PrintingNews.com

Once again tax season is upon us, and since many printers yielded negligible profits last year, it’s timely to consider tax preparation and general fiscal awareness. The first step in the income tax preparation process for many printers that follow the calendar year for financials occurs in September when they meet with their accountants. At that point accountants give advice based on projected year-end statements.

If income is likely to be higher than expenses, there is still enough time in September to plan final deductions. Investments in equipment or software may be justifiable, especially in light of existent tax incentives for accelerated depreciation on both proposed and current assets.

Equipment purchases can be a source of unnecessary financial risk for printers however, according to CPA Leo Thompson. “This industry, as compared to my other clients, seems to attract people who like toys,” he said. “The equipment manufacturers are always trying to sell printers the latest and greatest, fastest, cleanest, highest-productive equipment they own. And I find myself every year asking people to really analyze the need for a new piece of equipment, and not just buy it based on a good sales pitch.”

Another deduction printers may not be aware of is called the Domestic Production Activities Deduction. Printers can receive up to a 6 percent credit from qualified costs associated with manufacturing processes. The specific qualifying costs require additional accounting segmentation. Accountants can help determine whether the potential benefit out-weighs the cost of the additional work.

Inventory Calculation
After the September accountant meeting, the next step to prepare for filing taxes is to calculate the cost of inventory by Dec. 31. Proper inventory calculations can be useful for two reasons. First, careful inventory management ensures cash flow is not being unnecessarily depleted.

Many printers are unaware inventory is not an immediate deduction, according to William Dumich, CPA. It only becomes a deduction after it is resold, spoiled, stolen or in some way is no longer available to be resold. “You don’t want to keep any more than you have to because inventory is an asset like cash,” he said. “And when you buy inventory all you’re doing is trading one asset for another.”

The second reason why proper inventory calculations are useful is if the business is audited, penalties may be averted. Dumich said everyone should understand that a business might be audited even when there are no “red flags” in its tax filing. The IRS audits a certain number of individuals and businesses to establish baseline statistics.

Timing Is Key
One of the most challenging aspects of tax preparations for printers can be the timing of their data submission. Accounts receivable and accounts payable need to be as current as possible. At the same time, the first quarter is the busiest time of year for tax accountants. Making sure accountants have the necessary documents and information in February allows for a smooth process.