Ready or not, the end of 2016 is coming fast. Now is the perfect time to check in and check up on your business—while there’s still time to make changes if needed. A few things to look at:
Revenue (Income)—With 10 months complete, how does your actual year-to-date revenue compare to your budget or forecast (or to your expectation, if you didn’t write it down)? If it’s significantly higher or lower, do you understand why? Are those factors likely to affect next year’s revenue as well?
Expenses—How do your first ten months of expenses compare to your budget/forecast/expectation? If they’re significantly higher or lower, what caused the variance? Was it a one-off event, or is it a lasting change? Are there any expense items that increased enough to make you look for alternatives?
Profits (or not)—Revenues minus expenses brings us to possibly the most important line in your almost-year-end review—the bottom line. Is your business making a profit this year? Or do you have a loss in the first ten months? How does that result compare to what you budgeted/forecast/expected? Is there anything extraordinary pending in the next couple of months that might change that?
Major Purchases—If your business is having a good year, one way to reduce your income tax liability is to purchase business assets before the end of the year. Section 179 of the tax code allows you to expense up to $500,000 of business selected equipment that would otherwise have to be capitalized. Bonus depreciation allows deduction of up to half the cost of purchases that don’t qualify for Section 179. There’s a devilish number of details in both of these provisions, so get expert tax advice before you rush out and spend money on a new truck, trailer, tractor, or arena.
Retirement Plan Contributions—Putting money into a qualified retirement plan can be a great way to shelter some of your business income from taxes. How much you can contribute and what kind of plan is best depends on your particular situation, and of course on how much you can spare.
Self-Employment taxes—If your business is a proprietorship (Schedule C) or a partnership (Form 1065), the profits are subject to Self-Employment Tax. It represents both the employer and employee share of the Social Security and Medicare taxes that employees see deducted from each paycheck. At 15.3% of business net income, it can be a significant piece of your total tax bill. Knowing how much income you’re likely to pay SE tax on, and therefore how much SE tax is likely to be on your bill, allows you to make an appropriate estimated tax payment in January, if needed. And more importantly, to avoid being surprised by a large amount due in April.
Reasonable Salary—If you businesses is taxed as an S-Corporation, you don’t pay Self-Employment tax on business income. But if you work in the business, you do have to take a “reasonable” salary—and pay employment taxes on that salary.
Changes in ownership—If you’ve bought, sold, or gifted an ownership interest in your business, make sure your records are complete and up to date. This goes double if the transaction involved a trade or other non-cash compensation.
New Businesses–If you’re just getting started with your horse business, make sure you know what’s required to be considered “open for business” before the end of the year. The costs of setting up a business that hasn’t opened yet can’t be deducted for taxes.
****A word of caution**** The information above is very brief and very general. It is intended to give you ideas, not advice. Making business decisions based on a blog post is riskier than buying a horse based on a single photo.