The Costco Connection - December 2014

By Don Sadler

IF YOU’RE LIKE many small-business owners, taxes are the last thing you want to think about during the holidays. But taking time now to plan some year-end tax moves could result in significant savings when you file your 2014 tax return in the spring.

“Year-end tax planning is the most important step business owners can take to make sure they pay the minimum amount of taxes due at tax-filing time,” says Arthur F. Rothberg, a Costco member and the managing director of CFO Edge ( cfoedge.com), in Pasadena, California, a provider of outsourced CFO services.

“Without proper planning, owners will miss out on many easy-to-implement tax-saving moves,” Rothberg adds. “As a result, they will pay more in taxes than is necessary.”

Popular year-end strategies

The most popular year-end tax strategy for cash-based businesses is to defer income into next year and accelerate deductions into this year. “The result is that you will reduce your income this year and lower your 2014 tax bill,” says Roger W. Lusby III, tax partner and managing partner of the Alpharetta, Georgia, office of Frazier & Deeter ( frazierdeeter.com).

To accomplish this, hold off on sending some (but not all) December invoices until January. This will enable you to defer paying some amount of tax until next year, thus saving money now. Meanwhile, if you are planning to buy computers, equipment or office furniture early next year, purchase these items and place them in service before December 31 so you can deduct these expenses in 2014.

Lusby points out that final repair and
maintenance regulations issued by the IRS
“Business owners should talk to their
CPA about whether these new regulations
could result in additional deductions this
year,” says Lusby.

It’s also smart to determine before

AS YOU DO year-end tax planning,
be aware that the 50 percent
bonus depreciation expired at
the end of 2013 and has not
been renewed for this year.

Over the past few years,
many businesses have used
bonus depreciation to take
advantage of generous
write-offs when purchasing
tangible business property
and equipment.

Also, the Section 179 expensing limit has been reduced from

$500,000 to just $25,000 for this
year. If you haven’t
yet spent $25,000

on tangible business property this year, consider doing so before

December 31 if you can.—DS

Year-end planning and depreciation

year-end whether you will be subject to the alternative minimum tax, or AMT. The AMT makes adjustments to taxable income for certain items in order to calculate AMT income, and owners have to pay whichever tax is higher: their regular tax or the AMT.

Rothberg recommends working with your CPA before December 31 to figure out if you will be subject to the AMT. “If you are, you might be able to make adjustments to some of your deductions, exemptions and exclusions to avoid the AMT,” he says. “But you can’t do any AMT planning after year-end, so don’t delay.”

Year-end tax planning

The Costco Connection

Costco offers a variety of business services, including payroll, payment processing, checks and forms, health plans and more.

Visit Costco.com and click “Services.” ©

3 DALI A / S H U T TE RS T OCK

Watch out for new ACA taxes

One gotcha that may catch many business owners by surprise is two new taxes on high earners imposed by the Affordable Care Act (ACA) beginning with 2013 tax returns: the net investment income tax (or NIIT) and the additional Medicare tax. The NIIT is a 3. 8 percent flat tax on investment income (including interest, dividends and capital gains), while the additional Medicare tax is a 0.9 percent flat tax on earned and self-employment income.

Both of these ACA taxes are assessed on individuals with adjusted gross income (AGI) in excess of $200,000 and on married couples filing jointly with AGI in excess of $250,000. Lusby says that one possible way to avoid these taxes is to defer some income into next year in order to reduce your 2014 AGI.

Finally, don’t forget to make an additional contribution to your 401(k) or solo 401(k) plan before December 31. “Any money you contribute to your 401(k) before year-end will reduce your taxable income for 2014, thus reducing your tax liability for this year,” says Lusby. C

Don Sadler is a freelance writer based in Atlanta who specializes in topics related to small business and finance. Reach him at don@donsadlerwriter.com.