The Least Fun You’ll Have this Holiday: Year End Tax Planning Checklist

It’s a shame, really that we have to interrupt our joyous year-end holidays with gut-wrenching year-end tax planning… So to minimize the pain, I’ve put together a quick list of the 6 things I think you should know this year.  Put down the fruitcake and eggnog for just a second, and be sure your business is ready to wrap up the year.

1. Forms 1099-MISC  Businesses are required to send a 1099 to any vendor or subcontractor paid $600 or more in the calendar year.  New rules adopted in 2014 mean that you’ll have to report almost everyone who is not a “C” Corporation.  That means reporting payments to all partnerships and “S” corporations — including all lawyers and accountants.  There are other exceptions, so a good rule is to send one to everyone.QuickBooks makes filing 1099s pretty easy, and the 1099 setup for QB desktop users is simple.  Likewise, the QuickBooks Online has this feature built in.  If you’re not on QB (or don’t want to do it yourself), ask your payroll company.  In any case, the key is to setup all your vendors with the proper information — tax ID, address, contact name, etc.
2. Deduct Medical insurance payments for S-Corporation owners   In order to deduct medical and disability premiums paid on behalf of S-corp owners, the amount of the premiums must be included on the business owners’ W-2, in Box 1 for the year they are paid.  They are NOT included in Box 3 or Box 5 and are not subject to FICA, Medicare or unemployment taxes.  Call your payroll provider NOW (prior to year end) to make sure you have this recorded.
3. Don’t forget Business Property Tax listings… If your state or county taxes your business assets, the reporting deadline often coincides with year end.  File online in North Carolina, before January 31.
4. Mileage Logs are now required by the IRS to substantiate business mileage.  They are disallowing all mileage that is not substantiated.  CPAs are no longer allowed to use estimates or “round” mileage numbers…so you shouldn’t either.  Instead, grab this iphone app for mileage logs.  At least next year this will be easy.
5. Use Tax. In most states, businesses that purchase materials, supplies, etc. from out of state or otherwise don’t pay sales tax on the purchases (and do not re-sell the products), must pay use tax to the state in which they do business.  You probably do this monthly or quarterly anyway — don’t forget that it has to be done at year end too!
6. If you pay for some or all of your employees’ health insurance premiums, be sure to let your CPA know.  You might be eligible for a tax credit.  Starting in the 2014 tax year, the maximum credit increased to 50 percent of premiums paid for small businesses and 35 percent of premiums paid for small tax-exempt entities.  Read the linked IRS page for more.
7. Minimize 2016 taxes by changing your accounting policy manual now.   IRS Notice 2015-82 to deduct large purchases allows you to deduct large purchases that you might otherwise have had to depreciate.  In tax language, it “increases the de minimis expensing safe harbor limit for certain business purchases”.   Said more plainly, you used to have to “capitalize” (and thus depreciate) any purchase over$500.  You can now take the entire expense for items up to $2,500. The new $2,500 limit is effective for tax years beginning on or after January 1, 2016… BUT, to take advantage of this, taxpayers must adopt or amend their accounting policies by December 31, 2015.  We strongly recommend that this action be taken in the form of a written policy in order to reduce your current income tax expense.

OK. That’s enough gut-wrenching, year end tax planning. I’m going back to my eggnogg now.  But if you want to read more, check out our tips on how to make your year end financial statements look their best.

Dedicated to your (year round) profits,  David

photo credit: ViaMoi via photopin cc