Tips for Small Business 2009 Income Tax

This is the time of year when most small business owners focus on preparing their income tax. Some of the rules have changed since filing last and there are certain things you might want to consider before approaching your tax preparer.

It is expected that many businesses did not fare as well in 2009 as they have in previous years. As a result, many business owners may be approaching tax season with some fear and apprehension regarding their tax preparer fees and any taxes due.

One way to reign in your professional tax fee expense is to get a guaranteed price up front from your CPA. In progressive, forward thinking CPA firms where an emphasis is placed on providing total quality service and on the value of the services to the client, billable hours are not used. Rather, Fixed Price Agreements (FPA) is used.

As a client, you do not buy hours from your CPA. Thus, your CPA should not sell time. A more cost effective approach is for you and your CPA to sit down and decide together what services you value, and how much you should pay for these services. During the meeting, you should also discuss payment terms and any relevant mutual commitments. Then an FPA can be prepared that states what you agreed to in the meeting. With the creation of an FPA between you and your CPA, you have one less cash flow item to worry about for tax season.

Another way to keep your tax preparation fees in check is to have your financial information in good order. Make sure that all of your accounts are reconciled before turning the records over to your CPA and double check your entries in the general ledger. Make sure that new assets weren’t inadvertently included in office supplies and that there are no personal expenses included in your business books.

If your CPA is using a paperless system, see what you can do to work with it. Send them as much documentation through their customer portal as possible and scan your own documents ahead of time.

A new piece of legislation passed unanimously by the Senate in January now allows taxpayers to deduct charitable contributions to aid victims of the devastating earthquake in Haiti. The law allows U.S. taxpayers to make charitable contributions to Haiti relief programs before March 1, 2010, and claim those contributions on their 2009 income tax return. The legislation also includes a provision allowing those who text-messaged a donation the ability to use a phone bill as proof of their donation. Since the records for such donations will not be in your 2009 records, be sure to pull this information from your 2010 accounting.

Make sure your CPA is aware of the following:

• Did you restructure your debt this year?
• Did you sell your home this year
• Was your home foreclosed on during the year?
• Did you buy a home this year?
• Do you have any new dependents this year?
• Do you have children over 18 who are no longer dependents?
• Did you have any higher education expenses for you or your dependents?
• Did you make any qualified energy improvements?
• Did you purchase a qualifying energy vehicle?

There are also new rules regarding the use of Net Operating Losses (NOL). If you have an NOL for 2009, you will need to discuss which strategy is best for your personal situation. You will need to make the decision to carry back the loss to prior years and request a tax refund or elect to forgo the carry back and carry the loss forward to offset higher income that you expect in the future at higher tax rates than in previous years.
Several other pieces of tax legislation were passed in 2009, however, many of the provisions effect tax years beginning in 2010 and beyond. This makes tax planning a crucial step for 2010.

When meeting with your CPA in 2010, be sure to ask about the following:

• Converting your traditional IRA accounts to ROTH IRA accounts
• Changing from a traditional medical insurance plan to a high deductible plan combined with a Health Savings Account
• Does your estate plan and related insurance need to be updated?
• How can you make energy efficient improvements and save taxes at the same time?
• Should you consider purchasing a qualifying energy vehicle?
• Do you qualify for first time home buyer credits for homes purchased before May 1, 2010?

Many CPAs send out regular newsletters regarding changes in tax laws. With many new laws on the way, you will want to make sure that you read those newsletters and be aware of issues that relate to your situation.

Finally, with so many shortages in federal and state government agencies you will see stepped up enforcement activities among IRS and state auditors. Make sure that you are in compliance with regard to compensation plans, benefit plans, qualified plans, accountable plans, use taxes, record keeping and the like.

As always if you have any questions or comments please email me at rondazaragoza@gmail.com. I will try and reply to your question within 24-48 hours of receipt.