Jay Sachetti joined Jeff O’Brien, partner at Husch Blackwell and Dyanne Ross-Hanson, president of Exit Planning Strategies talked about the market for mergers and acquisitions, exit planning opportunities for companies that don’t end up for sale and how companies can maximize their eventual sale price during an early October panel at the first Upsize on Tap event at Summit Brewing Co. in St. Paul.
When the state Legislature passed a law requiring employers to provide paid leave and safe time for employees, Justin Bieganek started hearing differing details from friends, colleagues and peers.
AS TIME TICKS DOWN on 2002, now is a good time to review tax and other financial matters related to your business. There are two financial issues to take care of by the time the clock strikes midnight on December 31: Have you taken advantage of the tax opportunities that exist for you and your business?
Are the benefit programs that you have put in place for you and your employees the right ones for the business that you have now, given that it might be different from the business you had when the plans were put in place?
If you can answer yes to both of these questions, then you can stop here and continue on through the rest of themagazine, but my guess is that you will score somewhat less than 100 percent on this business year-end quiz. For those of you still reading, letÕs get to workÉ.
Tax planning Income tax-related issues that you should be reviewing as year end approaches include:
Managing cash for December. A cash-basis business travels on its checkbook and its credit line. Approaching year end, reviewing and paying accounts payable and managing accounts receivable can assist in getting your year-end taxable income where you want it. If there are bills that come due in early January, you may want to throw those checks in the mail before year end, thereby getting the deduction in the current year. In some cases, tapping that credit line to facilitate those payments can be effective borrowing, especially if the line can be paid off shortly after the year end.
Similarly, if there are Òmore bills than dollars,Ó deciding what to pay before and after year end can be important. Paying a bill that is for an expense, instead of paying a bill that purchases an asset, can provide for a better tax result. An asset purchased and placed in service prior to December 31 can start being depreciated in 2002, regardless of whether the bill is paid by year end. An expense incurred, however, needs to be paid before it can be deducted.
Reviewing accounts receivable. If you are an accrual-basis taxpayer, and you have bad accounts receivable, you have the ability to write off that bad receivable and deduct it as a bad debt expense, but you have to truly write it off. While the tax tail should not wag the dog, and if good chances for collection exist, getting paid is certainly preferable to the tax savings of the write-off. But if you are not going to get paid, at least you can get some tax help on the loss.You should document what circumstances exist that lead you to write it off. You should also note what, if any, additional efforts you have made toward collection.
Keep in mind that even if you write it off, it doesnÕt mean that you canÕt pursue collection via third-party collection efforts.
Pay yourself. For many familyowned businesses, as well as others that are owned and controlled by a small number of people, compensation, rent, interest and other amounts owed to the owners need to be actually paid before December 31 in order to be deductible this year by the business. While the income is then taxable to the recipient, managing the tax rates can often better be done at the owner level than at the business level.
Review your inventory. There are many businesses that possess obsolete or slow-moving inventory. This is the stuff that when you walk through the warehouse you say, ÒWow, is that stuff still here?Ó Opportunities to take some tax advantage of those items include donating the slow-moving items to a charitable organization that could use them, or just selling them to get them off the premises. If you are selling the inventory at a loss, make sure you do not sell to a related party.
Review your asset needs. Businesses can take advantage of accelerated depreciation in two ways. The first is to write off up to $24,000 of equipment, furniture, and computers. This opportunity is limited in that if you have placed too much (over $200,000) new property in service in 2002, you canÕt expense any assets. In addition, expensing the $24,000 canÕt either create or increase a loss.
The second way to speed up the tax help is that an additional 30 percent of personal property purchased can be deducted in the year of purchase. (Note that Minnesota has not signed on to this concept. For state purposes, you can only take one-fifth of this accelerated amount in the year of purchase; the rest must be taken over the subsequent 4 years.)
By taking advantage of these two opportunities, you can end up deducting in the year of purchase 100 percent of the cost of as much as $34,000 in personal property.
Make sure that if you need new assets, you review whether or not you will go over the expensing limit if you purchase them, if you can take advantage of the additional depreciation, or whether you will lose some benefit by purchasing before the end of the year.
Reviewing benefit plans There have been many changes in the tax laws related to retirement plans. Many of these changes allow highincome business owners to contribute and deduct more funds for retirement. Additionally, because of the aging populace and decline in stock portfolios, many business owners find that their retirement plan balances arenÕt what they would like them to be.
Current plans can be modified and new retirement plans can be established before the end of the year. These new plans can allow the business increased deductible contributions for the benefit of owners and other key members of the business. Many of these types of plans can be implemented without a significant increase in the cost of benefits for rank-and-file employees.
An additional benefit of this tax planning opportunity is that while the new plan will often have to be adopted before the end of the year, the funding may not be required until your tax return is filed, even for cash-basis businesses. While the month of December will pass very quickly, and people will have many things on their plates, taking the time to review and consider these issues can enable you to keep more of what you have worked for.
[contact] David Levi is vice president and director of tax at CBIZ SK&B Business Solutions Inc. in Minneapolis, a tax, accounting and financial services provider for the growing business and its owners: 612.376.1208; dl***@**iz.com
