Tax Strategies From The Experts…
Let’s face it – everyone hates tax time. But one of the groups who dreads it the most, without question, is small business owners.
Why? Because it’s all on you! There are tons of extra guidelines, forms, and payments when you’re running a business of your own, and it can start to feel overwhelming.
But it doesn’t have to be bad! There are also some unique tax advantages available only to small business owners. Below are a few of the best tax strategies if you have a company of your own and want to make the most of your position before tax day hits.
Put your spouse on the payroll.
As a business owner, you should consider this strategy only if your spouse wants to contribute money to your company 401(k) for tax-planning purposes. Otherwise, generating earned income for your spouse and subjecting it to payroll taxes would be careless. Moreover, that move really doesn’t make sense, to get a deduction for a salary that will end up on your joint return anyway.
Start establishing your entity now.
January 1 is a perfect time to set up your books and a bank account. A number of states impose franchise taxes and fees that make it most economical and logical to file articles in and around the first of the year. That could mean an LLC for that new rental property and getting the title transferred into your LLC, or an S-corporation, because you paid far too much in self-employment tax during 2015. Just make sure you don’t file too early and create a short-year tax return. Timing is everything.
Close on that rental property.
Cost segregation is one of the fastest growing areas in tax planning and has been used only by owners of large commercial projects. Essentially, cost segregation is the process of reclassifying the assets of a rental property into real and personal property, thus moving certain assets into an accelerated depreciation class. This allows property owners to defer thousands of tax dollars. That said, it’s critical that you consider the real estate professional classification and other passive income you may be able to deduct this segregated depreciation against. You could end up with a write-off that falls into a carry-forward status if you aren’t careful.
It’s Not Just Deductions
One of the dangers of having a business of your own is that you are automatically of more interest to the IRS and therefore more likely to receive pushback or be audited. Because of this, some of the best advice out there isn’t just about paying fewer taxes, but about how to follow the rules and keep your head down to avoid being under unwanted scrutiny.
The excerpt below comes from Gail Rosen who’s been a CPA for over 35 years, so you know that her advice is solid!
Tax Tip to avoid IRS scrutiny
Start Up Costs.
Small businesses are often not aware that any expenses that are incurred before the first sale are called “start-up costs”. These costs cannot be deducted until the first sale. Then they are deducted over 15 years and you can elect to deduct the first $5,000 in the first year of business. Careful tax planning is needed in this area. Many small businesses assume they can deduct all of their costs in starting a new business but they cannot until they have their first sale. Then costs are deductible based on the laws for that deduction.
Tax Tip to get bigger tax break
Home Office Deduction.
The home office is a great tax deduction for small businesses. Starting in 2013 the IRS simplified the deduction and is giving you the option of using the “safe harbor” rules to calculate your home office deduction. I recommend comparting the “safe harbor” method to the “actual” method to see which ones generates a better tax deduction for you. The actual method is more paper work but many times it is worth the effort.
-via Direct Capital
What are the best tax strategies you’ve ever heard as a small business owner?