Boxoffice (Oct-Dec 1963)

I How to Make YearEnd Tax Plans Proper Planning Before YearEnd Will Reduce The Two-Year Tax Bill for Your Theatre By JACK BEDFORD A fter years of talk about changes in the income tax structure, it is a welleducated guess that there will be several changes that will become effective on January 1, 1964. Plans you make now will have a bearing on your total income tax bill for two years — this year and next. Tax experts are of the opinion that both personal and corporate income tax rates will be reduced by Congress to become effective in a two-stage program — half in 1964 and half in 1965. It is also anticipated that certain deductions will be changed or eliminated entirely to close some of the so-called loopholes in the present Internal Revenue Code. Other changes indicated are for a change in the capital gains rules, a provision for making it possible to deduct the cost of an employe’s move when necessary for the business, and an increase in the benefits of the 7 per cent investment credit provisions of the income tax law. Based on these observations, it will be important to make strategic tax plans now. Anything done to decrease your tax bill this year will help you save money over the two-year period. You will save tax dollars this year through higher deductions, and save next year through the lower tax rate when enacted by Congress. DO "PUT-OFF" JOBS NOW One of the easiest and most often overlooked methods of bringing tax deductible expenses into the current year is completing “put-off” jobs. These expenses can be charged against this year’s income if the work is scheduled before year-end instead of being “put off” until next year. Office expense is a current item. Yet, you probably have some work that is being put off — mailing lists that are out-of-date, records that should be destroyed, and files that need reorganization. Doing this work now will bring this tax deduction into this year’s operation. Repair and maintenance expense is in the same category. Getting this “put-off” work completed before the end of the year will save you tax dollars. And, a minor expenditure now for maintenance may save you a larger repair bill next year after the tax benefits are gone. BUY NEW EQUIPMENT NOW In addition to the two-year savings possible in anticipation of a tax cut next year, there are several tax dollar implications when you purchase new equipment. Proper planning of your year-end income tax strategy should take the following points into consideration. First, there was the replacement of the Internal Revenue Service’s old “Bulletin F” with the new “Rules and Guidelines for Depreciation.” This new publication establishes shorter useful lives for many classes of equipment making it possible to depreciate new equipment faster with larger annual deductions. Second, new equipment purchased this year is subject to a new 7 per cent tax credit. This is a reduction of taxes — not a deduction from gross profit. The tax savings on this new law are obvious. This reduction will apply next year — but there is some speculation that it will be even more of a saving next year. Currently, the saving reduces the depreciable value of the physical asset subject to the 7 per cent tax credit. It is anticipated that the new tax law will give businessmen the full tax credit without reducing the depreciable base. New equipment purchases this year will qualify for the 7 per cent tax credit. You will want to consider the present law and the proposed tax law in making a decision of whether to buy new equipment this year or to delay action until next year. Third, investments you make in new equipment this year will also qualify for the special first-year deduction. This will give you a deduction of 20 per cent of the investment cost up to $10,000 ($20,000 on a joint return) . Fourth, after you have made your investment decision to buy new equipment this year, there is still another way to make plans to save money over a two-year period. This will be in the method of calculating depreciation you adopt. If you apply one of the accelerated depreciation methods (double-declining balance or sumof-the-years digits) you will have higher deductions the first years you own the new equipment. Your year-end tax strategy this year might indicate adopting one of these methods now, and shifting to the straightline method at some later date to more evenly spread out the deductions in later years. WRITE OFF BAD DEBTS Even though you may hate to admit it, you probably have some accounts on your books that are bad debts. If you write these off this year, you will get the deduction when the tax rate is high instead of next year when it may be lower. You will need to review your accounts and see which represent doubtful collection items and then take the proper tax action. Bad debts are a legitimate expense deduction, but you cannot just decide they are not good and write them off. You must meet several requirements before you can consider any of your debts to be in the uncollectable category. First, it must be a valid debt . . . represent some obligation that has not been met by your debtor. Second, it must have been included in your income in this or in prior years . . . sales not included in income cannot be charged off as bad debts. Third, it must be worthless. Fourth, it must have become worthless in the current tax year. Item number four is the one you will need to make special note of in your yearend planning. Be sure the bad debt became worthless this year . . . make extra collection efforts between now and the end of the year. Get some facts that show the debt is no good . . . and that it reached this point this year. LUMP PAYMENTS THIS YEAR Naturally, this will not apply to all items. If you are on a cash basis of reporting, there are many areas where this can be applied. Accrual basis taxpayers are required to spread the payments made over the period covered by the expense. Contributions are one item that might meet this requirement for your business. If you have been making annual contributions to some recognized charity, you might lump two years’ payments into one and pay it before the end of the year. A contribution to charity is not an obligation like rent, and you can make the payments at any time you prefer. Check the tax advantages of doubling up on charity contributions this year and be sure you do not exceed the limits established in the Internal Revenue Code for contributions. Property taxes are usually billed in December. You may have the option of paying them all at one time or dividing up these payments into half in this year and half next April. Full payment in December will put this expense item into this year and reduce your income taxes. A little paperwork on this one item may point the way to a tax saving over the two-year period. Business magazine subscriptions might be renewed for a longer than one-year period. Dues in business associations also might be paid in advance to give you more expenses this year and lower deductions next. The same procedure might be applied to your business licenses and licenses for your auto and trucks used in your business. MAKE ADVANCE PLANS NOW You will need to apply your own best business judgment on the income tax decision you make now to help you save money this year and next. There is no assurance (at this writing) that the tax law will be changed next year. However, most political observers and tax experts anticipate an income tax cut over a twoyear span to become effective on January 1, 1964. You will need to weigh the facts in this article and in the daily news to make a sound, tax-saving decision. This is especially true of any long range plans you make now in anticipation of lower taxes next year. For instance, if you are thinking about setting up a bonus plan for your employes, you may want to get it under way now and make the tax savings this year. However, if conditions change or if the overhaul of the tax laws enters the picture on this you may find yourself in tax trouble in the future. Continued on following page BOXOFFICE :: December 9, 1963 7