Why taking a proactive approach to tax planning can pay off in a big way

As you look to wrap up the tax year for your business and prepare for 2015, Wenli Wang has some advice that could make your year-end tax planning efforts next year a whole lot easier.
“Tell us what you’re doing before you do it rather than after,” says Wang, Partner in charge of the San Francisco location at Moss Adams LLP.
“Including your tax advisor as part of your team is extremely important. Let’s say you start a new business, what kind of entity should you operate, as an S corp., an LLC or a C corp.? Or if you are expanding your business to a new location, say New York, “How do you register to do business in New York? If you are sending employees to New York, how do you withhold and remit payroll taxes?  All of these issues have implications on your business. If we deal with it after the fact, certain things may be too late and you may not be able to do it during that year. If we know at the beginning, we can plan for it.”
Smart Business spoke with Wang about the latest changes to the tax code and some tips for effective year-end tax planning.
What happened to the bonus deprecation deduction?
Many of the tax breaks related to depreciable real estate and business equipment expired at the end of 2013, including the ability of certain real property to qualify for the Section 179 expense deduction and the 50 percent bonus depreciation provision for qualified assets acquired and placed in service during the year.
The bonus depreciation was implemented when the economy was going through the downturn. The intention was to stimulate the economy and provide significant incentives for taxpayers to go out and buy fixed assets and expand their businesses.
There are still strategies, however, that can help you potentially save on business taxes.
You can accelerate the cash flow benefit of depreciation deductions via a detailed review of the depreciable components of a building. In many cases, these cost segregation studies, performed by an integrated team of accountants and engineers, result in the ability to take a large current-year tax deduction for depreciation.
This can result in a dramatic cash flow increase thanks to the tax savings. It’s particularly appropriate to do a cost segregation study on buildings purchased or inherited within the past five years.
What about tangible property regulations?
Tangible property regulations are effective as of Jan. 1, 2014 and apply to all taxpayers that acquire, produce or improve tangible property.
With the mandatory effective date already behind us, it’s imperative for business owners to understand the impact of the regulations on their company and create an implementation plan as soon as possible to avoid filing-season surprises. Review your asset capitalization policies to see that they are in compliance with the new regulations.
Why is end-of-year estate planning critical?
It’s always good to have an estate plan, which may include having your assets placed in a revocable living trust where you can designate your assets to pass onto your children, other relatives and also potentially charitable organizations.
Having a living trust also avoids probate, which could be a very expensive process when you have significant assets.   Contrary to many people’s belief, whether your estate is large or small, estate planning is important.
Estate planning will force you to think about what assets you have, who is going to manage those assets if you cannot, who will be responsible for your young children in case you become unable to take care of them, etc.  Year end is a great time to do a check up on your existing estate plan, update your living trust or start one if you haven’t already.
How can you get ahead planning for 2015?
You need a proactive tax advisor working with you to consider tax planning throughout the year.
It is a best practice to provide your tax advisor financial reports every quarter so he or she can review how revenue and income are trending. What’s on the internal financial statement is not the same as what’s going to be shown on the tax return because tax rules can be very different from accounting principles.
If you and your tax advisor stay in touch throughout the year, you will reduce the number of surprises at the end of the year and also can do timely planning to reduce the overall tax burden. ●
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