NEW YORK -- With less than a month before the April 15 deadline for filing tax returns, many small business owners are still trying to find ways to ease their tax burden. But this isn't the time to be making impulsive decisions.
For example, you can't decide now that you want to change your accounting method for 2004. And you can't choose whether your workers were independent contractors or employees. And you can't come up with expenses by writing checks now.
"Whatever activity ended on Dec. 31 really ended on the 31st," said Gregg Wind, a certified public accountant with Wind Bremer Hockenberg LLP in Los Angeles.
But there are some tax-saving steps that are still possible, even as the deadline approaches. First, though, the can't dos.
* Accounting methods, cash versus accrual:
Unless this is your company's very first return, you can't be deciding now that you'd rather be using a different method of accounting. In short, the cash method recognizes income when it's received and expenses when they're paid, while the accrual method calls for income and expenses to be booked when they're owed. No matter which one you've been using, the only way to change is to file IRS Form 3115, Application for Change in Accounting Method; you can't just choose another method in the middle of preparing last year's return.
* Employee versus independent contractor:
This also not the time to be deciding the status of the workers you hired for that project. Whether they were employees or independent contractors depends on the circumstances under which they worked. The more control you exercised, the more likely they were employees. And this is not something you can decide after the fact.
If the worker was an independent contractor, you should have issued a 1099 form, with a copy sent to the IRS. It's not too late to do it, but Wind noted you'll have to pay a $50 penalty for each late form. If the worker was an employee, then you should have paid quarterly Social Security and Medicare taxes and unemployment and workers' compensation insurance premiums during 2004. If you haven't, you'll likely owe a penalty for paying them late.
* C corporation or S corporation:
This is another change you can't make at this point. C corporations are "traditional" corporations, where the company is taxed on its income, and pays dividends to shareholders who are then taxed on that money. In an S corporation (the names come from Internal Revenue Code provisions), the company isn't taxed, and its income is passed on to shareholders similar to the way a partnership operates.
Once you've elected one form of corporation or another, you can't switch, Wind said. But if you are the sole shareholder in an S corporation and the business is still quite young, Wind said the IRS might permit a change if you didn't receive proper advice.
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