Getting in Your Deductions Before December 31
There's still time to make some moves that will help lower your 2004 tax bill.
The holiday season is the busiest time of year for many business owners, especially those in retail, but it's also a frantic time for lawyers, accountants, consultants and other professionals who work with small businesses. Why? Because it's also the end of the tax year, and business owners love to cram their last-minute transactions in before December 31 so they can record any deductions before closing their books.
And I admit, I'm no different from other business owners. While the rest of the world is looking for the Grand Theft Auto: San Andreas video game, the Bratz Runway Playset, or the "Dancing Elmo" plush doll (and good luck to any of you who were running around town trying to scavenge these for your kids without a high-level connection in the toy industry), what am I scrounging around for to put under my holiday tree? Deductions, that's what!
If you're looking to soak up some of your excess income for 2004 and need to do it by year end, here are some things you should at least think about doing before you close your office doors on December 31 for that much-deserved "long winter's nap":
1. Buy some equipment . . . and fast. You can buy up to $100,000 worth of "eligible equipment" and deduct it all in 2004 as long as the equipment is "placed in service" before December 31. Eligible equipment includes office supplies, computers and other office machinery, furnishings and fixtures, as long as they don't become a semi-permanent part of the building or leased space in which your business operates. (If you're not sure about that, ask your accountant.)
You can also deduct "off-the-shelf computer software" you use in your business, so if you've been keeping your books manually or on an informal Excel spreadsheet, now's the time to splurge for a copy of QuickBooks Pro and learn to do bookkeeping the right way. Just note the "placed in service" requirement-if you buy it in 2004 but don't break the shrink-wrap until 2005, it doesn't count toward the $100,000 limit. At least not this year.
2. Give your professionals an unexpected present. Most attorneys, accountants and other professionals bill their clients at the end of each month, with payment due "net 30 days." That means your bill for December 2004 services won't arrive until sometime in January and won't be due until January 31.
If your lawyer or accountant did anything for your business in December, why not call them, ask them how much you owe for those services, and send them a check now before they even send you the bill? That way, you can deduct the payment in 2004. Better yet, if you know your attorney or accountant is going to perform services for you early in 2005, such as preparing your 1099 forms in January, why not prepay at least some of those fees now, to take advantage of the deduction?
3. Upgrade your business books. We all have at least several outdated business books on our shelves-if you've ever tried using Excel 2003 for Brain-Dead Morons after you've upgraded to Excel 2004, you know how quickly these things become obsolete. Why not buy some new ones during the holiday rush? They're deductible. You can also donate the old ones to your local library by December 31 so you can take a 2004 charitable deduction for the value of the books-your accountant will know how much to fill in, so don't guess. Make sure the library gives you a written receipt, preferably signed by one of the library staff, and then staple a written list of the books you're donating to the receipt.
4. Open a retirement plan. If you don't have a retirement plan, or if you have a SEP-IRA and want to contribute more each year to your retirement fund than a SEP-IRA will allow you to do, now's the time to set up a new Keogh or solo 401(k) plan. If you do it by December 31, anything you contribute to the plan up to April 14, 2005, will be fully tax-deductible for 2004 up to the limits the tax code imposes.
And one last thing. It's tempting, I know, but you really shouldn't post-date any checks "December 31" that you actually write in January. Under a new federal law designed to speed up check clearing at your bank, the chances of getting caught for this are a lot greater than they used to be, so don't do it. Besides, Santa's watching . . .
is a syndicated columnist, author and host of the PBS TV series MoneyHunt. This column is no substitute for legal, tax or financial advice, which can be furnished only by a qualified professional licensed in your state. Copyright 2004 Clifford R. Ennico. Distributed by Creators Syndicate Inc.
Cliff Ennico is a syndicated columnist and author of several books on small business, including Small Business Survival Guide and The eBay Business Answer Book. This column is no substitute for legal, tax or financial advice, which can be furnished only by a qualified professional licensed in your state.