Every small business owner should have this entry on their December calendars: Meet with my CPA.
A sit-down with your certified public accountant or other tax adviser needs to be a priority, no matter how busy you are with parties and shopping for gifts. You need to talk about how your company is doing, what your plans are for the next year and what you need to be doing now to prepare.
Some of the things you need to think about, and then discuss with your CPA:
WHAT DOES 2012 LOOK LIKE -- AND WHAT DOES THAT MEAN FOR 2011?
The economy has been looking a little better the last few months. But the Federal Reserve has lowered its forecast for economic growth in 2012. The National Federation of Independent Business said last week that uncertainty about business and weak sales are stopping many small companies from expanding.
So, many owners, when they meet with their accountants, are likely to be thinking conservatively about the coming year.
"Most of them are happy with breaking even or revenues flat" in 2012, says Jeffrey Berdahl, a CPA with RLB Accountants in Allentown, Pa.
Part of the problem is that the economy isn't the only source of uncertainty for small business owners. Political issues that affect the economy are unresolved as well. Businesses are waiting to see if Congress will extend unemployment benefits and the 2 percent Social Security tax cut that are due to expire at the end of the year. If they're not extended, that'll mean less money for consumers to spend. And that could affect economic growth.
BUY EQUIPMENT NOW? OR LATER?
One thing that is quite certain about 2012 is that small businesses won't have the huge tax deductions for buying equipment that they've had this year. The Section 179 deduction, which allowed small businesses to deduct up-front rather than depreciate $500,000 worth of equipment purchases, is expected to shrink to $125,000. It's expected to fall further in 2013, to $25,000.
Bonus depreciation, which increased the amount that small businesses could deduct on purchases above the $500,000 threshold for Section 179, is expected to fall to 50 percent from 100 percent in 2011.
That doesn't mean you should rush out and buy computers, cars or machines simply to lower your taxes. Your accountant will ask you to consider several factors. Do you genuinely need the equipment, or just want it? Is the price tag large enough that you should take advantage of the higher deduction? Do you think you'll be making more money next year? If so, it might make more sense to buy it next year and lower your taxes then.
But be aware that if you want to use the Section 179 deduction, the equipment must be delivered and up and running by Dec. 31, even if you haven't paid for it yet. For more information, visit the IRS website, www.irs.gov, and download Publication 946, How to Depreciate Property.
START A RETIREMENT PLAN? CONTRIBUTE TO YOUR CURRENT PLAN?
When small business owners ask their accountants, what can I do to lower my taxes, the first suggestion from CPAs is usually to set up or contribute more to a retirement plan. But an accountant isn't thinking only in terms of taxes. A retirement plan makes an employer more competitive and able to get the top talent. And it helps a company retain their best workers. That might not seem necessary in this job market, but a company with a history of good benefits will look more attractive when it's time to hire again.
And sole proprietors and partners without employees should be saving for their future. Many owners think that the stake they own in their companies is their retirement nest egg. But that could be putting your retirement in jeopardy -- what if the economy worsens and your company runs into trouble?
If you're thinking of starting a plan or contributing to one you already have, here's some good news: The tax law is very flexible about when an owner has to fund many types of retirement plants. For example, the simplest of retirement plans, the Simplified Employee Pension, or SEP, doesn't have to be set up until the due date of the owner's return. And that includes extensions of the filing date. So if you want to buy time to get the money together to start a SEP, you can get an extension of the deadline until next October, and you'll have until then to come up with the money. That means you'll be able to deduct the money on your 2011 return. The same goes for employers' 2011 contributions to many existing plans.
Talk with your accountant about whether it makes sense to start a plan now, and how much you should be contributing to a plan. You might want to also talk to an employee benefits consultant, especially if you're thinking about starting a plan that's more complex than a SEP. The SEP requires very little paperwork to create.
For more information about retirement plans, download IRS Publication 560, Retirement Plans for Small Business from the IRS website.