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The SBC Small Business Newsletter

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December 19, 2001

Table of Contents


Quote of the Week

Staff Article - Year End Tax Planning


Tax Tip of the Week

Guest Article - The Last Christmas

Featured Resource

Parting Comments

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Since we are approaching the end of the year, the staff article in this issue deals with year end tax planning. It's a subject that is easy to overlook during the holidays, but one that can save you lots of money.

Our guest article this week is not really by a guest, but by our very own Cary Christian. It is a short, change of pace article called "The Last Christmas."

If you have suggestions for future content, or have issues that you would like to see specifically addressed, please send an email to let us know. Our staff articles are focused directly on issues raised by you, our readers. We want to give you what you want to see! If we use your article topic in one of our newsletters, we will send you 100 hits to the website of your choice!  So please, send in your topic ideas!

Quote of the Week

Dream as if you'll live forever. Live as if you'll die today.
- James Dean

Staff Article

Year End Tax Planning

by: SBC Staff

Your tax deadline is approaching rapidly. You're concerned because you believe you may owe tax but you're not sure just how big the bill might be. You're thinking about filing an extension just to put it off for awhile, but you know it will continue to bother you until you know just how much you owe.

Does this sound familiar? Most small businesses do not pay enough attention to their tax situation until it is too late to do anything about it. March 15, April 15 and any of the extended deadlines are simply too late. You must think about your tax position before the year ends. Where should you start?

Begin by actually determining what your tax return would look like if you filed it on December 15. Go through the process of preparing your return or get your accountant to prepare an estimate for you. If you're comfortable with the flow of a tax return and any specialized calculations that apply to your business, you can do this on a spreadsheet rather than on the forms. If you're not that comfortable or proficient with taxation, actually fill out the forms to see where you stand.

This is a very tough first step for many of you, we know. But it is absolutely critical that you do it! You cannot plan and manage your tax liabilities unless you know what they are before year end. You do not want to implement tax saving strategies if you don't need to. You'll be wasting money instead of saving it.

Once you've determined where you stand you are ready to consider specific techniques for either deferring or accelerating income or deductions.

Let's say you've determined you're going to be taxed at the highest rates on your business income. It's been a good year! So you need to think about deferring income and accelerating deductions. Here are a few techniques you should consider:

  • If you use inventory in your business, take stock of what you have. If you have items that are damaged or are otherwise unsaleable at normal prices, offer them for sale at a reduced price. If you do so, you be able to write down the value to the reduced price whether you sell them or not.

  • If you are a cash basis taxpayer, consider paying expenses in December that are otherwise due in January. Write out the checks and mail them at the end of December. If you need the cash flow, pay them using a credit card where possible. You'll still get the deduction in the current year but won't have to pay the credit card until January.

  • If you are an accrual basis taxpayer, make sure you evaluate all your expenses that are coming due in January and accrue amounts that relate to December. For example, if you pay a cleaning service monthly on the 15th for cleaning your offices, you should accrue 16 days of cleaning expense in December out of the amount to be paid on January 15. Go through all of your expenses to look for this type of accrual capability.

  • If you are a cash basis taxpayer and have a payroll due early in January, consider paying it early to have it fall in December. Your employees will like it and you'll get the deduction this year. If you are an accrual basis taxpayer, make sure you accrue the payroll related to days worked in December.

  • If you are a cash basis taxpayer and have sold goods on terms, get your customers to pay you just after the beginning of the year. If you are an accrual basis taxpayer and have orders to process, check with your customers to see if it would be acceptable to ship them on January 2 and move the accrual of the sale to the next year.

  • If you don't have a retirement plan, investigate starting one right away. Check with your investment advisor or CPA to see how much you could contribute in the current year. Be aware that if you have employees, they will have to participate in the plan as well in order for your contributions to be deductible. This can become quite complex but is possibly one of the best tax planning options available to you, not to mention a very sound investment vehicle.

  • If you are planning to buy equipment in the near term, consider buying it in December and taking advantage of the Section 179 deduction that allows you to expense the acquisition within certain limitations.

Now let's assume that you find you will be taxed at the lowest tax rate or that you have a loss and will pay no tax at all. Don't assume you are done! If you are expecting a large taxable income next year, you will want to consider accelerating income and deferring deductions. In other words, you will want to do the opposite of the recommendations above.

Why would you want to create taxable income in a year when you will not owe tax? To take advantage of the lower tax rates. If you can shift income from next year that will be subject to a tax rate of 40 percent or more to this year where it will be taxed at 15 percent, the savings of 25 percent or more is real and permanent.

Be sure you evaluate your tax position over the next week or so and take action where necessary. Proper planning can save you a great deal of money.

If you need help with any of the above techniques or would like an independent review of your tax situation, please contact us. We would be happy to help.

Copyright 2001, all rights reserved


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Tax Tip of the Week

Ever consider letting Uncle Sam help finance your business by deferring payment of your employment taxes? Don't even think about it! In addition to paying interest and penalties that make credit card interest look seriously good, you and anyone else in your organization that can be considered a "responsible party" can be hit with a penalty equal to 100 percent of the tax not paid. Responsible parties can include the owner, shareholders, bookkeepers, payroll personnel and anybody else who has check signing authority or can otherwise influence which bills are paid and when.

Guest Article

The Last Christmas

By Cary Christian

I want to tell you a brief story that has very little to do with business and much to do with life.

I spent the first eleven years of my career working 60- to 80-hour weeks clawing my way up the ladder of a "Big 5" firm. I never had a lot of time to spend with my family but they seemed to understand.

Then I decided to go out on my own with a couple of my peers and spent the next eleven years building my own businesses. Again, I never seemed to have much time to spend with my family and they still seemed to understand. For the most part.

Christmas of 1999 was quickly approaching and, in many ways, it was much like every Christmas before it. But there was one large difference: my father was very ill. For the first time in my life I realized he was not going to be around forever. This weighed on my mind every day. I thought of all the holidays past where I had spent virtually no time with my Dad. Twenty-two years of them. I determined that this one would be different.

Because of Dad's illness, my parents decided not to put up a tree for Christmas. They just weren't in the mood. So my wife and I decided to put one up for them. We arrived at my parents house with a six-foot tree, all the trimmings and an assortment of good foods to nibble on as we enjoyed the evening.

My wife made me, my parents, our daughter and her boyfriend all wear Santa's hats, Christmas t-shirts and comfortable flannel Christmas pants (kind of like pajama bottoms) to get us in a more festive mood. I thought that was a little much, but it worked. It was a wonderful evening. The gleam in my Father's eyes told me how wonderful it was for him.

I ended up spending more time during the Christmas holidays of 1999 with my parents that I had spent with them in many years combined. It was good for me and I found myself wishing I hadn't missed out on being with them more during my career- and business-building years.

A little over four months later my Father lost his battle with cancer. The world lost a truly kind and gentle man. I lost my hero, though I'm not sure I ever adequately let him know that that is what he was to me.

I'll always have regrets over the often misplaced and one-sided emphasis of my early life. But I'll always have the memories of that Christmas of 1999.

Now I know you can see the moral of this story a mile away. But if your approach to business and career is like mine has always been, please take a moment to reconsider. There are hundreds of days available in the year to nurture your career and build your business. Take time to enjoy the holidays with your family. Put business aside for a few days. It will still be there waiting for you when you get back.

Life is short. None of us know when we or a loved one may enjoy our last Christmas. Be there for it. Immerse yourself in it. Bask in the love of your family. You'll be stronger for it and so will they.

I wish you all the very best of the holidays!


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Parting Comments

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