Whether or not your business had a really great year, you can save money by making the right decisions before the end of the year. It's important to have your books in order whether or not you are going to file timely or extend. With so much attention paid to taxes, it's still important to remember the actual books and accounting decisions that form the data from which tax decisions are made. With that in mind, here are 6 end of the year tips for franchisors:
1. Get your books in order.
The fourth quarter is a great time to make sure everything is in order before the end of the year. Not only will this put you in a good place as far as being organized in the new year (something on everyone’s resolutions list), but you may be able to make decisions now that will pay off during tax time.
“Spend the lower cost money on labor that will help keep your books healthy and your tax professional will have to do less work. Plus, you'll save on longer term compliance issues like audits and other such check ups,” said Sharon Powills, Chief Financial Officer at No Limit Agency.
2. Put a retirement plan in place for your business.
If you haven’t already, establishing a retirement plan before the end of the year is something that should be on all franchisors minds in order to defer income taxes.
“While we all know of 401K’s and your ability to defer $18,000 to $24,000 every year, there are also other types of plans that allow you to defer $50,000 or even $100,000 or more. Sure, circumstances have to be right, but if you have had a profitable year you may be surprised with what you can put away in a retirement plan,” said Tommy Lee, Partner-In-Charge at Aprio.
3. Give out employee bonuses now.
Don’t wait until next year to give out bonuses when you can reap the benefits in terms of taxes now and keep employees happy around the holidays.
“I encourage clients to set up their bonus programs to pay out in 4th quarter. It’s good for the employees and its good for taxes,” said Lee.
4. Take a good look at your purchasing assets.
Since franchisors are typically bigger companies with larger purchases, this should be reviewed in the last quarter of the year.
“One thing we always look at is purchasing assets and having them in place by the end of the year. Under code 179, as long as your purchasing is less than 2 million in assets, you can deduct in the beginning of the follow year,” said Rick Coyne, accounting and auditing partner at WithumSmith+Brown.
5. Run a tax projection so you don’t find any surprises later.
As everyone is reviewing the past year for successes and areas to improve on in the following year, franchisors should run their own tax projection to see where they stand. As you are getting your books in order, run a tax projection. You may be able to defer income to the following year, decreasing the amount of taxes you will owe this year.
“We like to run tax projections to get an idea of where they are so there will be no surprises in the future and to see how many things we can do to bring the tax liability down,” said Coyne.
6. See if you are eligible for credits.
Primarily, the Research and Development credit should be looked into for many franchise brands. “Since franchises are always trying to improve their products and service, they often are spending on research and development and are eligible to apply for the R&D credit,” said Coyne.