- The Washington Times - Tuesday, December 10, 2002

The holidays are here, and income-tax filing season is months away. Do not be lulled into a false sense of security. If you haven't started looking at your company's taxes and estimating how much the bill is likely to be, you are setting yourself up for unnecessary angst and perhaps penalties come April.
"What they need to be doing at this point is taking a look at a pro-forma tax return and see where they would be, based on all the knowledge they have now," said Gordon Spoor, a certified public accountant with Spoor, Doyle & Associates in St. Petersburg, Fla.
It's not just a matter of saving yourself panic and frustration at tax time. Mr. Spoor noted that many businesses must make their first estimated tax payment for 2003 on April 15, the same day that any 2002 taxes will be due. It's important to know as early as possible whether you are likely to have enough cash to pay your bill.
You might find you need to pay more than you expect when you make your final 2002 estimated payment Jan. 15. Mr. Spoor again cautioned that you are better off doing the calculations now and paying the money on time rather than facing a penalty next April.
Once you've come up with some rough figures, you might have some decisions to make. You might want to defer some income until 2003 or accelerate deductions.
You can defer income by not billing your customers or clients until January. But be aware that this can only be done if you run your business on a cash-accounting method, in which income is reported during the year it is received. If your business is on the accrual method, you have to report it when it is earned, even if it hasn't been received yet.
Deductions must be treated in a similar fashion. With the cash method, you can accelerate a 2003 payment into 2002 for example, making a mortgage or rent payment early. Under the accrual method, a deduction must be reported for the year in which payment is due, so writing that check early won't lower your tax bill.
These are particularly important considerations if you are thinking of purchasing equipment before the end of the year and planning to take advantage of what's known as the Section 179 election. Named for an Internal Revenue Code provision, this election allows small businesses to deduct up front rather than depreciate the entire cost of up to $24,000 in equipment.
Under Section 179, you can use this deduction for equipment that is placed in service (but under the cash method, not necessarily paid for) by Dec. 31. So if you are thinking of buying a new car for your business, or a new computer (or both), you might want to do it soon.
A couple of caveats: You cannot use the election for a building or part of a building, such as a heating system. And when it comes time to file your tax return next spring, you must complete IRS Form 4562, Depreciation and Amortization, Part 1 to use the election. You might also want to know that next year the amount of the election increases to $25,000.
Mr. Spoor offers another caution: Don't automatically go for the election. Do the math and determine whether depreciating the equipment over a longer period would work out better for you.


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