The mid-way point of the year is a good time for you to review the financial and tax health of your small business. Taking action now can help you lower your 2012 taxes and put you in a stronger financial position for the year ahead. Here are seven steps to take now:
- Meet with a tax adviser. Waiting until it is time to file your taxes to start thinking about taxes can cost you. Make a mid-year appointment to review your financials and identify steps to take to lower your taxes while there is still time to act.
- Assess your estimated tax payments for 2012. Review what your business has made to date and your forecast for the remainder of the year. Assess your estimated tax payments to avoid underpayment penalties as well as possible overpayments. Adjust your remaining estimated tax payments as necessary.
- Reevaluate your business entity. Many small businesses start out as sole proprietorships or partnerships, but transition to another entity. If your business is not incorporated, you may want to consider incorporating to shelter you from some financial risk and possibly save some money on taxes. Also, failing to adjust your business entity for your revenue level can be a costly mistake.
- If you have an S corporation, review your salary and distribution requirements. Make sure your salary and distribution payments are at the optimum levels. Failing to properly balance the amounts paid as salary versus distribution can result in either higher taxes or an increased audit risk.
- Take charge of your recordkeeping. To make the most of your business deductions, you need accurate, comprehensive records. It is important to keep track of your business expenses and keep up to date. Consider offloading the task to someone else, investing in a technology solution (e.g., a receipt scanner or an app) or dedicating 30 minutes each week to expense tracking.
- Plan equipment purchases. Take advantage of a first-year expense writeoff for equipment placed in service by the end of the year. Business owners and self-employed individuals are allowed a first-year depreciation deduction of 50 percent of the cost of qualified property acquired and put in service in 2012 (up to $139,000). This amount is set to fall to $25,000 next year.
- Plan for retirement. Set up a retirement plan if you have not already done so. If you have a plan, reassess your contributions.
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