Well, it’s not just your accountant’s bill. For many businesses and individuals it makes sense to pay as many bills as you can before the new year.
Most small businesses are on a cash basis. That means that you have to pay an invoice in order to count it as an expense against the business’ income. And, most small businesses use the calendar year to record income and expenses.
Usually it makes sense to pay as many bills as you can this year so that the net income you report to the government is as low as possible. A lower income results in lower taxes.
The same rule is also usually true for individuals. If you can, you should pay property taxes, January’s home mortgage, and accelerate other tax-deductible payments into 2011. The more deductions you accumulate in 2011, the less you will owe in April, 2012.
On the other hand, if you expect for you or your business to earn a lot more in 2012 than you did in 2011, you might want to push your tax-deductible expenses into 2012. (You still should pay your CPA now, of course.)
The rules are somewhat complex, and you should contact a tax professional to see what the best course of action is for you. Everyone, though, should look at their tax situation THIS WEEK.
You need to act before New Year’s if you want most of the available deductions. Most people have until April 17, 2012 to fund their 2011 IRA retirement contribution, but all other options run out at midnight December 31st.
So, sit down. Go over your business and personal bills. Make a pile of those invoices that have tax consequences, and decide whether you want to pay them now or next year. Make your electronic bill payment, charge your credit card, or write the check and mail it. Today!
For information on last-minute planning for your specific situation, please phone Sterck Kulik O’Neill at 415.433.4500.