Mid-Year Tax Savings Checklist For Small Business Owners

Entrepreneurs

Mid-Year Tax Savings Checklist For Small Business Owners

SECTION 179 EXPENSING DEDUCTION
Start planning now for any major business equipment purchases. Thanks to the “Jobs and Growth Tax Relief Reconciliation Act of 2003,” many small businesses will be able to immediately deduct up to $112,000, $147,000 for qualified enterprise zone property and qualified renewal community property purchased during 2007.

Unfortunately, you cannot apply the Section 179 deduction to purchases you've made in prior years. The Section 179 election has to be made in the tax year the property is first placed in service.

BONUS DEPRECIATION DEDUCTION
If you purchase assets that exceed the $102,000 expensing deduction limit, there’s additional good news for you. You may be eligible to take a bonus first-year depreciation deduction of 50 percent of the cost of new (not used) property. The other half of the cost is deductible on a regular depreciation schedule. For this bonus deduction, qualifying property must be placed in service by December 31, 2007, so act quickly.

PLAN FOR RETIREMENT
Take time to make payments to your retirement plan or to set one up. Contributing to an IRA, Keogh, simplified employee pension (SEP), or other retirement plan is a great way to reduce your taxable income and plan for the future. There are different rules, contribution limits, and deadlines, depending on the plan you choose. Make an appointment with your CPA to discuss the best alternative for your business.

HIRE YOUR CHILDREN
With school vacation here, it’s time to put your children to work in your business. If you’re a self-employed taxpayer, you can reduce your taxable income by employing your under-age-18 children.

As long as your child’s tax bracket is lower than yours, this strategy enables you to shift income from your higher tax rate to the child’s lower one.
Employers who put their minor children on the payroll of an unincorporated business do not pay any payroll taxes on the income these minors earn, and the wages are legitimate business deductions as long the child does bona fide work.

REEVALUATE YOUR BUSINESS’S LEGAL ENTITY
While small businesses often start out as sole proprietorships or partnerships, many owners eventually explore the transition to another entity. For example, if your business is not incorporated, you may want to consider the advantages of incorporating.

Corporation status shelters you from some financial risks, and it’s possible you could save on taxes. Discuss the different legal entities with your CPA now so that you can have any changes in place at the beginning of next year.

SET UP AN EFFICIENT RECORDKEEPING SYSTEM
To make the most of business tax deductions, you need up-to-date records. If you haven’t kept track of your business expenses, get caught up now.

MEET WITH YOUR CPA
Don’t wait until the busy tax season to meet with your CPA. Make an appointment now when you both have more time to discuss your business and tax planning opportunities.