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Year-End Tax Planning Checklist for Businesses

 

Quick Links to Specific Year-End Tax Planning Strategies & Checklists:

–    Year-End Tax Planning & Strategies Overview
–    Year-End Tax Planning – What’s New for 2018
–    Year-End Tax Planning Checklist for Individuals
√  Year-End Tax Planning Checklist for Businesses       <– YOU ARE ON THIS PAGE
–    Year-End Checklist for Payroll & 1099 Reporting

 

Year-End Tax Planning Checklist for Businesses

Cash Basis Receipts & Spending –

   If your business is on the cash basis accounting method, defer income by delaying invoicing customers.  Note that “constructive receipt” determines when income is received, which includes anything received, in hand or via the mail.

   Also for cash basis taxpayers, pay expenses before the end of the year, whether by mailing the check or through the use of credit cards.  Don’t forget to consider interest on loans and any State/County taxes.

   Purchase non-inventory supplies and do any needed repairs and maintenance by year-end.

   Pay your children for their time spent working in your proprietorship business.  They can each earn up to $12,000 without having to file and pay Federal or Idaho taxes ($2,175 for Oregon), and your business gets the deduction!  Remember that payroll reports and W2s need to be filed.

  If you are considering maximizing owner profit-sharing contributions or C Corporation owner compensation, you need to have your business accounting up to date and accurately estimate year-end net taxable income, as well as make any corresponding or related transaction by December 31.

√  Consider the effectiveness of year-end expenditures on “passive” business activities.  If you have passive business investments (i.e. rentals) and anticipate having a loss, be aware that there are limitations to the amount of passive losses that can be taken on your individual tax return.

Year-End Purchases –

  Buy equipment by December 31 to take advantage of the business property expensing / depreciation options.

  • Section 179 Expense – For equipment you buy in 2018, you don’t have to pay cash; financed purchases qualify if the asset is received and put into service by year-end.
    • The new law increased the maximum deduction from $500,000 to $1,000,000.
    • It also increased the phase-out threshold from $2 million to $2.5 million.
    • The new law also expands the definition of section 179 property to include certain improvements made to nonresidential real property.
    • There are special rules for vehicle purchases.  Vehicles under 6,000 pounds do not qualify for the Section 179 expense.  SUV’s over 6,000 pounds are limited to $25,000 of allowable Section 179 expense. For more information, see my post “Section 179 Deduction”.
  • Bonus Depreciation is reestablished allowing a deduction of qualified assets placed in service during the year.
    • The new law increases the bonus depreciation percentage from 50 percent to 100 percent for qualified property acquired and placed in service after Sept. 27, 2017, and before Jan. 1, 2023.
    • Bonus Depreciation was limited to qualified “new” assets. The definition of eligible property was expanded to include “used” property if the property is acquired from an unrelated party during the year. all the following factors apply:
  • State Differences… Note that some State amounts for Section 179 and/or Bonus Depreciation may be different which could result in a State taxable income amount different from your Federal taxable income.

Year-End Action Items –

   Take a physical inventory count and consider items that are obsolete or damaged.  If your business produces, purchases or sells merchandise, you must have an accurate accounting of each year-end inventory to compute the cost of goods sold.

   If you anticipate having a loss from your ownership interest in an S Corporation, Partnership or Limited Liability Company (LLC), make sure you have enough basis to deduct these losses on your individual tax return.

Retirement & Employee Benefit Programs –

   If you want a Keogh, Profit-Sharing or Pension Plan, it must be set up by year-end.  Businesses will have until the tax return deadline in 2017 to make contributions to these plans and still take the deduction on your 2017 return.

   Set up an employee benefit program (i.e. AgriPlan/BizPlan) to take a 100% tax deduction on your Proprietorship (Schedule C or F) for family health care expenses.

Business Entity Changes –

√   If you plan to incorporate your business, you need to do this before you begin operating in the next year.  Contact your legal counsel to get this started as soon as possible.

 

 

Circular 230 Disclosure: This is to advise you that, unless expressly stated, nothing in this communication (including any attachment or other accompanying materials) was intended or written to be used, and it cannot be used by any taxpayer, for the purpose of avoiding any federal tax penalties, or for promoting, marketing, or recommending a partnership or other entity, investment plan or arrangement to anyone.