• Does your business operate on a cash or accrual basis?
  
• Do you expect a profit or a loss for 2011?

  More Year-End Tax-Saving Ideas Get in Position for 0 percent Tax Rate on Gains from Selling Qualified Small Business Stock. For qualified small business corporation (QSBC) stock that is issued in calendar year 2011, a 100 percent federal gain exclusion break is potentially available. That equates to a 0 percent federal income tax rate on future profits from selling QSBC shares down the road. However, you must hold the shares for more than five years to be eligible. This break is not available to C corporation shareholders, and many companies won't meet the definition of a QSBC. Contact your tax adviser if you have a start-up business that you think might be eligible if things are set up properly. But hurry. The 100 percent gain exclusion deal won't be available for shares issued after this year unless Congress extends it. Take Advantage of the S Corporation Built-In Gains Tax Exemption. If you operate a corporation that converted from C to S status a few years ago, you probably know about a corporate-level built-in gains tax (known as the "BIG tax"). It may apply when certain S corporation assets (including receivables and inventories) are turned into cash or sold within the recognition period, which is normally the 10-year period that began on the date when the corporation converted from C to S status. For gains recognized in tax years beginning in 2011, however, there is an exemption from the BIG tax. The exemption applies if the fifth year of your corporation's recognition period had gone by before the start of the tax year beginning in 2011. If your S corporation is eligible for the exemption, consider making some asset sales that trigger built-in gains this year (when the BIG tax exemption is available) instead of selling in future years (when the BIG tax might bite). Your tax adviser can provide more information on this issue.

  
  
• Do you anticipate that 2012 will bring significantly higher revenue or expenses, or a tax bracket change?

If you operate as a sole proprietorship, S corporation, LLC, or partnership, the net income generated by your business is reported on your Form 1040 and taxed at your personal rates.

The 2012 individual federal income tax rate brackets will be about the same as this year's (with modest bumps for inflation), so they will remain relatively favorable. Therefore, the traditional strategy of deferring income into next year while accelerating deductible expenditures into this year makes sense if you expect to be in the same or lower tax bracket next year. In that case, deferring income and accelerating deductions will, at a minimum, postpone part of your tax bill from 2011 until 2012.

On the other hand, if your business is healthy, and you expect to be in a significantly higher tax bracket in 2012 (say 35 percent versus 28 percent), take the opposite approach. Accelerate income into this year (if possible) and postpone deductible expenditures until 2012. That way, more income will be taxed at this year's lower rate instead of next year's higher rate. 

If Your Business Is a C Corporation

If you operate your business as a regular C corporation, the 2012 corporate tax rates are scheduled to be the same. 

So if you expect your corporation to pay the same or a lower rate in 2012, postpone income into next year while accelerating deductible expenditures into this year.

However, if you expect the opposite, try to accelerate income into this year while postponing deductible expenditures until next year.

Specific Moves to Make

Most small businesses use cash-method accounting (rather than accrual) for tax purposes. Assuming your business is eligible, cash-method accounting gives you flexibility to manage your 2011 and 2012 taxable income to minimize taxes over the two-year period. Here are some specific cash-method moves if you expect business income to be taxed at the same or lower rate next year. 

• Before year-end, charge up recurring expenses that you would otherwise pay early next year on credit cards. You can claim 2011 deductions even though the credit card bills won't be paid until next year. However, this favorable treatment doesn't apply to store revolving charge accounts. With those accounts, you can't deduct business expenses until you actually pay the bill.
• Pay expenses with checks and mail them a few days before the end of the year. Under tax law, you can deduct the expenses in the year you mail the checks, even though they won't be cashed or deposited until early next year. For big-ticket expenses, send checks via registered or certified mail. That way, you can prove they were mailed this year.
• Prepay some expenses for next year. You can take deductions for these expenses as long as the economic benefit from the prepayment does not extend beyond the earlier of:
1. Twelve months after the first date on which the taxpayer realizes the benefit or
2. The end of the tax year following the year in which the payment is made.

For example, you could prepay the first three months of next year's office rent or the premium for property insurance coverage for the first half of next year.

• On the income side for cash-basis taxpayers, you generally don't have to report income until the year you receive cash or checks in hand or through the mail. To take advantage of this rule, put off sending out some invoices so you don't get paid until early next year. Of course, you should never do this if it raises the risk of not collecting your dough.

When to Take the Opposite Approach

If you expect to pay a significantly higher tax rate on next year's business income, try to do the opposite of these things to raise this year's taxable income and lower next year's. 

Claim or Carryback a Net Operating Loss

The business tax breaks and strategies discussed here can be used to create or increase a 2011 net operating loss (NOL) if the expenses of your business exceed its income. You can then choose to carry a 2011 NOL back for up to two years in order to recover taxes paid in those earlier years. Or you can choose to carry the NOL forward for up to 20 years if you think your business tax rates will go up.

This article only discusses some year-end tax strategies that your business might be able to take. Consult with your tax adviser for more ideas in your situation.