Most business owners do not have a tax problem in April. They have a planning problem during the year.
By the time a return is prepared, almost every useful decision has already been made. The salary you paid yourself, the equipment you bought, the retirement plan you opened or skipped: those choices are locked in. That is why the owners who pay the least are rarely the ones with the cleverest return. They are the ones who looked at their numbers in the fall.
Whether you own an S corporation, a C corporation or a Partnership, the questions are similar:
• Is your entity the right fit? An S corporation, a C corporation and a Partnership are taxed very differently. What worked in year one may not work at today's profit.
• Is your salary reasonable? In an S corporation, pay that is too low invites an IRS challenge, and pay that is too high wastes payroll tax.
• Are you using a retirement plan? Contributions can be one of the largest deductions available to an owner, and plan type matters. A defined benefit plan allows a larger deduction in the right situation.
• Is equipment well timed? Section 179 and bonus depreciation reward purchases made and placed in service before year end.
• Are you reimbursed properly? An accountable plan covers business costs you pay personally without creating taxable income.
• What about state tax? New Jersey and New York have pass-through entity tax options that may help, depending on your situation.
Every strategy has limits, documentation requirements and trade-offs, and what fits one owner can be wrong for another. That is the reason to plan with someone who looks at the whole picture, not one deduction at a time.
If you would like a second set of eyes on your numbers before the year ends, please contact us.
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Written by
Dwayne Ailey, EA, Top Notch Accounting Svs, LLC
“This article is for general purpose use only; not legal tax advice please contact us for more information to your situation."