Year-End Corporate Tax Considerations

With the election now behind us, corporations may be anticipating lower tax rates as President Obama had pledged to lower the corporate tax rate from a current high of 35%.  Tax planning opportunities exist in the remainder of 2012 which can take advantage of future lower rates or provide tax benefits even if campaign promises are not held and the corporate tax rate remains the same in 2013.

Although exceptions exist for certain companies, corporations generally benefit by deferring the recognition of income while accelerating deductions.  Combined with dropping tax rates, such a tactic enables corporations to pay taxes on income at lower future rates while accelerating deductions at a higher current rate of tax.  Specifically, the tax benefit of deferring income and accelerating deductions could be significant if the corporate tax rate does decrease to 28%, as President Obama suggested during his campaign.   With this in mind, the last month of 2012 is the ideal window for corporate tax planning. 

A thorough review of your tax accounting methods can reveal sound opportunities to defer the recognition of revenue or accelerate deductions, and also ensure that your current accounting methods are proper.

Items to consider when determining the best accounting method for revenue or expense items include:

Income Items: 

  • Advance payments;
  • Deferral of sales revenue;
  • Disputed receivables; and
  • Nonaccrual experience method

Deduction Items: 

  • Prepaid expenses;
  • Fixed asset analysis;
  • Depreciation;
  • Software development costs;
  • Bad debt expenses;
  • Sales incentives/rebate reserves;
  • Accrued bonuses; and
  • Meals & Entertainment Analysis


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