Mar. 08, 2004
NEW YORK - The biggest mistake many small
businessowners make when it comes to taxes is waiting until March or
April to start thinking about them.
Taxes should be an ever-present consideration, a factor in most business
decisions, and not a once-a-year event. Yet accountants report that some
of their clients pay little attention to taxes until they're ready to
work on their returns, and that is what leads to so many unpleasant
surprises at this time of the year.
"When we get to April, our solutions are very limited," said Jeffrey
Chazen, a tax partner at the accounting and consulting firm Richard A.
Eisner & Co. LLP in New York. Dec. 31 is also too late, Chazen said.
"It's an ongoing planning process."
That absence of planning leads to other, potentially costly mistakes.
Chazen has had clients who didn't consider their taxes as they managed
their cash flow. Some, believing they had money to spare, sank it into
new equipment or inventory and then discovered they didn't have enough
to pay the government.
Steven Botwinick, a certified public accountant in Rochelle Park, N.J.,
said some of his clients ended 2003 without having taken advantage of
the big jump in what's known as the Section 179 deduction. It allows a
small businessto deduct up front, rather than amortize over a period of
years, up to $100,000 of the cost of many kinds of new equipment. For
2003, equipment bought on or after May 5 qualified for the deduction,
which increased from $25,000 under last year's tax cut legislation.
Some businessowners can salvage some deductions despite a lack of
planning. For example, those with SEPs, or Simplified Employee Pensions,
can still make contributions that are deductible on their 2003 returns.
But the dawdlers, if their plans include stocks or mutual funds, have
missed out on the substantial gains Wall Street has enjoyed over the
past year.
Still, these owners have until the filing date of their returns -- April
15, or if they have filing extensions, Aug. 15 -- to make the
contributions.
The problem for many owners is that they are so immersed in building the
company or meeting with customers -- particularly as businessimproves
in a healthier economy -- that they don't think about taxes, or they
aren't aware of changes in the tax law that might benefit them. The
antidote is to work with an accountant or other tax professional who can
help focus an owner on some of the tax issues that can affect his or her
company.
Cheryl Pimlott, tax manager for Rothstein Kass, a Roseland, N.J.-based
accounting and consulting firm, suggests owners meet with a tax
professional four times a year, or at least twice a year. Of course,
you'll meet during tax season, but you should also make an appointment
for May or June to plan for the rest of the year. The other sessions can
help you be sure your businessis on track.
Planning will help you make the major decisions like the ones that
Botwinick's clients, who didn't get to take the Section 179 deductions,
missed out on. Pimlott noted that with changes in the tax law, "it's a
great time to do planning for this year."
She advised owners of corporations to consider whether they want to
switch to a different type of corporation. For example, the lowered tax
on dividends might make a traditional C corporation more appealing,
while lower income tax rates might make an S corporation, which treats
income in a fashion similar to a partnership, more attractive.
But planning will also help you achieve much in the way of day-to-day
tax savings.
Pimlott noted that many company owners fail to keep track of their
business auto usage or fail to keep good records for other expenses.
While some of these expenditures can be reconstructed later, chances are
that poor record-keeping will end up costing a small businessowner at
tax time.
Planning helps here in two ways: With periodic prodding from your
accountant, you're more likely to keep better records and pay more
attention to the expenses you need to keep track of. But planning also
means a different kind of mind-set, one that will help you run your
businessin a more systematic, ordered way.
As Chazen put it, "you should be looking at your tax bill as you go
through the year."
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