Top 10 tax tips for small businesses


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Top 10 tax tips for small businesses

  1. 1. Top 10 Tax Tips for Small BusinessesIt may be easy to start a small business, but it may not be that easy to run your business smoothlyif you are not aware of the taxes you have to pay. You will be liable to pay different taxes as acompany, for the products you manufacture and the services you offer. If you default in payingyour taxes, you will face unnecessary legal issues, which will have a disastrous impact on yourbusiness growth. The tax structure varies from state to state, and it is important to know whatkind of taxes is applicable to your business in the region you operate from.As a small business owner, it is important that you have a proper planning and maintain correctrecords of your expenses and transactions. This helps you in making tax payments hassle-free.Also, seek advice from a tax consultant, who will help you in handling taxes for your business.Here are Top 10 Tax Tips for Small Businesses by Tax Expert Mike D’Avolio, who is also oneof Intuit’s leading experts on small business tax laws.1. Leverage your assets* Bonus depreciation – Businesses are allowed to claim a 100 percent bonus depreciationdeduction for new assets purchased in 2011 (the percentage drops to 50 percent in 2012). Thisallows a full write-off of the purchase price in year one. Personal property, such as furniture andequipment, qualifies; but real estate does not.* Section 179 – Although the purchase of used property does not qualify for the bonusdepreciation provision, it does qualify for a section 179 expense deduction. This is an alternativemeasure allowing for a write-off of the cost in year one. There is a $500,000 limit for 2011 and$125,000 limit for 2012. Certain types of real estate qualify for the section 179 deduction with a$250,000 limit (for 2011 only).2. Increase your workforce, shrink your tax debtThe government is offering employers a $1,000 tax credit for hiring each employee. Thebusiness owner must retain the new employee for at least a year. The employee’s wages duringthe last 26 week period must equal at least 80 percent of the first 26 week period. The credit isavailable for employees hired after February 3, 2010 and before January 1, 2011 and is claimedon the 2011 tax return.© 2011 Apptivo Inc. All rights reserved.
  2. 2. 3. Write off start-up expensesThe tax code allows businesses to write-off $5,000 of start-up expenses. This $5,000 deduction isreduced by the amount that your total start-up expenses exceed $50,000. Any start-up costs thatare not allowed to be expensed can be amortized over a 15 year period. Start-up costs includeamounts paid either to create a trade or business or to investigate the creation or acquisition of atrade or business. Examples include: advertising the opening of a business; employee training;and a market survey.4. Plan for retirement, save on taxesThere are a variety of retirement plans available to small businesses that allow the employer andemployee a tax-favored way to save for retirement. Contributions made by the owner for himselfor herself and for employees can be deducted. Furthermore, the earnings on the contributionsgrow tax free until the money is distributed from the plan. The small business owner is alsoallowed a tax credit equal to 50 percent of the first $1,000 incurred in starting up a plan.5. Get credit for health insurance* Small employer health insurance credit – There is a relatively new small employer healthinsurance credit equal to 35 percent of the employer’s contributions. This incentive helps smallbusinesses afford the cost of covering employees. The employer must offer health insurance forthe first time or maintain existing coverage and must pay at least half of the premium cost. Toqualify, the small employer can have no more than 25 full-time employees and the wages canaverage no more than $50,000.* Self-employed health insurance deduction – The tax code allows small business owners todeduct the cost of health insurance paid, including Medicare Part B premiums, for the taxpayer,spouse and dependents. To qualify, the insurance plan must be established under the businessand personal services must be a material income-producing factor.6. Profit from business losses – Your business may have incurred a loss in the current year as aresult of expenses exceeding income (net operating loss). You’re entitled to offset this lossagainst other income or gains on your tax return. Then, you can take any remaining business lossand offset it against income in another year (back or forward) so you don’t lose the benefit of thewrite-off.Miscellaneous tips7.Accelerate expenses and defer income – A basic way to reduce your tax bill is to accelerateexpenses and defer income before year end.8. Organize tax records & documents – Start collecting and organizing your tax records,documents and Quick Books files prior to the filing deadline in the spring of 2012, so you’re notrushing around towards the end of the process.© 2011 Apptivo Inc. All rights reserved.
  3. 3. 9. Plan ahead – Begin planning ahead for 2012 estimated taxes by running projections of yourincome and expenses and looking at tax law changes.10. Seek expert assistance – If you think these tax issues are too complex to handle on yourown or in using a product like Turbo Tax, find a professional accountant for expert assistance.If you are a tax consultant, feel free to share your advice/suggestion for start-ups, smallbusinesses and entrepreneurs on tax-related issues. We look forward to your valuable commentsand feedback.© 2011 Apptivo Inc. All rights reserved.