Boston-Based Feeley & Driscoll Offers Smart Planning Tips for 2008
Boston, MA December 26, 2007 -- Companies often skip tax and business planning for the new year in the year-end scramble to make tax deadlines, capitalize on exemptions and revised tax legislation, meet payroll requirements, and review financial performance. Feeley & Driscoll, P.C., a Boston-based public accounting and business consulting firm, offers the following list of hot topics to consider as businesses look to 2008:
1. Take advantage of the expanded Section 179 break: Section 179 allows you to expense (rather than depreciate) the cost of depreciable assets (within certain limits) in the year you place them in service. After 2007, the deduction was due to dwindle down to a relatively small $25,000 limit with a phase out if total new additions exceeded $200,000. But this provision is indeed a survivor, as Congress has extended the higher limits each time they've been set to expire. The most recent extension gives you three more years (through 2010) to determine which assets you may need to buy so you can make the most of these significant, necessary purchases. Of course, you generally shouldn't buy a major asset for tax-saving purposes. But if you need one or more large-ticket items anyway, why not get them while the getting is good?
2. Consider a business valuation: Retirement is commonly the only time when business owners obtain a business valuation. But there are many other reasons to engage to services of a professional appraiser, including selling or buying businesses, buy-sell agreements, revised estate plans, and aggressive business growth. Year end is a time to look ahead and consider if any of these transitions are in your future. Though obtaining a valuation can be a complex and time-consuming task, the benefits far outweigh the hassles in certain scenarios.
3. Protect your assets: When it comes to their finances, many people probably cite an IRS audit as the biggest threat. Although an audit certainly can pose a significant problem, it could pale in comparison to a frivolous lawsuit or forced bankruptcy filing. For this reason, asset protection -- the process of arranging affairs to shield assets from potential creditors, litigation and other legal hazards -- has steadily risen to prominence during the past decade. Consider new ownership strategies, limited partnerships and trusts as you look to protect yourself from lawsuits and bankruptcy filings. Contact your CPA for more information on how these methods can benefit you.
4. Evaluate your entity selection: Is your business's selection of legal entity the most appropriate? If your company is a sole proprietorship, what are the advantages to incorporating? If your company is a C corporation, what are the advantages and planning necessary to elect S corporation status? If your company is a partnership, can it benefit from becoming a Limited Liability Corporation (LLC) or a Limited Liability Partnership (LLP)? Debt restructuring can significantly impact S corporations and their shareholders. Done correctly, shareholders can increase their debt basis and decrease their tax liability. But, done incorrectly, they can face unwanted IRS scrutiny.
5. Keep up with tax law changes: Is your business compliant with the tax laws surrounding accounting for advanced client costs? If so, how can you "increase" your tax deductions and reduce cash flow for funding client costs? Your company should only be capitalizing "hard costs" advanced. If your company is capitalizing soft costs or postponing write-offs of uncollectible accounts receivable or non-billable expenses paid, your company could be missing important tax deductions. If your company is not capitalizing advanced client costs, see the separate related article in this issue about the best way to plan and change to the correct method of accounting before the Internal Revenue Service (IRS) does it for you.
6. Ensure Form 1099 compliance: By January 31, 2008, your company must prepare and send Form 1099 MISC to eligible recipients to notify them and the IRS of payments made to them. Eligible recipients include unincorporated vendors who were paid for providing personal services in excess of $600 during 2007 to your company. In addition, law companies are singled out as the only incorporated businesses required to receive 1099s for payments received. If you are unsure if a vendor is incorporated or not, you should send the vendor a Form W-9 form to complete. You should make the completion of a Form W-9 mandatory to all vendors before paying their invoices in order to streamline the process of completing Form 1099s each year. This way, your company can flag all potential 1099 recipients as soon as they become vendors.
7. Get multi-state tax issues right: Is your company filing income tax returns in all required states? Consider if professionals are licensed for practice in other states, if your company maintains an office in other states or has property or equipment in other states or are paying payroll taxes in other states. Determine what your obligation is to pay income taxes in other states based on the activity your firm has in these states. Use the above tax issues as a guide to see if your firm can impact its 2007 tax results and to plan for any opportunities for 2008.
Remember, it always advisable to ensure your accounting practices are working for you, not against you - especially as the year draws to a close. Consider the following:
1. Don't ignore FIN 48: For many companies that generate financial statements under Generally Accepted Accounting Principles (GAAP), the Financial Accounting Standards Board Interpretation No. 48 (FIN 48) could raise some old tax ghosts regarding how you've accounted for income taxes in those statements. By and large, FIN 48 applies to C corporations and, in some cases, S corporations. Normally, the tax provisions for S corporations would be immaterial to a company's financial statements, but there may be some rare cases where significant state liabilities for multiple years exist. Identify uncertain tax positions you've taken in previous years and ask your CPA for help evaluating FIN 48's potential effects on your financial statements.
2. Check internal controls: Protect your company by safeguarding against employee fraud. Separate job duties associated with cash handling - one person should not be responsible for taking in money, counting and making deposits. Even small companies can vary who makes bank runs and who opens the bills. Set up formal review procedures for workers' compensation claims and work with legal and insurance professionals if a claim sets off an inordinate number of red flags. Take regular physical inventories of high-value stock and keep an eye out for unexpected trends. Benchmarking your company against similar businesses can help in this regard as well.
ABOUT FEELEY & DRISCOLL
Feeley & Driscoll, P.C. is a 130 person public accounting and business consulting firm with offices in Boston, Massachusetts and Nashua, New Hampshire. For over 30 years, Feeley & Driscoll has focused its expertise to build profitability for its clients. The firm has provided high-quality assurance, tax and business consulting services to an array of industries, including construction, architects and engineers, not-for-profit organizations, health care, manufacturing and distribution, biotechnology, and information technology. For more information about Feeley & Driscoll, call 1-888-875-9770 or visit www.fdcpa.com.