Volume 12 Issue 2008

The last months of the year can be a busy time for many businesses. But taking a little time out from the day-to-day rush to identify potential tax-saving opportunities may result in a lower tax bill this filing season. Below, we highlight some key areas for review.

Bad debts. Old billings that are lingering in your company’s accounts receivable because you can’t collect the money owed to you may be deductible as bad debts.

Bonuses. If paying discretionary year-end bonuses to employees is a possibility, now’s the time to review your company’s profit and cash flow picture to determine whether you will pay bonuses this year.

Deliveries. Does your business use the accrual method of accounting for tax purposes? If it does, one way to defer some income into the next tax year is to designate late-year shipments of products FOB destination rather than FOB shipping point so that title won’t pass until 2009. The corresponding revenue won’t be realized until title passes.

Energy-efficient property. A special election is available through 2008 that allows the costs of making a commercial building energy efficient to be expensed rather than recovered over time through depreciation. (Requirements and limits apply.) If you are making eligible improvements, you’ll need to place them in service before the end of the year to take advantage of the deduction. (Proposed legislation would extend this provision, along with several others, but no action had been taken on it at press time.)

Inventory. Before the end of the year, make an effort to identify and clear out slow-moving items. If your company is a regular C corporation, it may claim an enhanced deduction for a contribution of inventory to an eligible charitable organization that uses the items solely for the care of the ill, the needy, or infants.

Machinery, equipment, and furniture. In 2008, the Section 179 expensing election is available for as much as $250,000 of asset purchases. Consider buying qualifying assets and placing them in service before year-end if you’ll have enough taxable trade or business income to benefit from the 179 election. Businesses that buy new assets also may be able to claim a 50% first-year depreciation “bonus.” Ask us for details.

Office supplies. Stock up on frequently used items before year-end to boost your tax-deductible expense for 2008.

Retirement plan. If you don’t have a tax-favored retirement plan that benefits you and your employees, consider starting one. There are several plan options available to small businesses. And, as a small employer, you may be eligible for a credit equal to 50% of qualified start-up costs, defined as plan administrative and retirement-related education expenses for each of the first three plan years (maximum annual credit of $500). If you already have a plan in place and annual employer contributions are discretionary, determine whether a company contribution will be made for 2008.

Vehicles. The depreciation limits are higher this year for cars, light trucks, and vans that are purchased and placed in service in 2008. For older vehicles, you might consider having repairs and routine maintenance done before year-end so that you can deduct the expense. And remember that the standard mileage rate for business driving from July 1 through the end of the year is 58.5 cents per mile, up from the 50.5 cents per mile rate in effect for the first half of 2008.