The BizFilings blog covering business tips and trends.
Tips for Preparing for End-of-Year Taxes
Published on Dec 1, 2010
Read 'Tips for Preparing for End-of-Year Taxes' at 'Time to Start Up,' the small business blog by BizFilings.
The first day of December signals the warning bell that the end of the year is approaching quickly.
As a small business owner, you are very aware of what that means ... year-end tax preparation.
Don't fret. Here are a few tips to keep in mind when wading through the paperwork:
1. Maximize tax credits for hiring employees. Under the Hiring Incentives to Restore Employment (HIRE) Act, you have the opportunity to take advantage of two tax breaks for hiring and retaining employees by the end of the year. The Business Owner's Toolkit team spells these breaks out for you:
Employers who hire unemployed workers at any time during 2010, after Feb. 3, may be eligible for an exemption from the 6.2 percent employer-portion of the Social Security tax typically incurred on payroll.
Employers can claim a second tax benefit in 2011 of an additional credit of up to $1,000 for any eligible employee hired in 2010 and retained for at least one full year. The credit may be claimed for a retained worker for the first tax year ending after March 18, 2010, for which the retained worker satisfies the 52 consecutive week requirement. However, since retained workers must be qualified employees, the credit applies only for individuals hired after Feb. 3, 2010, and before Jan. 1, 2011.
2. Fuel your income. Yes, you read it correctly. Postponing income is the standard advice recommended by most accountants. There are still many cases where this recommendation still applies. However, every taxpayer will carry the burden of the largest tax hike in American history scheduled for the New Year - unless Congress addresses this hike before the end of the year. (Let's hope for a miracle!) Income taxes and numerous credits and deductions, capital gains taxes and even estate taxes are all scheduled to balloon, barring one more major piece of legislation from Washington, DC in 2010. As an example, if legislation is not passed, and you are currently in the highest tax bracket of 35 percent, this bracket will elevate to 39.6 percent if the tax cuts expire. This means you would benefit from moving income into the current year when it will be taxed at a lower rate. The good news is that if you are self-employed, you have more wiggle room over when you receive income than other workers do. As we move into December, make sure you bill your customers and clients promptly. It's also important to follow up on past-due accounts.
To learn more about preparing for end-of-year taxes, visit the Business Owner's Toolkit website.
What nuggets of wisdom would you share with other small business owners going through this for the first time?