No business owner wants to pay
more tax than necessary or pay
earlier than the final deadline. Why drain cash flow and use dollars you
could invest in the business? Go ahead
and postmark your payment on deadline
day. But don’t wait until the end of the
year to plan for taxes.
Lack of tax planning can cost a company significant dollars, says Michelle
Mahle, tax director at SS&G Financial
Services Inc. in Solon. “We want to influence and change what we can before the
year closes,” Mahle says. “Then, if a business will have a tax liability, we do what
we can to help them reduce it and prepare for it.”
When business owners put off tax planning, it is often too late for them to take
advantage of available credits or tax
breaks, which can drastically alleviate
tax liability. “Looking at taxes before the
end of the year allows us to be more
proactive and take the initiative to help
our clients before it is too late,” Mahle
Are you paying more quarterly taxes
than necessary? Did your company
invest in research and development
this year? Are your assets capitalized
Smart Business asked Mahle why you
should take the time to find answers to
these questions with your accountant
throughout the year.
How can revisiting your tax liability
throughout the year help with your cash
Many business owners take the tax
estimate their accountants set up earlier in the year as gospel and assume it
must be paid in full. This may not be
the case. Most businesses take a safe-harbor approach to paying quarterly
estimated taxes, and for good reason.
This means that their estimates are
based on the amount of tax they owed
in the prior year to prevent penalties.
However, there are opportunities for
businesses to reduce quarterly estimated tax payments if their earnings do not match those of the previous year. If
your business is not performing as
expected, an estimated tax payment
based on last year’s taxes could hurt
your cash flow. You should have frequent conversations with your accountant about the financial health and welfare of your business so he or she can
adjust the quarterly estimated tax payments accordingly.
How can business owners benefit from capital expenditures?
The Section 179 expense election
allows up to $108,000 (2006) in assets
to be directly expensed in the same
tax year that they are purchased. For
example, if you own a machine shop
and you purchase equipment that
costs $50,000, rather than capitalizing
it and depreciating it over a five-year
period, Section 179 allows you to
expense the entire cost of the equipment in the tax year you purchase it.
There are qualifications, one of which
is that your business has to be profitable. You’ll want to discuss additional qualifications with your accountant
to see if you can take advantage of this
What if a business isn’t buying new equipment, but instead, developing different
products? Is it still making an ‘investment’
worthy of a tax credit?
Business owners may not realize that
their research-and-development efforts
can represent potential tax credits. They
often view improvements to products or
processes as a necessity, not an opportunity to realize tax breaks. R&D includes
changing or modifying a product and/or
a process. There are additional factors
that determine whether or not you will
qualify for an R&D tax credit. You should
discuss these efforts with your accountant to find out if your business can take
advantage of the credit.
Does a commercial building really have to
be depreciated over 39 years?
We frequently conduct cost segregation studies in which we are able to analyze and break down the components of
a building and determine the life of each
component. Should you need a certain
type of ventilation system or special
lighting in your facility, you may have an
opportunity to depreciate these components over a shorter period of time. This
can provide a substantial deduction to a
business when you consider changing
the depreciable life to five or seven
years, as opposed to 39. The timing difference on the depreciation deduction
provides tax savings, and most business
owners understand the benefit of
deducting business expenses sooner
rather than later.
Under a special IRS rule, the business
can actually take any additional depreciation expense in the tax year the
study is performed. Owners can use the
timing of these studies to their advantage. These are all issues that business
owners should discuss with a trusted
MICHELLE MAHLE is tax director at SS&G Financial Services
Inc. Reach her at [email protected].