Advice on year end tax planning

December 10, 2007

Do you have any advice regarding year-end tax planning?

The time to consider tax savings opportunities for businesses is BEFORE 12.31.07. 

These opportunities may apply regardless of whether the business is an S Corp, C Corp, closely held business, partnership or regular corporation – and there may be additional items applicable to each type of these entities as well.

The tax professionals at BDO Seidman, LLP in Atlanta are encouraging businesses to consider the following items as soon as possible: 

• Now is the Time to Revise Compensation Programs. Year-end will be too late. Remember that proxy statements summarize the prior year's compensation structures and procedures, so if you need to revise information seen by the shareholders – it must be revised now. In addition, these policies must match the SEC's "improvement letters" sent to many companies in the fall.
• Reward Employees & Get a Tax Break. The standard 50%-of-cost deduction limit for company related meals and entertainment expenses does not apply if the whole company is involved in the "expense." Holiday parties and events are great ways to reward employees, and the full cost is deductible.
• New SEC Rules re: Executive and Director Compensation. Compensation now requires narrative disclosure of change of control and severance payments including the calculation and disclosure of any applicable excise taxes – effective for 2007proxy filing season.
• Anticipate the AMT. If it is likely that a business will fall into the AMT this year it may wish to consider leasing instead of purchasing depreciable property in 2007.
• Think Outside the R&D Box for Tax Credits. Valuable research and experimentation (R&E) expenditures may allow credits for businesses during tax time next year. Companies should think about plant process activities, self-constructed assets, software developed for internal use, environmental activities and package design when making such expenditures.
• Deferred Compensation. Even though the IRS granted another year to comply with 409A, companies must have their employees complete their election forms for salary deferrals by December 31 to meet compliance and avoid immediate taxation.
• Don't Forget the Domestic Production Activities Deduction. Businesses who obtain income from certain domestic production activities before 12.31.07 (such as manufacturing, extraction of personal property, electricity, natural gas or water production, film production, construction, etc.) may be eligible for a 6% deduction on that income. This will be subject to limitations come tax time so it is worth looking into before year-end.