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5:22 PM   December 18, 2014
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Quick Year-End Tax Planning Strategies

By Mark E. Battersby

Now is the best time for retailers to think about reducing their operation’s tax bill to an even lower than the point the economy may have driven it to. Tax planning is easy: the more tax deductions taken, the lower a shop’s taxable income will be--at least for this tax year.

Tax Planning All the Time

Although tax planning should be a year-round process, a number of year-end strategies can reduce not only this year’s tax bill, but future tax bills as well. Keep in mind, however, the financial or operational strengths of any business transaction should always stand on their own, aside from any tax benefits derived from them.

Finally, whether or not the retail operation is facing a large tax bill or severely lower taxable income, professional advice is almost a necessity. The owners and managers of every pet related business should be taking additional steps to ensure the success of the operation in 2010. There should be no doubt in any retailer or business owner’s mind regarding the need for tax planning to minimize the bite of taxes this year as well as in future tax years.

On the other hand, perhaps ignoring potential tax deductions this year might mean significant savings in later years when profits--and tax bills--are higher. Alternatively, reaping bigger receipts in a year when the economy has forced the operation into a lower tax bracket might be more advantageous. Obviously, the best tax planning strategy not only results in a low tax bill for this tax year, but year-after-year. A few strategies to consider:
  • COLLECTIONS: Delaying year-end billings or processing of credit card receipts until late enough in the year so payments will not come until next year works both ways, depending on the financial picture of the retailer.
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  • ACCELERATE PAYMENTS: Prepaying deductible business expenses, including rent, interest, taxes, insurance, etc., keeping in mind the limits on some, but not all, prepaid expenses.
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  • OPERATING EXPENSES: Purchasing items required by the business in the immediate future will maximize deductions for this year. If there is a bona fide need for goods and services in the first quarter of the new year, buy them now--if cash flow permits.
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  • ACCELERATE DEPRECIATION: Elect to expense or immediately write-off the cost of new computers, POS systems or any equipment instead of depreciating it. During 2009, retailers can choose to expense and immediately deduct up to $250,000 of the cost of qualifying property and equipment. The $250,000 maximum-expensing amount is reduced when the cost of all Section 179 property placed in service in 2009 exceeds $800,000. 
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  • BONUS DEPRECIATION: Do not forget that, earlier this year, the American Recovery and Reinvestment Act (ARRA) extended a number of expiring provisions and created others that will affect the year-end planning process. The first-year 50-percent bonus depreciation allowance, for example, was extended for 2009
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  • IGNORE WRITE-OFFS: Ignoring accelerated depreciation write-offs and bonus depreciation and other potentially deductible expenses wherever permissible will result in bigger deductions down the road.
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  • INVENTORY WRITE-OFFS: Depending on the accounting method used by the retailer’s operation, a check of the inventory for goods that are damaged or now obsolete may produce dividends in the form of tax savings. The drop in the market value of the inventory can also produce added deductions.
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  • STRUCTURE TRANSACTIONS: Structuring transactions so payments received are capital gains. Long-term capital gains earned by non-corporate taxpayers are subject to lower tax rates than other income.
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  • PROMISE NOW, PAY LATER: An excellent illustration of the flexibility of U.S. tax rules involves a retailer operating on the accrual basis. The retailer has the opportunity to fix the amount of employees’ bonus payments before January 1--but to pay them early next year. Generally, the bonuses are not taxable to employees until 2010, but are deductible on the operation’s 2009 tax return--so long as announced before the end of 2009, and paid before March 16, 2010.
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  • DISAPEARING DEDUCTIONS: Making year-end planning more urgent, a number of provisions in U.S. tax law expire in 2009, such as the 15-year straight-line recovery period for the costs of improvements made to leased business property.
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  • ESTIMATED TAXES: Also taken off the books after this year are the reduced estimated tax payments that small businesses remitted in 2009.
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  • SHIFTING INCOME: Shifting income from a high-tax bracket individual (such as the business owner) to a lower-bracket individual (such as a business owner’s employable child) is fairly, simple. One way retailers can accomplish this is by hiring their children. Another possibility is to make one or more children partners in the business, so that net profits are shared among a larger group.
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    While the tax laws limit the usefulness of this strategy for shifting "unearned" income to children under the age of 14, some opportunities to lower tax rates still do exist. Remember, however, the time to think about those strategies is during the course of the tax year.

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