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Small Business Tax Strategies

Are you planning to sink money into your own or someone else’s fledgling business venture? The rewards can be high, but so are the risks. And if the business eventually goes under, you could be saddled with a tax loss of somewhat limited value. On the other hand, you might ben­­efit from a unique tax break should the stock become worthless.

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Q. We’re adding a deck to our principal residence. Is any of the cost deductible?

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A Roth IRA can provide tax-free payouts to retirement-savers in the future. But you may not be able to make annual contributions to a Roth due to the tax law limits. Plus, if you convert funds in a traditional IRA to a Roth IRA, you’ll have to pay a hefty tax price. Strategy: Go in the “back door” instead.

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Suppose your adult child needs a helping hand to launch a new business or buy a home. Give the child a low- or even no- interest loan. As long as you stay within the tax law boundaries, your family will have no tax worries. However, if you’re not careful, you could be blindsided by an unexpected tax bill.

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Don’t tell your CPA anything you wouldn’t want the IRS to know. A 1998 law effectively authorizes a “CPA-client privilege,”  but the privilege is hardly bullet-proof. In fact, it’s riddled with exceptions.

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The tax law favors real estate investors who rise to “real estate professionals.” Generally, they aren’t limited by the passive activity rules for other investors. Strategy: Elect to treat multiple activities as one real estate activity.

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Do you own incentive stock options (ISOs) issued by your company? They can provide big tax benefits if you handle things right.

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The IRS is increasing efforts to catch identity theft crooks. It has launched more than 200 investigations into ID theft and other schemes this tax filing season.

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The federal government’s ability to regulate tax return preparers has been successfully challenged in court. The next move is up to the feds. But that doesn’t hinder the rights of individual states to initiate their own registration programs.

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Normally, the federal government requires employers to pay FUTA tax at a 6.0% rate on the first $7,000 of annual wages for each covered employee. This 6.0% tax may be offset by credits of up to 5.4%, so the net FUTA tax rate is usually only 0.6%. However, if a state borrows funds from the federal government to pay unemployment insurance (UI) benefits and defaults on repayment, the UI tax credits for employers in that state are reduced.

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