2015 Year-End Tax Planning Tips for Small Businesses

Virtually all small business owners are frustrated with our current tax system. In fact, five out of today’s Top 10 small business concerns relate to state and federal tax issues, according to the Small Business Problems and Priorities survey released by the National Federation of Independent Business (NFIB), a small business advocacy group. Small businesses are most frustrated by the complexity of the tax code and the disparity between effective tax rates of small vs. large businesses. Tax reform will undoubtedly be a hot button during the 2016 presidential race.

Meanwhile, business owners who engage in proactive planning can take some of the “bite” out of their taxes. Here are some simple strategies for you to consider during the fourth quarter of 2015. These maneuvers require action before year end, so don’t delay.

Defer Income and Accelerate Deductible Expenses (or Vice Versa)

The majority of small businesses are organized as so-called “pass-through entities” that don’t pay corporate-level income tax. If your business is a sole proprietorship, partnership, limited liability company or S corporation, your share of the business’s income is reported on your Form 1040 and taxed at your personal rate.

The individual federal income tax rates are scheduled to be the same for 2016 as they are for 2015. Therefore, deferring revenue into 2016 while accelerating deductible expenses into 2015 makes sense if you expect to be in the same or a lower tax bracket next year. In that case, this strategy will, at a minimum, postpone part of your tax bill from 2015 until 2016.

On the other hand, if your pass-through business is thriving, and you expect to be in a higher tax bracket in 2016 (say, 35% vs. 28%), take the opposite approach. If possible, accelerate revenue into 2015 and postpone deductible expenses until 2016. That way, more income will be taxed at this year’s lower effective marginal tax rate instead of next year’s higher rate.

If your business is a C corporation, you need to consider the 2016 corporate income tax rates. They are also scheduled to be the same as in 2015. So if you expect your corporation to be in the same or a lower bracket in 2016, postpone revenue into next year while accelerating deductible expenses into this year. If you expect to be in a higher tax bracket in 2016, try the opposite approach by accelerating taxable income into 2015 and deferring deductible expenses to 2016.

How to Juggle Income and Expenses (for Cash-Basis Entities)

Juggling year-end revenue and expenses is fairly simple if your small business uses the cash method of accounting for tax purposes. The cash method gives you flexibility to manage your 2015 and 2016 taxable income to minimize taxes over a two-year period. Let’s look at some specific cash method strategies to consider if you expect business income to be taxed at the same or lower rate next year.

First, before year end, use credit cards to pay recurring expenses that you would otherwise pay early next year. You can deduct the charges in 2015 even though the credit card bills won’t be paid until next year. This favorable treatment doesn’t apply to revolving charge accounts issued by retailers, however: You can’t generally deduct business expenses charged to your retail store account until you pay the bill.

Another trick is to pay expenses with checks and mail them a few days before year end. The tax rules say cash-basis entities can deduct the expenses in the year checks are mailed, even though they won’t be cashed or deposited until early next year. For big-ticket expenses, send checks via registered or certified mail to prove they were mailed in 2015.

The tax code also allows you to prepay some expenses for next year, as long as the economic benefit from the prepayment doesn’t extend beyond the earlier of:

1. 12 months after the first date on which your business realizes the benefit, or

2. The end of 2016 (the tax year following the year in which the payment is made).

For example, you can claim 2015 deductions for prepaying the first three months of next year’s office rent or prepaying the premium for property insurance coverage for the first half of next year.

On the revenue side, the general rule is that cash-basis taxpayers don’t have to report revenue until the year they receive cash or checks in hand or through the mail. To take advantage of this rule, put off sending out some invoices for work completed in late December so that you won’t get paid until early next year. (Of course, you should never do this if it increases the risk of not collecting the money.)

If you expect to pay a significantly higher tax rate on next year’s business income, try the reverse of these strategies to raise this year’s taxable income and lower next year’s. For example, a cash-basis taxpayer who expects to be in a higher tax bracket in 2016 might ship before year end (and invoice) products scheduled for delivery in early January in the hope that customers will pay by December 31 and hold off on sending checks to vendors until after January 1.

Take Advantage of NOLs

These business tax planning strategies also can be used to create (or increase) a 2015 net operating loss (NOL). This occurs when a business’s expenses exceed its income. You can then choose to carry a 2015 NOL back for up to two years in order to recover taxes paid in earlier years, which may be a welcome boost to your cash flow. Or you can choose to carry the NOL forward for up to 20 years, if you think your business tax rates will go up and the NOL deduction could save you more taxes in the future.

Meet with Your Tax Adviser

These strategies only scratch the surface of proactive tax planning moves. Business owners who assess matters before year end have many more tax-planning strategies at their disposal than those who wait until after the start of the tax filing season.

© Copyright 2015. Thompson Reuters.  All rights reserved. Brought to you by: Gordon Advisors, P.C.

Deducting Tickets to Sporting Events

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by Clarissa M. McCoy, Gordon Advisors, P.C., 248 952 0200

Baseball is in it’s post season, college and pro football season is grinding away and pro basketball and hockey seasons are just starting!  There are a lot of opportunities for companies to take clients, and prospects to many of these games and often companies wonder if they can deduct these sporting event tickets as a business expense, and if so, how to do it correctly.

If you want to deduct as a business expense, the company must meet several conditions.  First, the sporting event must serve a purpose where the parties are there to conduct business.  That means at the sporting event, the parties must engage in a business meeting, negotiation, discussion or transaction.  Also an employee, or representative from the company who provided the tickets must be present.  If they are not, than the tickets are considered a gift.  Additionally, it is recommended that for the business purpose of the sporting event, a private suite is ideal.  Substantial distractions can’t take away from business purposes.

There are many facets when it comes to entertainment, and gift deductions that really depend on the specific situation.  Please call us if you have any questions or specific questions!

Gordon Advisors, P.C. 248 952 0200

Understanding Your Fiduciary Responsibilities Under A Group Health Plan

_MHP0267  by Jill S. Knop, CPA, Gordon Advisors, P.C.

With the October 15th deadline approaching, which is the extended due date for filing of Form 5500, it is a good time to go over the filing requirement of that form.

 

Health and welfare plans, which include health insurance, life insurance, long and short term disability insurance may have a filing requirement with the Department of Labor.

Below is an excerpt from the DOL’s publication entitled Understanding Your Fiduciary Responsibilities Under a Group Health Plan:

Plan administrators generally are required to file a Form 5500 Annual Return/Report with the Federal Government.  The Form 5500 reports information about the plan, its finances, and its operation.  This information is used by the U.S. Department of Labor, the Internal Revenue Service (IRS), other government agencies, organizations, and the public.  Participants and beneficiaries can receive a copy of the Form 5500 upon request from the plan.  Depending on the number of participants covered and plan design, there my be exemptions from the full filing requirements.  A group health plan with fewer than 100 participants that is either fully insured or self-funded (or a combination of both) does not need to file an annual report.  Plans will 100 or more participants that are fully insured or self- funded (or a combination) can file a limited report.  

If you have questions about your filing requirements, please give Certified Public Accountant, Jill S. Knop a call at 248 952 0200.

New Staff Spotlight: Barbara Robertson

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Barbara A. Roberston, EA is one of our newest team members.  She is a senior accountant in the tax department at Gordon Advisors, P.C.  We asked her a few questions so we could all get to know her a little bit better!

What is your favorite part of Tax Season?

  • [Barbara A. Robertson] The end of it.

What made you choose Accounting as a career?

  • [Barbara A. Robertson] It chose me!

Tell us something unique or interesting about yourself that most people would be surprised to know?

  • [Barbara A. Robertson] I was born in Germany (Air Force Brat).  My dad was a fighter pilot, shot down over North Vietnam and was a Prisoner of War for 5.5 years.  He shared a cell with John McCain for a few months.

Favorite quote?

  • [Barbara A. Robertson] My favorite things in life don’t cost money.  It’s really clear that the most precious resource we all have is time. – Steve Jobs

When you aren’t in the office, you would be doing what…?

  • [Barbara A. Robertson] Hanging with the family.  Driving up to Roscommon to visit family.

Passions/Hobbies?

  • [Barbara A. Robertson] family, golf, swimming, reading

Favorite local restaurant?

  • [Barbara A. Robertson] Crews Inn, North River Road, Harrison Twp., MI (on the Clinton River)

Favorite place in Michigan?

  • [Barbara A. Robertson] The UP.

Favorite place outside of Michigan?

  • [Barbara A. Robertson] Caribbean

Best part of working at Gordon Advisors so far?

  • [Barbara A. Robertson] The People!!!

IRS Reminds Taxpayers to Safeguard their Tax Records as the Beginning of Hurricane Season Approaches

IRS Reminds Taxpayers to Safeguard their
Tax Records as the Beginning of Hurricane Season Approaches
IR-2015-83, June 1, 2015

WASHINGTON – Hurricane season starts today and the Internal Revenue Service advises individuals and
businesses to safeguard their records against natural disasters by taking a few simple steps.

Create an Electronic Additional Set of Records

Taxpayers should keep a duplicate set of records including bank statements, tax returns,
identifications and insurance policies in a safe place such as a waterproof container, and away
from the original set.

Keeping an additional set of records is easier now that many financial institutions provide
statements and documents electronically, and much financial information is available on the
Internet. Even if the original records are only provided on paper, these can be scanned into an
electronic format. This way, taxpayers can save them to the cloud, download them to a storage
device such as an external hard drive or USB flash drive, or burn them to a CD or DVD.

Document Valuables

Another step a taxpayer can take to prepare for a disaster is to photograph or videotape the
contents of his or her home, especially items of higher value. The IRS has a disaster loss
workbook, Publication 584, which can help taxpayers compile a room-by-room list of belongings.

A photographic record can help an individual prove the fair market value of items for insurance and
casualty loss claims. Ideally, photos should be stored with a friend or family member who lives
outside the area.

Update Emergency Plans

Emergency plans should be reviewed annually. Personal and business situations change over time as
do preparedness needs. When employers hire new employees or when a company or organization changes
functions, plans should be updated accordingly and employees should be informed of the changes.
Make your plans ahead of time and practice them.

Check on Fiduciary Bonds

Employers who use payroll service providers should ask the provider if it has a fiduciary bond in
place. The bond could protect the employer in the event of default by the payroll service provider.

IRS Ready to Help

If disaster strikes, an affected taxpayer can call 1-866-562-5227 to speak with an IRS specialist
trained to handle disaster-related issues.

Back copies of previously-filed tax returns and all attachments, including Forms W-2, can be
requested by filing Form 4506, Request for Copy of Tax Return. Alternatively, transcripts showing
most line items on these returns can be ordered by calling 1-800-908-9946 or by using Form 4506T-
EZ, Short Form Request for Individual Tax Return Transcript or Form 4506-T, Request for
Transcript of Tax Return.
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Page Last Reviewed or Updated: 02-Jun-2015