The major objective for most people in business is to maximize the return from the business venture. Cutting your taxes will help you achieve that goal.

Tax Tips for Businesses and Individuals

Review these tax tips, then contact us for assistance in identifying and implementing the best strategies for you and your business.

1.   Give careful consideration to the legal form of doing business 13. Don¬ít subject yourself to tax penalties by misclassifying an employee as an independent contractor.
2. If you operate in corporate form, keep accurate and, thorough minutes for the corporation. 14. Review your corporate income before year-end.
3. Elect S corporation or LLC status, as appropriate. 15. Review your inventory at year-end.
4. Review your S corporation basis. 16. Don't miss business tax credits that are still available.
5. Hire your spouse and children to work in your business. 17. If you’re self-employed, consider an individual (solo) or 401K retirement plan.
6. Never use the Internal Revenue Service as your banker. 18. If you’re small business, consider a SEP or a SIMPLE plan.
7. Keep good records for all business travel, meal and entertainment expenses. 19. Don't overlook an IRA to cut your current taxes and save for your retirement.
8. Time equipment purchases carefully. 20. Keep repairs separate.

9.

21.
10. Consider a tax-free exchange 22. Convert regular IRA to Roth IRA.
11. Avoid the alternative minimum tax. 23. Business use of home.
12. Deduct health insurance premiums. 24. Gift appreciated stock to children.

 

1.  

Give careful consideration to the legal form of doing business.  
The tax and nontax consequences of the form in which you do business are significant. You may choose to operate as a sole proprietor, a partnership, or a corporation.

Seek professional, assistance before making your decision. and review your chosen business form from time to time to see if it's still appropriate.

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2.  

 

If you operate in corporate form, keep accurate and, thorough minutes for the corporation.  
The small effort this requires will,, pay off handsomely if the IRS audits you. Minutes should document transfer of funds or assets into or out of the corporation, officers' salaries, shareholder dividends, officer and employee benefits and related-party transactions that might be scrutinized by the IRS.

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3.  

 

Elect S corporation or LLC status.  
If your sole proprietorship, or partnership is producing a net profit in excess of a reasonable compensation for your time, you could save money by incorporating and or becoming an LLC and electing S status.

You are required to take a reasonable wage for the work you do in an S Corporation. If reasonable compensation for what you do would be $50,000 for example there is little point in paying social security tax on more. As a LLC, you can have limited partners who are not subject to social security tax.

If you incorporate and elect S status, the salary you take will be, subject to payroll taxes, but the profits above that, amount are considered dividends subject to income tax but not payroll taxes.

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4.

 

Review your S corporation basis. 
If you operate your business as an S corporation, be sure that you have a large enough tax basis to deduct any losses sustained by the company.

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5.

 

Hire your spouse and children to work in your business.  
Wages paid will be deductible by your company and taxable to the family member. Your child's earnings will probably fall in a lower tax bracket than yours. Your spouse's wages may provide the basis for making an SEP or Simple retirement contribution of up to $12,000 a year, currently with a catch up contribution of $2,500 possible.

Payroll taxes apply to such wages, however, if your business is a proprietorship or family partnerships they do not apply to wages paid to your children under 18.

Compensation paid has to be reasonable for the services performed.

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6. 

 

Never use the Internal Revenue Service as your banker.  
When cash flow is tight, you may be tempted to pay your suppliers first and payroll taxes to the IRS last.

Pay the IRS first and if you absolutely cannot, contact your local IRS office before they contact you.

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7.

 

Keep good records for all business travel, meal and entertainment expenses.  
Travel that you do in conjunction with your business is deductible, but most business-related meal and entertainment expenses are only 50% deductible. Exceptions apply.

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8.

 

Time equipment purchases carefully.  
It may no longer be good strategy to make business equipment purchases late in the year. Under tax reform you are required to adjust depreciation if you make more than 40% of your equipment purchases in the fourth quarter of the year.

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9.

 

Expense up to $500,000 for newly acquired equipment per year.  
The write-off for business cars, however, is limited to allowable first-year depreciation. If your total equipment purchases exceed $500,000, the expensing option phases out. However, a vehicle which has a carrying capacity of more than 6,000 lbs qualifies as equipment and is not restricted like an automobile and a $25,000 write off is permitted.

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10.

 

Consider a tax-free exchange 
if you plan to sell a piece of business property and, replace it with other business or investment property. On a qualified exchange, current tax liability is deferred until you dispose of the new property.

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11.

 

Avoid the alternative minimum tax.  
If it cannot be avoided, you may be able to use it to your advantage in a given year. But, you must know where you stand before year-end and give yourself time to execute tax-saving strategies.

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12.

 

Deduct health insurance premiums.  
If you're self-employed you can deduct as a business expense 100% as an AGI deduction of the cost of health insurance premiums, for you and your family. If you employ your spouse you may be able to deduct 100% as a business expense.

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13. 

 

Don’t subject yourself to tax penalties by misclassifying an employee as an independent contractor.  
The IRS is aware that employers prefer to treat workers as independent contractors to avoid paying fringe benefits and payroll taxes. If you're not absolutely sure how to treat a given worker, contact us.

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14.

 

Review your corporate income before year-end.  
If you operate your business as a personal service corporation (a tax definition that applies to taxpayers performing services in the fields of health, law, engineering, architecture, accounting, actuarial science, performing arts, or consulting, be aware that such corporations now pay a flat 34% on all taxable income.

Avoid leaving taxable income in the corporation by paying it out to shareholder/employees as salaries or bonuses.

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15.

 

Review your inventory at year-end.  
The lower your inventory, the lower your net profit. You are not permitted to undervalue your inventory or to state a, lower inventory than you have. You are permitted, however, to write inventory down to a reduced valuation which you can substantiate.

Identify any obsolete or unsalable items and write them off. Check the rules for disposing of such inventory.

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16.

 

Don't miss business tax credits that are still available.  
These include the research and development credit, the business energy investment tax credit for solar and geothermal property, and the targeted jobs credit.

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17.

 

If you’re self-employed, consider an individual (solo) or 401K retirement plan.  
It can cut your current tax bill and provide you with retirement income.

Individual (solo) plans must be established by December 3lst of the tax year in which you want to take a deduction for a contribution. If you're a high money earner you may want to consider a defined benefit pension plan.

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18.

 

If you’re small business, consider a SEP or a SIMPLE plan.  
Small businesses often find pension and profit-sharing plans and even Keoghs too complicated and costly to set up and administer. A SEP (simplified employee pension plan) may be the answer. A SEP actually contains individual retirement accounts or, annuities, for each individual covered under the plan, Employers with 25 or fewer employees should also investigate the salary deferral option in SEPs and SIMPLE plans. There are currently tax credits applicable to the costs of setting up these plans.

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19.  

 

Don't overlook an IRA to cut your current taxes and save for your retirement. Consider making Roth IRA contributions of $5,000 or $6,000 each year.
Many people still qualify for a fully deductible or partially deductible contribution.

Roth IRA contributions are not deductible from your current year's taxes. However, if the plan is kept over 5 years, your contributions and earnings will be tax free when withdrawn for retirement. However, you can not make contributions if married and adjusted gross income is more than $183,000 or single $125,000.

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20.

 

Keep repairs separate.  
Ordinary repairs and maintenance on business equipment and buildings are deductible business expenses. Improvements which materially add to the value of the property or significantly prolong its useful life are capital improvements and must be depreciated over a period of years.

To avoid losing tax deductions for repairs and maintenance, make major improvements completely apart from general repairs and maintenance.

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21.

 

Use your tax advisor wisely.  
We can best serve you by assisting you in carefully, planning your important financial moves so they’re structured to minimize taxes. Please check proposed transactions with us before you complete them.

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22.

 

Convert Regular IRA to Roth IRA.  
Converting regular IRA to Roth IRA causes you to pay taxes on your regular IRA. However, income earned after conversion to the Roth is no longer taxable when withdrawn.

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23.

 

Business use of home.  
Home office deductions related to self employed and small corporations, LLC's use of a portion of their home for administrative or management activities as long as these activities are not carried on at another fixed location. Employees must still show use of home office as required by employer. Explore new provisions effective in 2013 and beyond.

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24.

 

Gift appreciated stock to children.  
Gift appreciated stock to children, then sell while in child's name to fund college or other educational persuits. Gains would be less taxing to children.

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