The end of 2016 is only a couple of weeks away. However, there may still be time to take action to reduce small business tax liabilities. For example, buying necessary equipment for your business by December 31st may allow you to take a big deduction in your 2016 taxes.
Under Section 179, businesses can deduct the full purchase price of qualifying equipment or software purchased during the tax year. This deduction is intended to encourage businesses to buy the necessary equipment to benefit the company. Instead of getting a deduction as equipment depreciates over time, businesses can deduct the full purchase price in 2016 for qualifying equipment purchased before the end of the year.
Qualifying Section 179 purchases include office equipment, computers, computer software, office furniture, and business vehicles with a gross vehicle weight over 6,000 pounds, such as vans, large SUVs, or trucks. There is a limit of $2 million for qualifying deduction purchases. Check with your tax professional to make sure you are eligible.
If your business uses cash-method accounting, you may be able to defer some of your taxable income until next year. By sending payments or charging expenses before the end of the year, you may be able to deduct those expenses this year even if the charge is paid or the check is cashed in the beginning of next year.
Depending on how your business is classified, you may decide to defer income from this year into next year. By comparing your 2016 income with your expected 2017 income, you may be able to delay paying taxes on that income until next year. Alternatively, if you anticipate going into a higher tax bracket next year, you may choose to accelerate your income this year.
Is it also prudent to review your retirement plan options to see if making additional contributions can save you money or whether you may want to set up a new retirement plan. Some qualifying retirement plans must be set up by the end of the year and funded before the filing deadline. Other retirement plans can be set up and funded by the tax filing deadline.
Remember to consider the tax deadlines for your business as the new year arrives. Fourth quarter estimated tax payments for corporations are due January 15, 2017. The deadline for tax returns for partnerships falls on March 15, 2017, and the deadline for calendar year corporations falls on April 17, 2017.
Talk to your tax attorney or tax professional about tax planning strategies for your small business. They should also be able to point out any potential IRS red flags and update you on any tax changes for the coming tax year. It may be important to consider proposed IRS regulations that may go into effect next year to determine how those changes may impact you and your company.
Butterfield Schechter LLP is San Diego County's largest firm focusing its law practice on employee benefit legal services, tax law, and business counseling. Our firm can help you and your business identify tax-savings opportunities, avoid tax penalties, and plan for the upcoming tax year. Contact our office today with any questions on how we can help you and your business succeed.