While taxes are always top-of-mind in the weeks before the April 15 deadline, there are many tax-related concerns that can be addressed by taxpayers throughout the year to ease the tax-season rush.
However, if you are a business owner, you have double the work. Not only are you faced with your personal tax obligations, you also have to contend with a unique set of tax-planning challenges relating to your business.
As we approach the end of this calendar year, there are some steps business owners can consider to better prepare for the upcoming tax season.
Give retirement plans another look. Now is a great time to evaluate retirement plan alternatives to determine the type of plan that's best for you, your employees and your business. Keep in mind that the deadline for establishing or modifying most retirement plans for the current calendar year is Dec. 31.
--If your business employs only owners and their spouses, consider an Owner-Only 401(k), which can allow substantial contributions toward the retirement savings of these individuals.
Offering a retirement plan through your business can provide significant tax advantages. As a result of the 2001 tax reform legislation, your business may now be able to set aside larger contributions for your employees, which may allow you to increase the tax deduction for your business. Your tax adviser or CPA can help you determine the specific details of this benefit. You also should be aware of a small-business tax credit that encourages businesses with fewer than 100 employees to establish retirement plans. The credit is 50 percent of the first $1,000 in administrative and retirement education expenses for the first three years a plan is established. Keep in mind, this credit is only available to businesses sponsoring a plan for the first time.
--Be sure to ask your financial consultant for a complete retirement plan review to determine what would best meet the retirement plan goals of your business and make tax time easier. Consider supplemental compensation for key executives. Consider establishing a nonqualified plan or an executive bonus plan for key employees and/or owners who already make the maximum contributions to a qualified retirement plan. These supplemental compensation plans provide greater flexibility than qualified plans, but not the same tax advantages. Most importantly, don't wait until next year to get going.
There are many steps you can take now to prepare for tax time.
To get things started, you may want to prepare an employee census to help you better match your benefit programs to your employee and business needs. Before December 31, have the census results and your current retirement plans reviewed by your financial consultant.
Keep in mind that your financial consultant may not provide you with accounting, legal or tax advice, so be sure to see a tax professional.
A good plan of action may be the first step you take toward a more enjoyable and less stressful tax season.
Article courtesy of YellowBrix, Inc.
About the authors: Dane Anderson and Tim Bloemhof, Financial Consultants, A.G. Edwards and Sons Inc.