TAX TIME


or filing. I suggest that you search the American Institute of CPAs (AICPA — www.aicpa.org), as their members must adhere to a standard set of criteria to continue their membership, in- cluding continued professional education on tax law as well as a strict code of conduct. Furthermore, you should meet with a few different CPAs. You need to be comfortable with their knowl- edge of tax laws that apply to the services and products that you offer and sell. Let’s face it — you’re putting your financial well-being in their hands. You want your CPA to be proactive in taking ev- ery available tax benefit, as the tax law is packed with many opportunities for saving money. You simply need to develop a strategic plan in order to get your share. But of course, you don’t EVER want to cross the legal line. Working with the right CPA is affordable, reduces the risk of improper tax filing and increases your effectiveness to plan out your cash flow.


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FIGURE OUT THE ‘C’ YOU WANT TO BE. There are a lot of things to consider when determining what corporate, or company status you will take, and my first advice is


The Smart Way to Manage and Pay Taxes It’s not just about getting a number from your accountant and writing a check to the IRS. You can apply strategy to determining your tax liability that will put your business in prime financial position for whatever you want to do with it. By Branden Smeltzer


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s a business owner or manager, I am sure that your shop is also competing with more than your competi- tor down the road. Economic insecurity has created a new competitor for all businesses, small-to medi-


um-businesses in particular. A great way to combat the current market is to pay and plan your taxes smartly. The highlights of doing this are to choose a knowledgeable


certified public accountant (CPA), decide which entity is best for operating your business, establish a favorable capitalization


40 Mobile Electronics Survival Guide 2012


policy, stay up-to-date on state and federal tax regulations and, lastly, some good old fashioned planning.


PUT FINANCE OVER FAMILY WHEN WORKING WITH FINANCES. If you do not currently file your business/personal taxes us- ing the advice of a CPA, you should really seek one out in your area who specializes in retail sales and inventory control and management. Bookkeepers are great in terms of daily work, but in my opinion they should not be used for tax planning


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to see #1: talk to your CPA. But I’ll explain the basic differences and advantages of each here. Most businesses today are C corporations because this gives owners enormous flexibility in how they operate their businesses, the way they distribute own- ership and how they raise capital. C corporations also provide its shareholders with significant protection from legal liability. S corporations are similar to C corporations in that the sharehold- ers/owners are protected from legal liability. S corporations also simplify your life by “passing-through” company profits to the shareholders/ownership, and they pay taxes on this as personal income. LLCs (limited liability com- panies) offer many advantages to small business owners, and are similar to S corporations, as the profits flow through to the shareholders.


LLCs are similar to both C and S corporations because their members are protected from legal liability. They are great be- cause there are no limits on the number of members to the organizational structure of your business and you can form sub- sidiaries and offer several classes of “membership interest,” or stock. If your CPA helps you determine that you need to change your business status, you must do so by March 15 of the current year, and discuss the impact this will have on your personal tax return as well as your business tax return.


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SET SOME INTERNAL POLICIES TO SAVE SOME DOUGH. Reviewing and updating your business tax policies that relate to your company assets is a great way to pay your taxes


smartly. When you are buying computers, printers, furniture or improving your office space, you should have policy in place that states the dollar amount of what qualifies as an expense vs. a depreciating asset. The beauty of this is that you specify


that dollar amounts of each, as long as the amounts are within reason. When creating these policies, it is important to work with your CPA to understand the effect they will have on your business. The higher the minimum dollar amount, the more items will be expensed in the current fiscal year, which lowers your businesses taxable income. This way, you do not have to depreciate items over 10 years, 25 years or even 30 years. However, there are benefits to considering purchases as long- term assets. If you are looking for a credit line, any business loan or to want sell your business, writing off an asset through depreciation deductions will keep the assets on the company’s books longer and, therefore, will increase the company’s net worth. It is wise to integrate your capitalization policy with your long-term goals for the company,


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STAY IN TOUCH WITH CAPITOL HILL. Making a point to check your state tax law web site as well as the IRS website, www.irs.gov, is an important part of running your busi-


ness, especially in times where the economy is less than satisfactory. There have been several programs over the past few years that have been offered to businesses just like yours that help reduce your tax liability. This is something that a good CPA should be aware of. But your CPA will never know your busi- ness as well as you, so it is important to monitor tax incentives that may be applicable to your business and bring them up when meeting with your CPA. Here are some good websites that discuss current and future tax law changes:


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PLAN, THEN KEEP PLANNING. Tax planning should not be done once a year. It is strongly recommended to have quarterly (based on a calendar year) tax reviews with


your CPA: A. Quarter 1 should include a review of last year’s tax return, as well as a financial forecast of the current fiscal years profitabil- ity. You should be able to look at the last few years’ financial averages and apply them to the trends of your current sales. This forecast does not have to be perfect; it is simply a start- ing point for the years tax planning. Your CPA should be able to estimate what your tax liability is from your financial forecast, which then gives you nine months to plan major purchases, implement a savings strategy to pay your tax liability or just to provide you with peace of mind that your business is going to perform well this year. B. Quarter 2 is a great time to review your forecast with your CPA to see how close your numbers were to your business’s actual performance. It is also crunch time: at this point you should be able to get a good grasp on what your profitability will be and what you want to do with it at the end of the year. It is good business practice to take a percentage of profits (say 25 percent) that you are comfortable with and apply them to business development. This will not only lower your profitability and decrease your tax liability; it will provide your business an


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