Reprinted from the Wall Street Journal
It's tax crunch time again. From March 15, when some corporations file, to the April 15 deadline for individuals, small-business owners are busily organizing their receipts and books—and looking for as many tax breaks as possible.
But when filing small-business taxes, mind that the devil is in the details, warns Roni Lynn Deutch, author of "The Tax Lady's Guide to Beating the IRS and Saving Big Bucks on Your Taxes." "You're not a doctor or a dentist and also a tax attorney," she says. "There are over 75,000 pages of tax code." It's wise to seek professional advice, and make sure to supply your adviser with records of any changes in your business, from staff layoffs to equipment purchases, she says.
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Here's a list of some of the best tax breaks for small businesses.
1. Personnel
Some of the best tax savings may already be working for you. Meaning, of course, your employees.
If Junior needs a job, mind the child laws which vary by state and industry. Qualifying dependents of the self-employed are exempt from Social Security withholdings and Medicare taxes, according to Johanna Sweaney Salt, a CPA at Kaufman Schmid Gray & Salt LLP in Claremont, Calif. Also, if you bring your better half on board, remember that spouses employed in a pass-through entity such as a sole proprietorship or an S-Corp can lessen the family tax burden by deducting those wages, and deferring the income to a retirement plan. You may also qualify for the Work Opportunity Tax Credit, aimed at employers paying wages for targeted groups such as veterans and disconnected youth.
2. Equipment
Most owners know to deduct property and assets that have depreciated over time. However, "if you have a bike shop, you [shouldn't] deduct a fish tank unless you consult with a tax professional. Make sure the equipment you are listing is ordinary and reasonable," cautions Mike D'Avolio, a CPA at Intuit's accounting professionals division. Now, thanks to the stimulus, owners can also take advantage of the 179 election, for which, Mr. D'Avolio explains, new assets can be written off – up to $250,000 – in one fell swoop, in lieu of taking the deductions over the course of the assets' typical depreciation life.
When disposing of an asset, consider the tax advantage of purchasing a similar asset in the same year, says James Schnell, a partner with Mengel, Metzger, Barr & Co. in Rochester, N.Y. "If you have owned equipment, after seven years there's probably no depreciation left. So strike a deal to exchange," he says. Ask your equipment salesperson to take the old equipment off your hands and get a shiny, new – yet comparable – replacement, in a tax-free exchange, he says.
And don't forget that by buying or replacing equipment using your business credit card, you can deduct the finance charges that appear on your statement if you need to carry a balance.
3. Working out of the office
When the open road is your second office, it may be worth the effort to track mileage on your passenger vehicle or lightweight truck, says Fran Coet of Coet & Coet CPAs in Westminster, Colo. "If you use the IRS standard mileage rate, you have to keep a log, especially if it's for mixed use," she says. In addition to the current 55-cents-a-mile rate, this tax break can be enhanced if there are finance charges or personal property tax on the vehicle. Just multiply the interest and tax on the vehicle by the percent of the vehicle's business usage and add it to the mileage.
But when business owners aren't working from their storefronts or their cars, they are oftentimes working from a home office, where everything from computers to business phone lines to furniture can be written off. But, explains Ms. Coet, shared expenses such as utilities and mortgage interest are deductible for the home office only if that office is the sole site for administrative functions.
Continue reading "WSJ:The Best Tax Breaks for Small Business " »
