Do a year-end business review

Business owners and managers spend most of their time monitoring operations and dealing with everyday problems. But just as an annual checkup from your physician helps to monitor and manage your personal health, an annual checkup can do the same for your business. The benefits of such a review are holding your company accountable and evaluating current performance to better plan and execute future operations. Here are seven things that you should make time to do every year. These are important for your longer-term business health and personal success.

1. Review your business insurance coverage. Don't just automatically write a check to renew your insurance policies when they come due. Instead, you should sit down with your insurance agent every year. Review your business operations, focusing on any changes. Discuss types of risk that could arise. Ask about new developments in business insurance. Use your agent's expertise to identify risk areas and suggest suitable coverage.

2. Review your business tax strategy. Consider adjusting taxable earnings for the year, perhaps by accelerating expenses or delaying income at year-end. (You may want to reverse that strategy this year if you think tax rates will actually increase in 2013.) If you're a cash-basis taxpayer, you could boost 2012 deductions by declaring and paying bonuses in December rather than in early January. Also, you may be able to defer invoicing or make early purchases to reduce your 2012 tax bill.

Look into the "Section 179" rule that allows you to take an immediate tax deduction for most purchases of business furniture and equipment. By deducting the full cost immediately instead of depreciating it over several years, you'll cut this year's tax bill. For 2012, you can deduct up to $139,000 of qualifying purchases, subject to limits.

As your business grows, it's always good to make sure you're using the most appropriate form of business -- whether it's sole proprietor, S or C corporation, LLC, or partnership.

Look for other tax breaks, such as specialized tax credits, that you might not be using to full advantage.

3. Survey your customers. An annual customer satisfaction survey is a great way to assess performance, obtain insight on potential new products or services, and to let your customers know how much you value their business.

4. Check the effectiveness of your marketing. Are your current methods and channels working well, or are you simply doing what you've always done?

5. Update succession planning for your business. Review your succession planning annually. You should have a specific plan for each key manager position, including yourself. Be prepared for a short-term absence or a permanent vacancy. Your plan might mean promoting from within or recruiting externally. An up-to-date plan can be invaluable if you have an unexpected vacancy.

6. Review your business banking relationships. Annually, you should go over your cash balances and banking relationships with your controller, CFO, or accountant. Then both of you should meet with your banker. Ask about new products or services that could help your company. Address any service concerns or problems you might have had. Look for ways to reduce idle cash, boost interest earned, and improve cash flows.

7. Review and update your personal estate planning. If you're a business owner, your company is likely to be a significant part of your estate. A good estate plan is essential if you hope to pass the business on to your heirs. Your company, your personal circumstances, and the tax laws are continually changing. You should take time each year to make sure your plans are current.

Don't let the AMT catch you by surprise

According to the Congressional Research Service, 34

million taxpayers could be hit by the alternative

minimum tax (AMT) this year. Are you one of the many

unsuspecting or uninformed taxpayers who will be caught

by the AMT in 2012? With a better understanding of the

rules, you may be able to avoid or reduce adverse tax

consequences.

The AMT was set up in the 1960s to make sure wealthy

taxpayers didn't use deductions and exemptions to avoid

paying any income tax. The AMT applies a 26% or 28% tax

rate to income above a certain exempt amount. Because

this exempt amount is not indexed for inflation, the

AMT has begun to affect more and more middle-income

taxpayers each year.

The AMT is a separate tax calculation that parallels

the regular income tax, but it does not let you claim

personal or dependent exemptions, the standard

deduction, and certain itemized deductions. You compute

your tax liability under the regular tax system; then

you make the necessary adjustments for "tax preferences"

and calculate your tax under the AMT rules. You compare

your AMT liability to your regular tax liability and

pay whichever tax is greater.

It's wise to estimate your AMT exposure before year-end.

Depending on your situation, it may make sense to avoid

tax preference items or postpone certain deductions.

Strategies might include adjusting when you make tax

payments or charitable contributions, accelerating

income, or changing how you exercise stock options.

Act soon to cut your 2012 taxes

Time is running out to make tax-saving moves for 2012. Here's a sampling of ideas to consider.

* Maximize the contributions to your employer's tax-deferred retirement savings plan, thereby saving taxes immediately and deferring taxes on earnings in your account. Also don't overlook an IRA contribution if you qualify.

* If you've held appreciated stock for more than one year, consider donating those shares to charity rather than making cash donations. You'll avoid paying taxes on the stock's appreciation, but can generally claim the full fair market value of the stock as a charitable deduction.

* Adjust your withholding. Increase the income tax withheld from your paycheck through year-end to cover extra amounts due from Roth conversions or other taxable income increases in order to avoid underpayment penalties. Alternatively, reducing your withholding to account for an overpayment puts money in your pocket now, instead of next year when you file your return.

* Schedule charitable contributions. Cash and checks mailed by year-end count as 2012 deductions, as do credit card charges you make by December 31. Donations of appreciated securities are deductible when you relinquish control. Allow extra time for stock transfers handled by your broker or a mutual fund company.

* Make family gifts. For 2012, the annual amount you can give away to any individual, free of gift tax, is $13,000 ($26,000 when you're married and make the gift with your spouse).

* Plan for elective health care expenses. Use up the balance in your flexible spending account (FSA) by year-end, and figure out how much you'll contribute in 2013. No FSA? You still have time to set up a health savings account (HSA) and make a deductible contribution.

* Remember required minimum distributions. Failing to take a required distribution from your traditional IRA before year-end could cost you 50% of the amount you should have withdrawn.

Don't let the tax tail wag the economic dog

Some tax-cutting strategies make good financial sense. Other tax strategies are simply bad ideas, often because tax considerations are allowed to override basic economics.

Here’s one example of the tax tail wagging the economic dog. Let’s say that you run an unincorporated consulting business. You want some additional tax write-offs, so you decide to buy $10,000 of office furniture that you don’t really need. If you’re in the 28% tax bracket and you deduct the entire cost, this purchase will trim your tax bill by $2,800 (28% of $10,000). But even after the tax break, you’ll still be out of pocket $7,200 ($10,000 minus $2,800) -- and stuck with furniture that you don’t really need.

There are other situations in which people often focus on tax considerations and ignore the bigger financial picture. For example:

* Someone increases the size of a home mortgage, solely to get a larger tax deduction for mortgage interest.

* A homeowner hesitates to pay off a mortgage, just to keep the interest deduction.

* Someone turns down extra income, because it might “push them into a higher tax bracket.”

* An investor holds an appreciated asset indefinitely, solely to avoid paying the capital gains tax.

Tax-cutting strategies are usually part of a bigger financial picture. If you are planning any tax-related moves, we can help make sure that everything stays in focus.