Tax Tips for Individuals & Small Businesses
(Sole Proprietorship, LLP, S-Corp.)

Individuals

• Make sure to be Careful and Thorough - Avoid common problems like illegible hand writing, mathematical errors, transposition of numbers, and missing signature. These little oversights can end up costing you time and money if you are slapped with penalties.
• Organization is Key - Allow enough time to get your "stuff" in order. For example, properly categorizing your expenditures now will save you a lot of time later. Come tax time, you will be glad you grouped your expenditures by category (match it with verbiage on Schedule C if self-employed) and not by month or name of vendor payee.
• Flexibility - Timing your cash flow can save you money. In other words, always accelerate deductions in the year you are doing taxes for and always defer income, if you can, into the next year, thereby lowering your current year's tax bite. If you fall into the Alternative Minimum Tax, you may want a professional to advise you.
• Know When To Ask for Help - Tax preparation tools like TurboTax and TaxCut are great, but people with anything more than a straight W-2 (including anyone with even the smallest business “Schedule C") should be aware of the limitations of these software programs.
• Don't think Short-term - Hiring an expert CPA or EA to prepare your return is a small annual investment that can pay off big! Don't do your taxes yourself unless you are a straight W-2 wage earner that takes the Standard Deductions (in other words, someone who doesn't itemize or have any unreimbursed employee business expenses).

Small Business

• Update Your Accounting - It's important as part of your year-end tax strategy to have a good understanding of your company's financial situation. Spend extra time ensuring your books are up-to-date and accurate. It won't hurt to plan time with your accountant for year-end advice, particular to your operations.
• Defer Income - Any payments your company can receive during the first week of January as opposed to December cuts your tax bill. Every cent deferred until January 2010 will not owe taxes until April 2011. Any deferral strategy will depend on your profit and losses for the year and business legal structure (partnership, corporation, etc.)
  • Depending on your income tax rates in the foreseeable new year, deferral of income can make the best sense for many sole proprietors, partnerships, and S corporations. Ensure your cash flow can handle the deferred income.
• Increase Expenses - Purchase items your business will require in the immediate future to maximize deductions for this year. If you can see a need for goods and services in the first quarter of the new year, buy them now, if cash flow permits. Consider the following items for expenses:
  • Office Supplies: Stock up on fax paper, printer cartridges, stationary, and other office items.
  • Pay Bills Early: Pay your bills before the new year in areas such as; cell services, subscriptions, rent, insurance, and utilities.
  • Equipment Purchases: If you will be buying new office equipment, consider purchasing now. You'll have to decide whether an immediate write off is best or spread out the depreciation over years. Consult with an accountant to examine your circumstance and company structure to maximize your deductions. In addition, your equipment will have to be in your office, "in use" by year-end.
  • Other Items: This category includes: pre-payment of subscriptions, travel bookings, equipment repairs, and maintenance.
• Inventory Write-Offs - Depending on your accounting methods, you may wish to check inventory for goods that have been damaged or have become obsolete. The drop in market value of the inventory can provide your company with added deductions.

These are just a few year-end tax tips will apply differently to each individual and business owner's situation and accounting method. The cash method of accounting allows for deductions and income reported for the year they are paid or received. The accrual accounting method applies income and deductions in the year incurred. For further information, please visit RJBTax.com