Some business owners were cautious about spending in 2002, while others took advantage of the opportunities an economic downturn can offer. Regardless of your approach, careful consideration of your tax circumstances before year-end can result in significant savings for your company this year and as you plan for the future.
One area to consider is equipment and fixed asset purchases. Carefully review all purchases of depreciable property during the year, and if it is consistent with your overall timing strategy, plan to accelerate depreciation as much as possible into the current tax year. If you need to purchase equipment or other fixed assets, do it before year’s end. Low interest rates provide attractive financing packages in addition to tax assistance.
With interest rates at their lowest in a long time, this is an ideal time for business owners to consider purchasing a building instead of renting. In many cases, mortgage payments can be the same or lower than rent payments, and interest paid on the mortgage, along with closing costs, can be taken as a tax deduction.
The end of the year is also a good time for small businesses to consider establishing a retirement plan. Along with providing a tax break, it can help attract and retain employees. Retirement plans for small business include SIMPLE 401(k)s, SIMPLE IRAs and standard 401(k) programs.
Owners should check with their bank and financial adviser to select the best program for their business.
Small businesses can take tax credits for the start-up costs involved with establishing a retirement plan. Contributions to the plan reduce the net income of the business, resulting in lower taxes owed.
Small business owners should shop carefully and check for investment options, accessibility of the plan administrator and potential for training and advising for employees. The choice be based not solely on upfront costs and fees, but on the entire picture.
Another way to lessen your tax burden is through charitable donations. Businesses may contribute cash or property to charities. Consider maximizing your deduction by giving appreciated assets to charity instead of selling and donating the after-tax proceeds. The savings can be substantial, and will depend on how much in capital gains taxes you would have paid on the sale.
The end of the year is an excellent time for business owners to conduct a “financial check-up” with their banker and accountant to plan for 2003. Now is the time to finalize preparations to help with the current bottom line as well as your future one. Always consult a tax adviser regarding any complex transactions and best approaches for your company’s particular tax circumstances. Jane Bittcher is vice president and manager of the business development group for Fifth Third Bank, (614) 233-4562.
