Small business planning is a year-round process that should never end.
For small businesses, a new year creates both renewed excitement for opportunities and anxiety over new challenges. 2013 is no exception. With much remaining uncertainty surrounding tax legislation and government spending, business owners are faced with an unknown future particularly concerning tax rates.
With businesses closing their 2012 books, owners should consider both 2012 and 2013 in order to formulate the best tax plan moving forward. Consider whether the company should defer income into 2013 or accelerate to 2012? Should the company hold off on deductions in 2012 and save them for 2013? Even now, these are important questions owners need to scrutinize with their tax advisors. Areas for deferral or acceleration include charitable contributions, compensation bonuses and discretionary retirement plan contributions. For calendar year-end businesses, all three of these can be accrued at Dec. 31, 2012, and deducted on their 2012 return as long as they are paid out in 2013 in accordance with IRS guidelines, or postponed to 2013 to offset next year’s income.
In addition, there are numerous tax credits available to small businesses, including the tax credit for any unemployed veterans that were hired between Nov. 23, 2011, and Dec. 31, 2012.
When looking further into 2013, owners should create a realistic forecast of income and expenses. This forecast can be used to determine estimated tax payments for the 2013 tax year, to budget discretionary retirement plan contributions, to budget for capital expenditures for the year and to determine the availability of funds for charitable pledges. It is important to remember the first $139,000 of business property, plant and equipment placed into service in 2013 can be fully expensed on the 2013 tax return. This can help offset income in a year that is set to have significantly increased tax rates. Additional options such as non-qualified retirement plans for top executives and paying bonuses in 2012 rather than 2013 should be considered. Non-qualified retirement plans are not subject to IRS contributions limitations. Therefore, small business owners can reduce their own taxable compensation by deferring large amounts into these plans. This leads to an opportunity to decrease income below the $200,000 single-filer and $250,000 married-filer thresholds for the new 3.8 percent Medicare surtax.
Specific thresholds noted above are subject to change with potential changes in regulation. In addition, not all planning opportunities have been discussed; contact your trusted advisor for a full analysis on your business’ situation. All businesses can plan for a successful 2013 tax year.