Year–End Tax Checklist

Now is the time to wind up the current year and focus on the coming year. If you fail to act now, you may lose important opportunities to help your business.

Year–end meeting

Schedule and hold your year–end board meeting to attend to various issues before the New Year. Decide on: Year–end bonuses: Accrual–basis businesses can deduct bonuses to owner–employees only when actually paid; bonuses to rank–and–file workers are deductible now as long as they are actually paid by March 17, 2008.

Dividends. If your corporation has been profitable, you may wish to declare a dividend. While dividends are not deductible by the corporation, recipients pay no more than 15% in taxes.

Important: Make sure you record your meeting in the corporate minutes or company meeting book.

Budgeting

Now's the time to put your 2008 budget in place. Here are some guidelines on cost increases to consider:
Wages and benefits: You might want to adjust wages in line with the projected 3.7% increase by businesses nationwide. Of course, increases must be tempered by your business performance; the better you're doing, the more generous you can afford to be. Note: The wage base for the Social Security portion of FICA taxes for 2008 is $102,000 (up from $97,500), or an additional $344.25 for each employee in this income category. There are also higher contribution and benefit limits for profit–sharing and defined benefit retirement plans for 2008.

Idea: If you don't yet have a qualified retirement plan, consider adopting one now. For example, a 401(k) plan will allow you to save $15,500 of your pretax earnings in 2008 ($20,500 for those age 50 and older by December 31, 2008); one–person 401(k) plans are now available.

Insurance: Health insurance premium increases should run about 8% or higher (depending upon the type of plan), although employers may be able to cut their medical costs with high–deductible health plans and health savings accounts (see IRS Publication 969, Health Savings Accounts and Other Tax–Favored Health Plans, at www.irs.gov). Cost increases are still being reported in workers' compensation and some other types of coverage. Some professional liability coverage may be stable (such as coverage for architects), while others (such as physicians) may face increases.

Idea: Make sure you have business interruption coverage to protect you in case a natural disaster, such as a hurricane, ice storm or tornado shuts you down.

Travel and entertainment costs: Do not ignore the continuing high cost of gasoline. If the company pays for employee car use, the extra cost of gasoline may add thousands of dollars to your budget.

Goods and services

Schedule now for taking a physical inventory after the holiday season if your business warrants it.

Review your pricing policies: Decide now whether it's time to raise prices for your goods and services. How will your prices compare with those competitors if you raise them? Do you have sound business reasons for price increases other than merely wanting more revenue?

Idea: Publicize price increases in advance. Give existing customers and clients at least 30 days notice. Provide details in writing or via email. Include new prices when sending out current bills

Strategic planning

Review your business plan: Have you met your targets so far? If not, why did you fall short and what can you do about it in 2008?

Meet with your advisors: Talk with your accountant about last–minute steps you can take to reduce your business income taxes, such as buying and placing equipment in service before the end of the year and expensing its cost up to $125,000.

Talk with your attorney about whether your form of business still serves your objectives. For example, if you're self–employed, maybe it's time to incorporate or become a limited liability company. If you have a C corporation but expect 2008 to be unprofitable, you may wish to elect S corporation status for 2008. You can do so now (or until March 17, 2008), so that business losses will pass through to you and be deductible on your personal income tax return.

Talk with your insurance agent about whether your existing coverage is adequate. To make sure you have proper coverage, inform your agent about any new activities you've undertaken.

Dream on: Business owners spend most of their days putting out forest fires. Now's the time to plant a forest. Remember why you went into business in the first place? Think about what you hope to accomplish in the coming year.