Midyear Tax Check: Organize Now, Save Later Don't let tax season catch you off guard.

Taxes, now?

Yes, now.

April 15 is far too late to make changes that may improve your tax situation. But now? The timing is perfect.

"The main reason to think about taxes now rather than at the tax deadline is doing so now allows for planning and strategies that can reduce taxes when the deadline does arrive," says Michael Maye, a certified financial planner and certified public accountant with MJM Financial Advisors in Berkeley Heights, N.J.

Here's what you should be paying attention to now, while there's still time to act and reduce your tax bill.

Look at Business Income
It's time for some simple math. Add up your year-to-date income. If you pay estimated taxes, you could be paying too much, or too little, to the IRS.

If your business is down because of the economy, you're giving the IRS an interest-free loan by paying too much in estimated taxes, says Sally Herigstad, a certified public accountant and author of Help! I Can't Pay My Bills. Instead, you could be investing that money in your business.

"Pay too little, and the penalties and interest can be brutal. It's worth the trouble to watch and make adjustments throughout the year," Herigstad says.

A midyear checkup is imperative to ensure you have a good understanding of your company's financial situation.

Now is a good time to think ahead to 2011.

If current tax laws remain unchanged, 2011 tax rates are scheduled to increase, says Becky Krieger, a certified financial planner and certified public accountant with Accredited Investors in Edina, Minn.

"This would negatively affect business owners interested in transitioning and selling their business next year," Krieger says. "Knowing that tax rates will likely increase, consider accelerating income this year or deferring deductions until 2011, when you will pay increased tax rates."

You should formulate a strategy to increase collection efforts before year end, Krieger suggests. Your clients may be receptive if they are looking for additional deductions this year.

Organize Your Deductions
April 15 is many months away, and even the brightest minds in business are apt to forget the little things. But those little things add up.

You should keep close track of your deductible expenses throughout the year, and if you simply keep deductible receipts in a pile, now it a good time to sort through them--while your memory is fresh. If you can't remember why you saved a receipt, you won't be able to use it as a deducible expense.

"Will you remember that work-related book purchase next April? Not likely," says Herigstad.

"Nor will most of us remember a business lunch and justification for deducting it as such. Organizing in small chunks as you go along makes more sense than trying to recreate it all as long as a year and a half later."

If you don't yet have a system for keeping track of deductible expenses, consider implementing one. Establish a file folder with categories such as "Meals and Entertainment," and "Office Supplies." Or better yet, start scanning all receipts right away and add them to a backed-up folder on your computer. Organizing now, and as you go through the rest of the year, will save you many hours at tax time.

While you're at it, buy a small notebook to keep in your car to record mileage for business trips.

For 2010, the deductible mileage rate decreased from $0.54 in 2009 to $0.50 in 2010, says Krieger.

Make Retirement Plan Contributions
Contributions to retirement plans offer business owners a significant tax break.

If you wait until the end of the year to make your contributions, you may be faced with a cash shortage if you need to come up with a lump sum to invest, Maye says, and you'll also miss out on potential stock market gains by waiting.

If you haven't already started a retirement plan, read more about the options for small businesses. Some require contributions before the year is out, while others allow you to wait until the tax filing deadline.

"Some plans, such as a Simplified Employee Pension (SEP) plan, allow you to wait to make your contribution until you file your tax return, which could be as late as October 15th following the calendar year income was generated," says Krieger. "This provides the opportunity to assess resources and cash available to meet retirement contribution goals."

Krieger says this time frame also allows you to decide whether the contribution and associated tax savings should be captured in the current year, or if the contribution should be delayed until the following year.

Another consideration for this year: Small-business owners who find themselves in lower tax brackets in 2010 should evaluate the benefit of converting retirement plan assets to a Roth IRA or contributing to a Roth IRA instead of making deductible contributions to a traditional IRA, Krieger says.

Talk to your tax advisor about whether a conversion makes sense for your situation.

Business Expenses Now
If a business needs to make large expenditures in the months to come, an overall review of current income will help decide if the purchase should be made this year or next.

Your business could qualify for a Section 179 deduction.

"This deduction essentially allows a qualifying business to deduct a capital item by treating it as an expense rather than capitalizing it and depreciating it over some number of years," Maye says. "Whether it makes sense to do so will depend on whether the business is likely to receive a bigger benefit by expensing now at its current tax rate versus depreciating it over time at a future tax rate."

Qualifying businesses can continue to expense up to $250,000 of Section 179 property for the 2010 tax year, and experts expect the deduction will significantly decrease for 2011. Again, this is something to address with your tax preparer.

Make Charitable Contributions
Unless your business is a corporation, the business itself won't get a tax deduction for charitable contributions. But if you have an LLC or S corp--the so-called flow-through entities--you can take those deductions on your personal tax return.

Herigstad says you can do more good with your charitable contributions by giving on a consistent basis throughout the year.

"Not only is it easier to give more that way, but the charities have a chance to plan their cash flow," she says. "Noncash donations are very smart, but they're not as easy as picking up the phone and making a donation with a credit card. Finding the charity that will accept or make use of your old business equipment, for example, takes time."

If you have items you'd like to donate, start your research now. Waiting until the end of the calendar year may mean running out of time.

And Don't Forget:
Work Opportunity Tax Credit: If you need some employees, think about taking advantage of the Work Opportunity Tax Credit (WOTC). This is a federal tax credit given to private-sector businesses that hire individuals from certain groups, such as unemployed veterans or people who have received certain types of federal assistance.

"The Work Opportunity Tax Credit has been extended to Aug. 31, 2011," says Maye. "The credit is available one time with respect to each targeted group member and is based on wages paid for the one-year period beginning on the date the individual begins work for the employer."

The maximum qualified first-year wages are limited to $6,000, or $3,000 for a summer youth employee.

Learn more about the credit on the Department of Labor website .

Increased Tax on Capital Gains and Dividends: Your investments could have an impact on your tax situation going forward.

In 2011, dividends go back to being taxed as ordinary income, so the tax rate could be as high as 39 percent, compared to the 2010 rate of 15 percent. And capital gains will be taxed at up to 20 percent, up from 15 percent this year, says Herigstad.

"That makes dividend-paying stocks suddenly less attractive," Herigstad says. "If you have investments that have gone up in value, think about selling them and taking the gain in 2010."

Watch Out for AMT: Despite lots of on-again, off-again wrangling in Washington, D.C., it doesn't look like we will see a patch for the Alternative Minimum Tax (AMT) this year.

"This means that more taxpayers will be subject to an extra layer of tax in addition to regular income taxes," Krieger says.

The AMT exemptions fall to $45,000 for couples and $33,750 for individual taxpayers in 2010 unless Congress acts to increase the exemptions closer to 2009 levels of approximately $71,000 for couples and $47,000 for individuals, she says.