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Tax strategies for your business this year

It's Your Money

Posted: December 17, 2008 8:29 p.m.
Updated: December 18, 2008 4:59 a.m.
The month of December is winding down, but you still have time to make some tax-advantaged moves for your business before the year is up. These are a few ideas to put on your list.

Capital contributions
Was 2008 a tough year? When you have losses in your Subchapter S corporation, the amount you can deduct on your personal tax return may be restricted. That is because losses are limited to your basis.

Injecting capital or making a direct loan to your business before year-end can help increase your basis.

Review inventory
Not only do you need an accurate physical inventory to prepare your taxes, but you could also remove obsolete, unsalable or damaged items to reduce your year-end inventory balance.

A reduction of your inventory will result in lower taxable income. One possible idea is to donate inventory such as food or books to qualified charities.

Retirement plans
Dec. 31 is the last day to set up certain retirement plans in order to take a deduction on your 2008 return. Many business owners like the idea of setting up a plan and find that it can help them save some money on taxes but do not want to relinquish their cash at this time of the year. In some instances, you can wait until the due date of your tax return, including extensions, to make the actual contribution - and still claim a deduction in the current year.

The IRS Web site states: "Taxpayers have various options to save for retirement. You need to be mindful of their contribution deadlines and limits.

"For example, Dec. 31 is the deadline for contributions to a 401(k) plan, while April 15 is the deadline for IRA contributions. Taxpayers can get help from their 401(k) plan administrators where they work.

"Publication 560, Retirement Plans for Small Business, and Publication 575, Pensions and Annuity Income, may also help. You have more time to make contributions to individual retirement arrangements (IRAs) for a given tax year. You generally have until April 15 of the following year."

Reimburse yourself
Did you personally pay for business expenses? Collect the receipts and write yourself a check from the business account. This is especially important for deducting health insurance premiums paid by you as a Subchapter S corporation shareholder.

The IRS states that "some taxpayers, such as the self-employed, may have some discretion regarding when they receive income. Properly deferring income until next year can lower your taxable income and tax bill this year. This strategy will, however, raise your tax bill next year."

The idea is to be mindful of how changes in this year will affect you in a future year. Tax planning is essential to see all sides of the financial picture.

Update corporate minutes. Many business owners tend to be lax in this area. In an audit the corporate minutes are the first thing the auditor asks to see and review. It is important to document the reasons for business decisions, such as why you chose a salary level, or your approval of an expense reimbursement plan.

Julie M. Sturgeon is a certified public accountant in Valencia, specializing in individual and business tax issues. "It's Your Money" typically appears Thursdays and rotates between a handful of the valley's financial professionals. Her column reflects her own views and not necessarily those of The Signal.


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