It’s time to do your business tax planning and, just like a doctor’s check-up, if you decide to skip it, you may regret it.
You could face a larger tax bill because you weren’t in close enough contact with your advisers when you did a transaction, changed a policy or practice, or amended what you are doing with insurance. You may encounter wide swings in income and tax due from one year to the next if you don’t check in with your advisers.
“Fall is the best time for tax planning,” says Tracy Kaufman, CPA, a principal at Rea & Associates. “By now, the majority of the year has gone by, and you have a good feeling for what the rest of the year is going to be like. If you wait until after the year-end, it’s too late. It’s also a good time to explore additional ideas like profit sharing/retirement contributions, bonuses and review of insurance.”
Smart Business spoke with Kaufman and Joe Popp, JD, LLM, a tax manager at Rea & Associates, about some best practices that will help your company prepare for the upcoming tax season.
Are there certain tax law changes that companies need to plan for?
There are a number of tax provisions that are in flux each year, but unfortunately, Congress has not acted to extend them yet. Some programs like the Section 179, bonus depreciation, and Research and Experimentation Tax Credit are usually extended every year, but that hasn’t been confirmed yet for 2015.
We do know some changes related to the Affordable Care Act (ACA) and insurance in general. First, companies that extend coverage to spouses must now recognize and cover same-sex spouses, as well.
Second, employers with 50 or more full-time employees must file Form 1095-C, which is like a W2 for health care. If you need to do this reporting, you must determine who is collecting the data and populating the forms right now as many providers have stopped accepting new projects. Are you doing it internally, through your payroll company or CPA firm?
With this uncertainty, how can employers get ready now?
There’s a lot of planning that you can do already. Provide your accountant with your income so far and a projection for the rest of the year. Then, you’ll be able to see what actions to take to help your tax situation or changes to make to take advantage of a particular credit or program. You also can determine how much goes into the company retirement plan or what bonuses need to go out by the end of the year.
With an S corporation or partnership, it’s important to remember that your income trickles down to your individual return, so you need to be planning on both sides, and account for state taxes due.
As companies evolve, they often become more complex, which may mean that a different type of retirement or corporate structure will be more useful. If you’ve added employees, you also may have crossed a threshold that relates to the ACA.
Instead of trying to follow a cookie-cutter checklist, sit down with your professional advisers and discuss your unique situation and needs, as well as any significant changes.
What’s the biggest mistake you see employers make?
Business leaders make a change, and then ask an accountant or tax adviser about it. By then, it’s often too late. Your advisers’ hands are tied, and the available options are severely limited. You may face adverse tax consequences or not be able to utilize a more advantageous tax treatment.
For example, you might add another line of business or incorporate it into your organization without consulting your professional team, and it would have been better to be structured as a different type of entity.
If you’ve already negotiated a deal, it may not be practical to change it, even though you haven’t signed the final papers. This kind of thing happens all the time.
Tax planning is important, so as soon as you start talking about a potential change, call your CPA. An ounce of prevention today is worth a pound of cure tomorrow.
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