Joyce M. Rosenberg
Use upcoming tax deadlines to plan for the future
NEW YORK — With a pair of tax deadlines approaching, small business owners have a chance to turn some bureaucratic requirements into a planning opportunity for the rest of 2009.
Sept. 15 is the day companies must make quarterly estimated tax payments, and it’s also the due date for corporations to submit 2008 tax returns if they obtained extensions of the filing deadline back in March. And Oct. 15 is the due date for sole proprietors and partners who got extensions of the April 15 deadline.
The tax calendar always offers business owners a chance to look at their books, assess how their companies are doing and plot their strategy. In an economy that now looks like it’s healing, many owners might want to reconsider some of the decisions they made during the recession.
There are some immediate tax decisions to be made. John Evans, a partner with the accounting firm BDO Seidman in New York, noted that the government’s economic stimulus measures allowed businesses that incurred net operating losses in 2008 to carry them back five years instead of the usual two. That means they could apply those losses against taxes paid in the past and obtain refunds. Companies that got extensions of the filing deadlines can still take advantage of this tax break.
The IRS home page, www.irs.gov, has a link to information about the carryback provision and other tax benefits under the American Recovery and Reinvestment Act of 2009, as the stimulus law is officially known.
One of the other benefits of the act is the expanded Section 179 deduction, which allows small businesses to deduct up-front rather than depreciate the cost of equipment such as computers, furniture, manufacturing machines and vehicles, up to $250,000. Yet another benefit is the bonus depreciation measure that increases the portion of a purchase price that can be deducted for the first year.
Evans, who noted that small businesses can take advantage of both of these tax benefits, said some companies might feel they’re in a better position now than they were a few months ago and consider some big capital expenditures. That calls for an examination of their overall business strategy.
First, Evans repeated what is something of a mantra for tax professionals: “Don’t rush to do something that might look good on the tax side, but might not make economic sense.”
Among the considerations an owner should make before trying to get the most out of the deductions are whether there is a genuine need for the equipment, whether the price is likely to go up substantially as the economy improves and whether the equipment you want will still be available.
Other considerations: Do you think you’ll be making more money next year and will your 2010 tax bill therefore be bigger? Will the government lower the deductions? And, will taxes themselves be higher?
“If you had to be a betting person, you have to bet they’re going to go up,” Evans said.
In that case, you might be better off delaying a big equipment buy until next year.
This and many other tax decisions are better off made with the help of an accountant or other financial adviser who can help you sort through the pros and cons.
If you decide to go ahead and make the purchase, remember that the Section 179 deduction can only be taken if the equipment is in service by Dec. 31. That means you can’t order it in late December for January delivery. You can, however, pay for it next year.
Owners who got filing deadline extensions last spring also won more time to make 2008 contributions to certain retirement plans, including SEPs, or Simplified Employee Pension, or SIMPLEs, short for Simplified Employee Pension. Owners who want to set up a SEP and get a 2008 tax break can still do so.
With the stock market recovering, a retirement plan may be more important for some owners, especially if they expect to be recruiting new workers. But, as with equipment purchases, you need to think before you make a big retirement plan contribution.
“You really need to be balancing out if you think you might need that money for something more important, if you want to keep it in reserve because it’s hard to get credit today,” Evans said.
Owners also need to look at how much they should be paying when they send in their Sept. 15 estimated tax payments. The federal government has lowered the amount a business is required to pay each quarter this year as part of the economic stimulus plan, but it’s still possible to underpay and face interest and penalties if you’re not paying enough. This is another reason to look at where you stand and what you owe. You might also find you’ve been overpaying, and that you can pay less in September and help your cash flow.
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