Small Business Tax Deduction Strategies:
Small Business Tax Deduction Strategies lays out 11 shrewd tax-planning moves you can make to reap the biggest tax savings. Learn how the economic stimulus law affects the Section 179 deduction and bonus depreciation, and how to maximize home office write-offs, tax deductions for business vehicles and business travel, and tax shelters in investment property.
Savvy small business owners take a proactive approach to seizing all the business tax deductions they're legally entitled to under current tax law. Don’t add to your tax bill by overlooking crucial write-offs.
Small Business Tax Deduction Strategies #1
Section 179 depreciation: Speed up write-offsEven though most business property must be depreciated over a period of time, you can still speed up write-offs if you're armed with tax knowledge. That's because your not-so-secret weapon—the Section 179 expensing allowance—lets you write off most or all of the cost of most business assets in the very first year of ownership!
You can take the Section 179 write-off for tangible business assets, such as machinery, office equipment, office supplies, PCs and "heavy" vehicles used over 50% for business. It's also available for off-the-shelf software. (The expensing election isn't allowed for buildings or building components.)
Strategy: Rethink your long-term strategy on equipment buying; front-load more purchases into this year. Remember that the maximum Section 179 deduction (a whopping $250,000 for 2009) is scheduled to fall back to lower levels after 2009.
Small Business Tax Deduction Strategies #2
Section 179 depreciation: 2 ways to trigger quicker write-offsYou can maximize the Section 179 expensing deduction with some shrewd tax planning. Here are two ways to get more bang for your buck:
1. Put the company in the black. The tax law limits your annual deduction to the amount of your taxable income. If your company typically zeroes out its taxable income through compensation payments, give yourself some leeway to claim the allowance.
2. Boost your business income limit. Don't forget that your business income includes all income from businesses in which you actively participate. If you pull down a salary, either part time or full time, in addition to running a business, the extra income increases the amount of the allowance.
Also, don't forget that the Section 179 deduction can be combined with bonus depreciation for 2009 only. This is an unparalleled one-two punch for business owners.
Find more ways to maximize your Section 179 deduction in Small Business Tax Deduction Strategies: 11 tips on Section 179 depreciation, home office write-offs for the self-employed, tax deductions for business vehicles, rental property depreciation and real estate capital gains tax.
Small Business Tax Deduction Strategies #3
Section 179: Front-load asset purchases before year-end
The $250,000 Section 179 expensing allowance can provide a big tax boost if you need to buy new equipment this year. But you may not have the cash on hand to make the purchases.
Strategy: Borrow what you need to finance your purchases. You can claim the full Section 179 allowance on the equipment cost, even if you don't immediately pay for the purchases. The critical figure is the cost of the property, not the amount you spend out of pocket.
Small Business Tax Deduction Strategies #4
Section 179: Bigger deductions for 'heavy' SUVsIf you choose to deduct actual expenses rather than use the standard mileage allowance, you should be aware of a potentially huge tax advantage for owning "heavy" SUVs, vans and pickups. As long as these vehicles have a manufacturer's gross vehicle weight rating (GVWR) above 6,000 pounds, they’re considered "trucks" for tax purposes.
When these "heavy" vehicles are used more than 50% for business, they can be depreciated much more rapidly than other passenger vehicles.
Small Business Tax Deduction Strategies #5
Fuel bigger tax deductions for business drivingYou can deduct auto expenses using a standard mileage rate, which the IRS sets each year. For 2009, the IRS set the standard mileage rate for business drivers at 55 cents per mile.
With the standard mileage rate, you don't have to account for the actual expenses incurred. But you can probably do better.
Strategy: Crunch the numbers. If you switch to the actual expense method late in the year, you still may come out way ahead, despite the latest increase in the standard mileage rate.
But there's a potential downside to a switch. Once you begin using the actual expense method, you can't change back to the standard mileage deduction later. And, if you started using the standard mileage rate for a leased car, you must continue to use it for the entire lease period.
Small Business Tax Deduction Strategies #6
Should you own or rent your business premises?Once your company's profits begin growing and your business stabilizes, you might want to consider owning your quarters rather than renting. To evaluate the comparative costs, consider a reasonable length of time, such as 10 years.
Include in your calculations the purchase price of a desirable building at the location you want. You can depreciate the cost of the building ("improvements") but not the cost of the land. Add together the cost of financing 100% of your purchase price at the prevailing interest rate, maintenance costs, straight-line depreciation and property taxes. The total of these items is your "rent equivalent."
Compare this cost figure with your projected rental costs for 10 years and factor in expected rent increases (4% per year is realistic). Don't overlook your company's future expansion needs. Whether you buy or rent, you must be able to expand or contract space as you need it. If you plan to own your space, you may want to consider buying a larger building and renting out part of your space on a short-term basis.
Find out how a "private arrangement" on your business property can slash your taxes in Small Business Tax Deduction Strategies: 11 tips on Section 179 depreciation, home office write-offs for the self-employed, tax deductions for business vehicles, rental property depreciation and real estate capital gains tax.
Small Business Tax Deduction Strategies #7
Shelter up to $25,000 per year in investment propertyReal estate prices are down in many areas, so there are some excellent buying opportunities. From a house or condo that you rent out to a shopping center that you own with a few associates, you can find tax shelter in investment property. However, there's a row of obstacles to clear before you can take deductions.
You must own at least 10% of the property, and you generally can't own the property through a limited partnership interest. You have to "actively manage" the property. That doesn't mean you have to replace faulty fuses or switches. You can hire a property manager if you want and a rental agent, but you must participate in management decisions, such as tenant selection and capital improvements, and you must keep records to show how you've participated.
Small Business Tax Deduction Strategies #8
Rental property: Turn your child’s college lodging into a tax shelterLet's assume you have a child in college who wants to live off campus, and at the same time you could be looking to buy real estate to shelter your income. Here's how to kill two birds with one stone:
Strategy: Buy real estate property near the school, and rent a unit to your child. For your child, this provides reliable off-campus housing. For you, it's a tax shelter that will probably appreciate in value.
Small Business Tax Deduction Strategies #9
Self-employed: tax deductions for your home officeWhile some view the home office deduction as audit bait, you’ll withstand any IRS scrutiny if you know and follow the home office deduction rules.
Find out how to earn bigger and better home office deductions without getting off the living room couch in Small Business Tax Deduction Strategies: 11 tips on Section 179 depreciation, home office write-offs for the self-employed, tax deductions for business vehicles, rental property depreciation and real estate capital gains tax.
Small Business Tax Deduction Strategies #10
Can't sell your home? Turn it into rental propertyThe real estate slump is hurting many home sellers. To make matters worse, you can't deduct a loss from the sale of your principal residence.
Strategy: Turn your home into a rental property. Hold it out for rent while you relocate. Then you can deduct a loss when you sell the place. This tax move takes advantage of a key distinction for investment or business property. If you rent out your home, you're generally entitled to the same benefits as any other landlord.
Suppose your home rebounds in value sometime down the road. In that case, you might re-convert the home to a personal residence. Reason: After two years, you could qualify for the home sale exclusion on the real estate capital gains tax.
Small Business Tax Deduction Strategies #11
IRS deductions: business travel expensesSo long as the "primary reason" for a trip is business-related, a sole proprietor, partner or LLC member can write off 100% of the transportation costs within the United States. But if a vacation is your primary motivation, you can't deduct a dime.
Strategy: Mix a few vacation days into your business trips. That way, you can deduct all transportation costs, including airfare, travel to and from airports, cab fare between lodgings and business meetings, etc.—with the IRS's blessing.