenses out through the end of the year, factoring in any
end-of-the-year seasonal impact.
3. Identify significant book tax differences. For
example, the purchase of any capital assets will affect your tax
liability, so make sure that transactions such as these have been
captured in your financial statements. Fixed assets should show up and
you should record depreciation. If you acquired fixed assets, you can
take deductions for 50% of depreciation, plus the asset, plus the
regular depreciation on the remaining basis. Make sure you’re not
missing out on these types of tax savings.
4. Consider the impact of your business return on your individual return. Depending
on your classification, all the things that impact on your corporate
tax are going to impact on your individual tax as well. For example, if
your business is classified as an S corp, profits are factored into your
individual tax return, though not subject to self-employment tax. On
the other hand, if you own a C corp, your company will incur and pay
tax, separate from your individual and self-employment tax.
5. Consult with a tax professional. You can only get
so far on your own when it comes to tax planning. Ultimately you need
to work with a professional whose business it is to understand all of
the most recent changes to tax law, all possible exemptions, credits,
etc. Your tax specialist will be able to help you to identify what you
can do to minimize your taxes for the year. Whether it’s AMT credits or
capital losses, your tax professional will guide you through the tax
planning process and identify factors that will directly impact your tax
liability.
Friday, December 20, 2013
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