Another tax year is over, and all that remains is for your tax preparer to do their magic and create your business's tax return, right? Well, almost. If you're still searching for opportunities to reduce your business's bottom-line income tax liability, don't give up hope. Although all but a few opportunities disappear with the end of the tax year, there are still a few things you can do--even though it's no longer 2004.
1. Fund your employer-sponsored retirement plan. Although 401(k) plans and KEOGH plans must be set up before the end of the tax year in question, once in place, these plans can be funded anytime prior to filing your business tax return for the year in question.
In addition, there are two employee-sponsored retirement plans that can be established after the end of the tax year in question, as long as they're put in place by the date the business's tax return, plus extensions, is due. These are a SIMPLE IRA or a SEP plan. This means that these plans can be established and funded for the tax year in question (for example, 2004) after that tax year has ended (for example, in 2005).
2. Construct a 2004 mileage log in order to take a business vehicle deduction. In order for you to qualify to take a deduction for a vehicle that you use for both personal and business use, you must have a "vehicle mileage log," documenting all personal miles, as well as all business miles. This documentation will allow you to identify the exact number of business miles--if you use the standard mileage rate--or to calculate the percentage of that vehicle's total miles that were for business use (if you use the actuals method for determining your allowable vehicle usage tax deduction).
Even if you failed to create and maintain a contemporaneous mileage log throughout the tax year in question, you're allowed to construct your vehicle's business usage log after the fact, and use these records to determine the year in question's allowable vehicle tax deduction. This means you can construct a mileage log anytime up until your business tax return for the year in question is filed.
3. Determine which items related to your business's physical location can be depreciated now--instead of later. Business owners are allowed to expense the cost of a building used for business purposes, excluding the land, over a period of 39 years using the applicable rules for "depreciation." However, there are certain identifiable items associated with the building that can qualify to be expensed over a shorter period of time--thereby increasing your annual depreciation expense, and similarly having the effect of decreasing your business's taxable income for the relevant tax years.
In order to identify these items, you should order a "Cost Segregation Study," something typically done by your accountant or tax preparer. This study will identify any items that can be "technically" segregated from the building itself, and that will therefore qualify for faster depreciation methods. These items include the following:
- Items that can be depreciated over 15 years (instead of 39 years), such as fences, sidewalks, shrubs, roads, sewage plants, telephone distribution facilities and even company gas stations.
- Items that can be depreciated over 7 years (instead of 39 years), such as built-in furniture and fixtures.
- Items that can be depreciated over 5 years (instead of 39 years), such as central switching facilities for computer and/or telephone networks.
But here's a warning: Even though these post year-end opportunities exist, they should never be used as a substitute for solid business tax planning--something you should do on an on-going basis throughout each and every tax year. Only in this way can you take full advantage of all the tax-saving opportunities available to you as a small-business owner.
David Meier is the founder and COO of Business Development Coaching, which provides small-business owners with ongoing business coaching and the knowledge and support required to enable them to become truly successful entrepreneurs.