The following are generally applicable year-end tax-saving tips for businesses. However, individual circumstances can have a significant impact on the appropriateness of tax strategies for a particular person or business. Contact us for a tax-planning meeting where we can discuss which approach would be best for you.
Beginning in 1999, you can claim a home office deduction if you use a portion of your home exclusively for administration of your business, but only if you don't have another fixed location to conduct these tasks. Administration includes such jobs as scheduling appointments, billing clients, and keeping books and records. Previously, you could claim the home office deduction only if you actually carried out your income-producing activities in the home office. Also remember, when you eventually sell the house, some of the depreciation expense you've claimed on your home office may be recaptured and taxed at 25%.
To minimize 2000 income, self-employed individuals and businesses on a cash basis can delay sending out invoices until just before year-end so that payment is received in 2001.
There are a number of ways to accelerate expenses or deductions into 2000. Consider stocking up on supplies just before year-end. Cash basis businesses can make purchases using a company credit card and get the deduction this year even though the bill is paid next year.
You should review your depreciation expense as part of your annual tax plan. For example, if you place too much depreciable equipment into service in the fourth quarter, it can adversely affect your depreciation deduction for the whole year.
If you've upgraded software during the year, make sure you write off any unused depreciation on the old software. Usually software is depreciated over a three-year period, but often it becomes outdated and is replaced after only one or two years.
In some cases, bonuses can be deducted as a 2000 expense and paid in 2001. They must be paid within the first 2-1/2 months of 2001, though.
If self-employed, you can deduct 60% of your health insurance premiums on your individual return.
If you own your own business, consider employing your children. Providing it's a genuine job, the business will get a tax deduction, and the children will earn spending money.
Don't overlook the tax break that allows you to deduct the cost of new business equipment as an immediate expense, instead of depreciating it over a number of years. You can treat up to $20,000 of your equipment purchases in 2000 this way. The deduction is phased out if you buy more than $200,000 of equipment in the year, and certain other restrictions apply, but it's a great way for many small businesses to reduce their current-year taxes.
If your business is on the accrual basis, another area to consider is the bad debt write-off. Provided you can show that you've made attempts to collect unpaid receivables, you can deduct them as an ordinary business loss.
This is a good time for every business to review its retirement plan. There are many plan options available, including the new SIMPLE plans established in 1996, but only recently becoming popular. The best plan for your business will depend on various factors, such as how many employees you have and how profitable your company is. Some plans have to be established by certain dates in order for you to make 2000 contributions to them.
If you're self-employed, investigate establishing a Keogh or SEP retirement plan to shelter current-year income and provide a tax-deferred way to accumulate retirement savings. A Keogh plan must be set up by December 31, although you don't have to fund it until the following April.
Contact our office if you have questions or want more information on strategies that could reduce your 2000 tax bill.
© Copyright 2000 Raymond S. Kulzick. All rights reserved. 001124.
This publication provides business, financial planning, and/or tax information to our clients. All material is for general information only and should not be acted upon without seeking appropriate professional assistance.