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Small Business Tax Deduction Strategies

Section 179 vehicles should be a key part of your small business tax deduction strategies. Can Section 179 property fit in with your business tax strategies?

Let Business Management Daily help you get each and every rental property depreciation credit and business tax deduction you’re entitled to.

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The IRS has released its annual list of “dirty dozen” tax scams. (IRS News Release 2012-23) The list for 2012 contains few surprises. Nevertheless, taxpayers should remain vigilant. Here’s a quick rundown.

Q. I’m considering a Roth 401(k) for my company. Do employees have to take RMDs?

Small business owners often clash with the IRS over the classification of workers. Usually, the employers claim certain workers are independent contractors; the IRS says they’re employees. If you’re challenged by the IRS, don’t throw up the white flag so fast.

Normally, investors look to “harvest” capital losses when the stock market has climbed, to offset any capital gains they’ve recently realized. But this tax year is far from normal, so you might do the opposite of the usual.

Q. If I give $1 million to my grandkids this year, will I have any estate tax exemption left next year?

The U.S. Supreme Court is hearing arguments about the constitutionality of the massive health care law. Most of the provisions in the new law won’t kick in until 2013 or 2014. Small business owners don’t have to wait. If you qualify, you can claim a special tax credit for pro­­viding health in­­surance to em­­­­ployees.
The federal government wants to give retirement plan participants more incentive to invest in annuities. In a new package of proposed regulations and rulings, the IRS and Treasury are reducing the administrative burdens for partial annuities by simplifying the benefit calculation.
The IRS is targeting “first-time homebuyer credits” erroneously claimed by taxpayers. To qualify for the version of the credit in question in the following case, you must have stopped using an old home as your principal residence for at least three years before buying the new home:
The IRS has launched a new online tool, Exempt Organizations (EO) Select Check, which makes it easier for charitable donors to research tax-exempt organizations.
A small business can often recover the entire cost of qualified business assets in just one year, thanks to the generous Section 179 deduction. But there a few key wrinkles to the rules:

Are you planning to sell or donate a boat or car to charity? Don't be too hasty. Arrange a “bargain sale” to a qualified charitable organization. By combining a sale and donation, you get cash back from the charity, plus a write-off based on the property’s fair market value.

Typically, you can protect your family by securing adequate life insurance coverage. But how much will they receive after Uncle Sam siphons off a portion for the federal estate tax? As long as you haven’t retained any “incidents of ownership” in the policy, the proceeds won’t be included in your taxable estate.

In these trying economic times, young adults may find it difficult to save for retirement. A little-noticed tax break can provide a big boost to lower wage-earners.

Q. I collaterized a loan for someone else in a securities account that was called. Can I deduct the interest?
Most taxpayers say they would never cheat on their taxes and that it’s wrong to do so. How­­ever, to 8% of taxpayers polled, it’s OK to cheat “as much as possible.”
Certain taxpayers can’t make annual contributions to a Roth if their income is too high. But there’s a clever way to get around this obstacle. Go in through the “back door”: Make nondeductible contributions to a traditional IRA and then convert that IRA into a Roth IRA.
Q. We’ve received conflicting information from accoun­­tants. Is our company entitled to a tax credit for hiring new workers?
The new Middle Class Tax Relief and Job Creation Act of 2012, signed by the president on Feb. 22, extends the “payroll tax holiday” for the remainder of the year. Without this new legislation, the holi­­day would have ended with a thud on March 1.
The IRS is giving U.S. citizens who evade taxes by hiding income and assets offshore another chance to confess.

Has your hobby grown into a full-time or sideline business? You might need to convince the IRS. Run the activity just like any other business: Keep accurate and detailed records, maintain any requisite licensing and meet other technical responsibilities. In all respects, keep your business separate from your personal pursuits.

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