Small Business Taxes: Five Ways to Prepare for Taxmageddon

The end of year is coming, and – if our representatives in Washington continue their shenanigans and political posturing at the edge of the fiscal cliff – it will bring major changes to small business tax laws. As a business owner what can you to protect your interests?

Here are five considerations:

1. Convert your C Corporation:

“Given the possible expiration of historically low tax rates, it may be worth considering converting a C corporation to an S Corporation or an LLC, since C corporations are subject to double taxation (at the corporate level and again at the shareholder level). Converting a C corporation to either an S corporation or an LLC eliminates double taxation, as profits are passed through the corporate level directly to the shareholders.” (Duane Morris)

2. Beef up your workforce:

“Employers who act now may be able to claim an expanded tax credit for hiring certain qualified veterans. According to the IRS, both for-profit and tax-exempt employers may qualify to receive thousands of dollars through the expanded Work Opportunity Tax Credit (WOTC) should they hire qualified veterans who begin work before January 1, 2013.” (Poyner Spruill)

3. Stock up on equipment:

“If taxpayers are considering the purchase of Section 179 assets for their business, and computer software in particular, they should consider purchasing and placing those assets into service in 2012 to take advantage of the additional Section 179deduction amount.” (Jackson Walker)

4. Consider a defined-value gift:

“If you wish to make substantial gifts of closely held business interests, [Family Limited Partnership] units or other difficult-to-value assets before year end, consider defined-value gifts. This strategy allows you to take advantage of the record-high exemption amount — which, as of this writing, is scheduled to expire at the end of the year — without the need for rushed valuations and without the fear of unintended tax consequences should the IRS challenge your gift tax values down the road.” (Adler Pollock & Sheehan)

5. Write off bad debts:

“In the current economic climate, collecting receivables is often a lengthy, and sometimes unsuccessful, process. Remember that a deduction for bad debts is permitted for companies that use the accrual basis of accounting when the receivable is deemed to be totally or partially worthless. It may be prudent to maintain adequate records in support of failed collection attempts in the event the IRS challenges the deduction.” (Duane Morris)

The updates:

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