In yesterday's post, I discussed the issue of timing to save on taxes.  Figure out which year (this year or next year) will have the highest taxes.  Then move income into the year of lower taxes and expenses into the year with higher taxes.  The second step in this timing process is to look for other ways to increase expenses by stocking up and pre-paying (if you want to move expenses into this year, that is).

Stock Up

• Look at your office supplies and copy paper and replenish to a reasonable amount.
• If you have supplies you use regularly in your factory, warehouse, or in your work, stock up on these too.

Pre-Pay

• Pre-pay insurances, like your business insurance or specialized insurance for your type of business (malpractice insurance or product liability insurance, for example)
• Pre-pay your rent or your mortgage. If you pre-pay the mortgage, make sure you are drawing down the principal, not just paying additional interest.
• Pre-pay on subscriptions for professional journals or the reception area in your office.

Check with your tax adviser, to be sure the savings will reduce your income.

For More Information
More on Year-End Tax Planning

"Timing has a lot to do with the outcome of a rain dance." (Old Cowboy quote)

This week, I am focusing on year-end tax planning to save you money on your 2009 business taxes.  In these tough times, we all need as many tax saving ideas as we can get.  Today, I am focusing on timing of income and expenses to get you the lowest taxes possible.

Accounting Method and Timing
Timing of income and expenses is directly related to your accounting method: cash vs. accrual, and year-end income and expenses.

• In cash accounting, you recognize income and expenses when the money is received (income) or paid (expenses). If you bill a customer in December and you don't receive the money until January, you don't have to count the income as being received in December. Expenses work the same way.
• In accrual accounting, you recognize the transaction when it is established. So, in the example above, under accrual accounting you would have to record the income when you sent the bill, and the expense when you received the bill, even if no money changes hands.

Timing Principles
Timing of income and expenses is related to two principles:

1. Which year will have the highest taxes (this year or next year)

2. Which accounting method your business uses

If you know that 2009 will probably have higher taxes than 2010, you would want to reduce your taxes by:

• Moving income into the lower tax year (2009), if possible, and
• Moving expenses into the higher tax year (2010).

You can see that the timing of income and expenses then depends on the accounting method.  To move expenses into 2009, for example, in the cash method you need to pay them in 2009; in accrual accounting, you can get vendors to bill you in 2009; even if you don't pay the bill, the expense is counted in 2009.

Remembering these principles can help you make decisions on income and expenses between now and the end of this year.

For More Information:
Cash vs. Accrual Accounting
Timing Income and Expenses to Lower Taxes

Many companies are not paying employee bonuses in this tough year. A recent article in the Atlanta Journal Constitution reports the results of a survey showing that only 31 percent of small businesses are planning to give bonuses, down from 44 percent last year.

Take a minute, please and vote in my "bonus" poll:

If you want to give bonuses

If you had a good year and you figure giving bonuses is a good way to reward employees and reduce your taxes, now is the time to make that decision.  Some tax considerations for bonuses you might want to know about:

• Accounting method: Cash vs. Accrual. If your business is run on the cash accounting method, you must pay out the bonuses by the end of the year to get the tax benefit. But if you use accrual accounting, you can record the bonus in 2009 and then you can take up to March 15, 2010, to pay those bonuses, if your business has a December 31 year-end.

• S Corporations. Bonuses for shareholders and owners can be deducted, as long as they own their shares at the time the bonus is paid.

• C Corporations. Bonuses can only be deducted for  shareholders/owners who have a 50 percent or higher ownership at the time the bonus is paid.

• Sole Proprietors, Partners, LLC Members. Bonuses to sole proprietors, partners, and limited liability company (LLCs) members are not deductible, because the owners/partners/members are considered by the IRS to be self-employed. This is one situation in which having a corporation and being an employee of that corporation might result in more tax deductions.

The end of the year is fast approaching.  Now is the time to review your tax situation and take advantage of tax deductions and credits available to your business.  This week, I will be reviewing year-end tax planning, starting today with 2009 tax credits and deductions. These "specials" are only available for 2009; there is no guarantee they will continue into 2010, so "get 'em while they're hot."

Accelerated Depreciation on New Business Asset Purchases
If you can accelerate depreciation, you can increase your depreciation deduction. And as part of the stimulus package, the IRS is allowing you to accelerate depreciation on business assets, through the end of 2009.  Here are the details:

• Bonus Depreciation. You may be able to take advantage of the 50% bonus depreciation on qualified business property purchased in 2009.
• Section 179 Depreciation Deduction. The Section 179 deduction has been increased through 2009, up to $250,000 for machinery, equipment, vehicles, furniture and other qualifying property placed in service in this year. A Section 179 deduction allows you to depreciate an item in one year, rather than over several years, increasing your tax deduction for that year.

Net Operating Loss Carry back