8 Small Business Year-End Tax-Planning Tips

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While many small-business owners are working nonstop during the holidays to meet the demands of their customers, they also have to worry about meeting the demands the IRS will be making on them shortly.

While time is short, experts say there are a few things they can do to minimize their tax liabilities. We've already covered some deductions that are expiring at the end of the year, but there are some other strategies for small-business owners looking to ease their tax burden.

• For some small businesses, this may be the time of year to accelerate expenses and hold off on income. "You really have to look at your cash flow and consider if there are some invoices that you can bill out early next year, for example, so that you can possibly offset any tax liability," says Mary Canning, dean of the Schools of Accounting and Taxation at Golden Gate University and an independent consultant. "If you can defer some income to the new year, you might even get a refund."
• If you are among the fortunate business owners who are able to pay bonuses this year, you can declare the bonuses on your 2011 taxes and pay them out by March 15, 2012. "In this day and age, if you're paying out bonuses at all, you and your employees should consider yourselves in a good position," Canning said. She said that by deferring the payment of bonuses until 2012 but declaring them on their 2011 taxes, small-business owners give themselves a little leeway in the early part of the year.
• Have you invested in research and development over the past year? You may be due a tax break, said Michael Trabold, senior manager of compliance for Paychex, a provider of taxes, payroll and benefits-outsourcing solutions for small to medium-size businesses. "You don't have to be a large corporation, and in our experience this is a deduction that small-business owners don't always consider," Trabold said.
• If you're planning to establish a 401(k) or other retirement plans for yourself or your employees, it could be beneficial to get it done before the end of the year, Trabold said. "If this is something you plan to do, you can potentially deduct the initial setup costs this year," he said.
• It is also a good time to examine you property tax bills if you own a building, said Jay Pelham, CFP, executive vice president and managing director of private banking for Gibraltar Private Bank & Trust. "If you look at the property taxes you are paying, it may be based on an inaccurate assessment of the value of your property," he said. "It may make sense to look into appealing those taxes, as it could be found money."
• It is also a good time for small-business owners to take a close look at their relationships with financial institutions, he said. "Look at your operating lines of credit and commercial mortgages," he said, as many banks are restructuring or looking to move accounts off of their books, even if those accounts are in good standing. "It may be that lending to your type of business is no longer part of their strategy," he said. "You would rather do that on your timetable than the bank's timetable. And many banks will work with business owners on bundled services."
• Sandy Abalos, CPA, managing partner at Abalos & Associates PLLC, says that year-end is a good time to consider which business entity makes the most sense for your company going forward. For LLCs taxed as sole proprietorships, she says the Medicare contribution is going up 0.9 percent for self-employed income over the thresholds. In addition, there will be an unearned-income Medicare increase of 3.8 percent assessed on interest, dividends, annuities, rents, capital gains and passive income from partnerships or S-corporations over the thresholds. "While this will take effect in 2013, you really need to start planning for it now," she said.
• Cindy Lewis, CPA, tax manager at Abalos & Associates PLLC, says small businesses should be on the lookout for local tax credits and other opportunities to reduce their tax bills. "There are things such as the small-business health-care tax credit and other credits that small-business owners may not be aware of."

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