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Tax Planning Strategies for Businesses

Pittsburgh Business Times - Date: Friday, October 5, 2012

Kevin McQuillan, principal at The McQuillan Group, began his public accounting career more than 20 years ago. The Duquesne University graduate has spent time as a principal in accounting firms of various sizes over the years. Here, McQuillan offers his top 10 tips on tax planning strategies for businesses.
  1. Create a basic tax plan: Start reviewing your tax situation now, as options that impact taxable income are available prior to year end. After year end, options are limited.

  2. Know your bottom line: Tax planning requires accurate data. Ensure your business has the appropriate level of accounting personnel that can provide current and accurate data. Additionally, proper data maintenance is imperative if audited.

  3. Prepare a formal tax projection: Business owners have multiple sources of income, as the vast majority of closely held businesses are flow-through entities. All significant operations of the owner(s) need to be considered in tax planning for each business and the related individuals.

  4. Don’t get caught in the battle of taxes versus financial reporting: Be aware of the impact that tax decisions have on financial reporting to third parties such as banks and bonding companies. Positive tax results may mean a negative impact for financial reporting, which can affect covenants and hamper the financial growth of the business.

  5. Timing is everything: Cash-basis businesses should consider the proper timing of transactions. These businesses deduct most expenses based on when they are paid, not when incurred.

  6. Be aware of expiring or changing tax rates and provisions: A number of tax provisions are set to expire or change at the end of 2012 (i.e. bonus and Section 179 depreciation and capital gain rates). Given today’s political acrimony, many tax provisions may not be extended. Consider whether it is best to take advantage of these provisions and rates in 2012.

  7. Consider retirement planning options: New opportunities exist to save on taxes via retirement plans. New plans with catchphrases like “new comparability” might apply and provide additional tax planning benefits as well as savings for the future.

  8. Review the balance sheet: Review all components of your balance sheet for additional deductions (i.e. obsolete inventory, abandoned leasehold improvements or bad debts).

  9. Beware of penalties: Penalties for noncompliance associated with various tax filings have increased, so know your deadlines and avoid costly penalties. For example, penalties associated with filing 1099s have been raised exponentially. If you are using subcontractors, obtain the required information needed to prepare the 1099s now, not when forms are due.

  10. Plan for business succession: A window of opportunity is scheduled to close on Dec. 31. Business owners who have not considered taking advantage of the gift tax rules that allow the gifting of up to $5 million worth of value are missing a significant planning opportunity.

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