2015 Filing Season – Tax Information you need to know:
This article will explore what is needed to get ready for 2015 filing as well as strategies that can be employed within the the lawn care industry for this year. As the saying goes, the only two guaranteed certainties in life are death and taxes. Both are unpleasant topics. However there are certain strategies to employ that can minimize the effects of the latter. You are on your own for the former.
Careful planning and preparation will help you minimize taxes. Stay calm and clear headed. Ask yourself the following when it comes to taxes: Do you do the tax sprint running around like a maniac at tax time or is your tax planning and preparation run like a smooth marathon?
To help you keep your stress level to a minimum, you need to know what deductions are available and have the information and documentation available to take advantage of those deductions.
First, you will need to have an accurate Profit and Loss Statement as well as an accurate Balance Sheet for your business. All figures should be reconciled to bank statements. Most expenses that are reasonable and necessary to carry on your business are deductible. Some expenses by definition such as penalties are not deductible. In addition, business meals and entertainment meetings are only deductible at 50%. For these expenses you will need a business log that records the expense, who attended these meetings and the business purpose of these meetings. If you come under audit and you don’t have these records the deductions will be disallowed.
Accurate recording of asset acquisitions such as vehicles and or other equipment will allow you to maximize the depreciation deductions for these purchases. You should determine if any new assets added in 2015 are eligible for Section 179 deduction (you can literally expense 100% of the purchase if the assets are eligible), currently up to $25,000. However, if congress passes the tax extenders it could be up to $500,000. Stay tuned!
If you are a C Corp your net income will be taxed at the corporate level using the corporate tax tables. Any dividend payments to owners will also be taxed at the individual level thereby creating a double tax. It should be noted that dividends are currently taxed at the long term capital gains rate for 2015. This can cost as much as an additional 24.6%. So be aware!!
If you are a Sole Proprietor, Partnership or LLC taxed as a Sole Proprietorship or Partnership you will be taxed at the individual level only. It should be noted that you will be taxed on the profit without regard to whether you distribute these profits or not.
2015 Filing Season – What you can still do:
In an environment where taxes are stable or increasing, basic tax reduction strategy:
- Defer Income
- On the income side, the general rule for cash-basis businesses is that you don’t have to report income until the year you receive cash or checks in hand or through the mail. To take advantage of this rule, consider waiting until near year end to send out some invoices to customers. That will defer some income until 2016, because you won’t collect until early next year. Needless to say, this idea should only be used for customers with solid payment histories.
- Accelerate Expenses
- Charge recurring expenses that you would normally pay early next year on credit cards. You can claim 2015 deductions even though the credit card bills won’t actually be paid until 2016.
- Pay expenses with checks and mail them a few days before year end. The tax rules say you can deduct the expenses in the year you mail the checks, even though they won’t be cashed or deposited until early next year. For big-ticket expenses, consider sending checks via registered or certified mail, so you can prove they were mailed this year.
- Before year end, prepay some expenses. As long as the economic benefit from the prepayment does not extend beyond the earlier of: (1) 12 months after the first date on which your business realizes the benefit or (2) the end of the next tax year. For example, this rule allows you to claim 2015 deductions for prepaying the first three months of next year’s office rent or prepaying the premium for property insurance coverage for the first half of next year.
Winter is usually when we start to think about taxes. While there are only a couple of weeks left you may be able to reduce your taxes by employing some of the above strategies.