Year-end tax planning strategies for your business

 

Most advice about year-end tax planning involves strategies for cutting personal taxes and I have provided five good ones in a previous article "Five year-end moves to cut personal tax".  But there are many moves that businesses, too, can make to reduce tax bills.  Here are five possibilities that might work for your company.

Section 179 deductions. Under Section 179 of the tax code, a business can deduct, or “expense,” the full cost of tangible assets (new or used) placed in service during the year. In 2008, thanks to a new law intended to boost economic activity, the maximum deduction has been increased to $250,000 (twice the 2007 limit of $125,000), provided that total purchases don’t exceed $800,000. (For each dollar above that ceiling, your deduction is reduced by a dollar.) Just be sure to get any equipment up and running before January 1, 2009.

Bonus depreciation. The Economic Stimulus Act, which became law last February, also lets businesses claim a 50% “bonus depreciation” deduction for new (not used) business equipment bought and placed in service during 2008. You can also take a normal depreciation deduction for the remaining value of the equipment, and may be able to combine this with Section 179 deductions. Qualified assets must be deductible under the Modified Accelerated Cost Recovery System (MACRS) and have a depreciation recovery period of 20 years or less. Specified water utilities, computer software, and leasehold improvements also qualify. For some property with a depreciation period of 10 years or longer, the deadline for placing into service is December 31, 2009.

Bad business debts. If your business uses the accrual method of accounting and you’re having trouble collecting from customers this year, you may be able to take some consolation by writing off the debts. The IRS lets you deduct unpaid bills during the year they become totally worthless, so consider stepping up collection efforts before the end of the year. You could send a series of dunning letters and follow up with phone calls and emails. Or you might hire a collection agency. Keep detailed records of all your activities.

Travel and entertainment. The tax law generally allows you to deduct 100% of travel expenses when you’re away from home on business and 50% of business-related meals and entertainment. This can be especially helpful during the final months of the year, when you may meet with clients to plan for 2009 or take them out to thank them for their business. You could also host a holiday party for your staff and deduct 100% of the cost as long as everyone is invited.

Business supplies. Finally, don’t forget you can deduct the cost of supplies for the office, ranging from paper clips to laser printer cartridges. Stock up on routine supplies you’ll need soon anyway to increase your deduction this year. The cost is deductible on your company’s 2008 return even if you charge it and pay the bill in 2009.

Other suggested tax planning articles:

Five year-end moves to cut personal tax

Starting a retirement plan by year end to save on taxes