Mid-Year Tax Savings Checklist For Small Business Owners

SECTION 179 EXPENSING DEDUCTION
Thanks to the “HIRE ACT od 2010,” businesses can now write-off up to $250,000 of qualified equipment and software during the 2010 tax year. This is subject to phase out if a business has capital expenditures exceeding $800,000.

Without this new legislation, the Section 179 deduction would have been reduced to $133,000 in 2010. The 50% bonus depreciation that was available in the 2009 tax year was not extended but an extension is still under consideration.

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
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 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 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.