We're there already ... and again. Time seems to be moving faster each year! Someone said to me the other day that Friday, December 21st, will effectively be the end of the year 2001! His firm's analysis is that everyone, in effect, will be closed the balance of the year because Christmas falls on a Tuesday (meaning Monday, December 24th can hardly be considered a work day) and many people take off the week in between Christmas and New Year's days ... or at least are not interested in talking about new business, only necessary elements required to keep the business operational until January 2nd. And how many people will go back to work on January 2nd is anyone's guess. The Rose Parade (January 1st) and Rose Bowl game traditionally signal the end of the holiday. (You can see my West Coast bias. ) This year, the Parade will still be on the 1st while the game (the national BCS - NCAA championship football game) will be held on January 3rd. Will people just shuffle through the balance of this week as well? Something to consider in your planning for new business and for the productivity of your staff.
Tax planning
Here are some simple rules of the game:
- Look at two years at a time. When you expect next year's revenue will be substantially higher than this year's, you might want to defer expenses until next year where possible; and where this year's revenue is expected to be considerably higher than next year's, take as many expense deductions this year as possible.
- For example, one attorney just closed a one-time deal of significant proportion; his current income success distorts his historical revenue picture. Thus, he thought it prudent to commit himself to an equipment lease with front loaded expenses that are deductible in the current year to offset some of the tax impact which will result from his good fortune this year. The equipment will benefit him in the future while a big chunk of the obligation will have been paid for with help (offset against income) from Uncle Sam.
- Realize losses on investments this year if you have high taxable gains this year. If you deal in securities, timing is important. Review "wash" sales, and review net losses carry forwards.
- Where taxable income is high, accelerate deductions such as pension/profit sharing contributions, charities, student loan interest, health insurance for self-employed persons, property taxes, etc.
- Defer income until next year if things are going well for you now and there is an opportunity to delay receipt of income ... unless you expect next year to be even better. Also, I become nervous when talking with clients about delaying the payment of their billings; I don't want to think it's o.k. to delay paying me their debt. But, reducing our collection efforts might have the same impact without the negative consequences.
- Pay January obligations in December including the fourth quarter State income/franchise tax estimate obligation and January mortgage payment.
- Another neat opportunity: for gifts to charities of appreciated securities, do not sell the stock and donate the proceeds because you will have to pay your capital gains tax! Instead, donate the appreciated security. You get to deduct the appreciated value of the securities while avoiding having to pay the tax on the capital gains!
- Review your estimated tax payments to date; if you will fall short of your total tax liability for the year, consider adjusting and increasing your withholding tax payments for the balance of the year.
- Where appropriate, consider the Alternative Minimum Tax (AMT). This can be a quagmire and requires careful scrutiny where applicable.
- Create your tax plan for next year based on your best estimates ... some planning, even if it has to be adjusted during the year because of unexpected opportunities will save you thousands of dollars!
- Create a business plan! ... only if you want to succeed! ... and be more profitable next year than last year
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