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Tax Planning vs. Tax Preparation

  • By Lauri Paxton
  • 17 Dec, 2013
The holidays are coming soon and the end of 2013 will be here before we can turn around twice.  The magical date of December 31, 2013 marks the difference between tax planning and tax preparation!  Business owners have between now and then to react and plan for end of year deductions for the upcoming tax season or resolve to put their tax receipts together and pay the amount of taxes that are due.
Having a solid financial understanding of your profit and loss statement will allow you to react before the year end or realize what your tax liability may be come April 15, 2014.  If you have had a stellar year and your balance sheet is showing a significant profit, congratulations on a job well done!
Now is the time for planning to help offset a significant tax liability.  But….don’t delay, except for the IRA contribution, these deductions will expire at the end of 2013.
The following are three areas to consider:
  • Charities and/or Nonprofit Organizations – Perhaps you’ve partnered with causes throughout the year, or have a heart for a local cause.  Donations to your favorite charity or nonprofit organization are tax deductible and can reduce your tax liability while helping those less fortunate.  When donating, be sure to ask for a receipt or acknowledgement letter from the organization to keep with your tax records.
  • Equipment and/or Office Supplies – Business efficiencies achieved through the use of up-to-date technology can save time and money. Computers, laptops, IPads, tablets, point-of-sale systems, computer hardware and software are tax deductible when used for business.  If you know you use 3 cases of copy paper per month, stock up and order ahead.  Perhaps your business is participating in a trade show in early spring and you know you’ll need promotional products or a new tradeshow display.  Sometimes distributors have year-end closeouts that will allow you to save big.   Business cell phones can wear out, or need upgraded.  If you take a few minutes to inventory equipment and supplies, it may be time to upgrade or place an order.
  • IRA Contributions – This is the only thing you have until April 15, 2014 to fund.  The allowable IRA contribution is $5,500 unless you’re over 50 years of age.  For the over 50 age bracket, the yearly catch up amount is $6,500.  These amounts can be deducted from your profit and loss statement, but you should consider the contribution amount needed to fund your IRA for cash flow purposes moving into 2014.
NOW is the time to plan.  Take some time and review your financials to determine if any course of action should be taken to close out 2013.
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