5 Tax Tips Your Startup Should Consider Before 2013

5 Tax Tips Your Startup Should Consider Before 2013

As the looming “fiscal cliff” dominates the post-election news cycle, it’s hard to know what tax and financial moves make sense this time of year. In this environment, it’s understandable that startups and self-employed professionals are confused about the next steps.

However, when it comes to tax planning, paralysis isn’t an option. Here are five tax-saving ideas to consider. Of course, these tips represent general advice. Always consult with a tax planner/CPA for insight into your own personal situation.

 

1. Assess Your Profitability

Before making any strategic moves, you need to know if you’ll be in the black or the red for 2012. If you haven’t done so already, take charge of your books to get a full picture of what you’ve made and what you’ve spent for 2012.

2. Meet With a Tax Advisor

Many tax credits and incentives are set to expire Jan. 1, 2013. According to Bert Seither, director of operations at Corporate Tax Network, the top thing a startup can do between now and the end of the year is to schedule an appointment with an accountant. A 30-minute checkup can save you a lot of money come tax time.

3. Act Before Long-Term Capital Gains and Qualified Dividend Tax Rates Increase

Without congressional action, the maximum tax rate on long-term capital gains will increase from 15% to 20%. The maximum tax rates for qualified dividends will jump from 15% to the ordinary income tax rate (39.6%). For this reason, you should talk to a tax advisor about how to take advantage of 2012’s lower tax rates.

4. Act Quickly to Close and Liquidate Your Business

If you’re planning to liquidate a business, make sure to do so by the end of 2012. By closing your business this year, you won’t be on the hook for any taxes, business licenses or corporation filing fees for 2013. And most importantly, you’ll be liquidating your business before the long-term capital gain and dividend rates go up (or are scheduled to go up) in 2013.

5. Minimize Self-Employment Taxes

If you’re a self-employed pro operating as a sole proprietor, you’re probably very familiar with self-employment taxes. If you’re a sole proprietor, you may want to consider a more formal structure such as an LLC or corporation by the end of the year. Sole proprietorships can have one of the highest audit rates, not to mention some of the highest taxes. Forming an LLC or corporation can give you more flexibility with your tax treatment, as well as give you more deduction options. Talk to a tax advisor about creating a C Corporation, S Corporation or LLC.

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