Saturday, December 29, 2007
Year end tax preparation
I really struggle with the last week or so of the year as we deal with the pending year end close out of accounting and the way that translates into paying taxes. With 2007 being our best year ever, our tax liability is at a level unprecedented by any prior experience. I know that the goal of business is to generate a return on investment. That has never been more true for me now that I am responsible to make sure our stockholders get a return. But growing up and being trained as a farmer - paying tax was always one of those things I worked hard to minimize. Since farming was normally only marginally profitable, it was pretty easy to manage the tax liability. But in 2007, prices were at record levels so that compounds a record year at HTS and viola - a tax nightmare is upon me. Do you have proven and successful ways to minimize the tax liability of your business - legally. Not looking for things that are not approved and legal, not even things that are really mostly gray areas. I know some of you deal with this every year. Or do I just thank God that we were profitable and count it a blessing that we get to pay tax because we made money? That is a hard stretch for me, but probably the right one. If you have any great ideas, let me know.
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Yeah, year end is painful. My company was a C corporation at first and then we changed it to a S corporation. The strategies really vary depending on the type of corporation. For example, with a S corporation, profit and loss passes onto the partners/owners at year end and is reflected in the partner/owners personal taxes. As a corporation, a partner can do a draw which is better than a regular payout because you don't have to pay FICA and social security. That is one example. Another is making large capital purchases under section 179. The big thing is to determine the best strategies for your corporation. A good accountant, friends and the net can give you some strategies to reduce tax liability depending on how you want to use the cash. Ultimately, though, if you get it, then you are going to pay tax on it. There really should be a good place to find all this information. Oh well. :)
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