Small-business owners are having a tough time trying to figure out the best year-end tax strategies for 2008 as the global financial meltdown turns conventional planning wisdom on its head.
Many also are unaware of new federal tax rules -- some beneficial to small businesses -- that were part of this year's economic stimulus and emergency bailout bills. And in California, they have to keep track of a long list of potentially costly changes, including accelerated estimated tax payments next year, passed by legislators attempting to plug the state's massive budget shortfall.
"It's hard to plan," said Lynda Darna, controller at RP & Associates Inc., a 37-employee firm in Hermosa Beach that develops custom promotional merchandise for Patron Spirits Co., Remy Martin & Co. and other large companies.
Last week, Darna and owners Richard and Lisa Lopez Pola were keeping an eye on the economic team being assembled by President-elect Barak Obama, looking for clues to next year's tax climate.
As is the case at businesses large and small this year, sales at RP & Associates are down. The 10% decline, to $27 million, is modest, but RP & Associates and other businesses are unsure how revenues will hold up next year.
Even companies' tax accountants are unsure when to expect tax hikes or whether valuable deductions should be taken this year when losses are clear or, instead, saved for a possibly worse 2009.
The uncertainty has put many small-business owners on edge and made year-end tax planning more important than ever, experts said.
"We are definitely seeing a heightened level of anxiety," said Blake E. Christian, a certified public accountant and tax partner in the Long Beach office of Holthouse, Carlin & Van Trigt.
Here are some of the topics that tax experts are talking about with their small-business clients:
Defer deductions and accelerate income. This is the opposite advice traditionally given to taxpayers. In the past, it has usually been wise to try to postpone year-end income until the next tax year and pull deductions into the current tax year.
"With the probability of a tax increase, in some cases we are actually accelerating income and may be deferring deductions," Christian said.
Higher deduction for expenses. A new federal rule allows businesses to immediately double the maximum deduction they can get when they treat the purchase of new property bought this year as an expense, rather than depreciate it and take smaller deductions over time.
