As the year comes to a close, we share a few tips to help you bring the year in for a smooth landing.
Personal Tax Projections
Take the time to prepare your personal tax projection and compare your estimated tax liability to the tax you have paid to date. This does not need to be an in-depth process. Take your average tax rate from last year (total tax divided by taxable income from last year’s return) and multiply that percentage to an estimate of your current year income minus deductions. Is this method perfect? No, but it will give you a good idea of whether you are in good shape or not.
Remember that the fourth quarter tax payment deadline is not until January 15th. If you have underpaid your taxes you can make a final payment by then to avoid possible underpayment penalties.
Year-End Payroll, Capital Expenditures, and Profit Sharing
Do not wait until the last week of the year to initiate any special payroll runs for bonuses or catch-up tax withholding. This is especially important if you use a payroll company because these firms are inundated with last-minute year-end requests; even the best service providers can fail if you procrastinate too long.
For year-end capital expenditures, tax rules generally allow a full deduction in the year you put the equipment into service. In service is defined as being ready for use—not sitting in your vendor’s warehouse or box in your office—but at your place of business ready to use. You don’t have to pay before the end of the year, although it is helpful to have an invoice from your vendor dated this year in order to substantiate this deduction.
You can make profit-sharing contributions to the company retirement plan deductible this year, provided you make those payments before filing your tax returns next year. Be sure to discuss this with your retirement plan advisors so that they can provide funding options now.
Meetings With Financial Advisors and Tax Professionals
Do not wait until the last minute to schedule planning meetings with your professional advisors, including accountants, attorneys, bankers and investment advisors. The holiday season makes their availability sketchy at best in the last two weeks of the year. Do not expect your advisor to step out of a family gathering to answer your last-minute planning question. Call them this week!
by Trey Whitt, Partner, DentMoses, LLP, Birmingham, AL