Small Business Tax Tips

Update Your Accounting: It's important as part of your year-end tax strategy to have a good understanding of your company's financial situation. Spend extra time ensuring your books are up-to-date and accurate. It won't hurt to plan time with your accountant for year-end advice, particular to your operations.

Purchase A SUV: While buying a big SUV may not be politically correct, the fact is these vehicles are very useful if you need to haul people and stuff around. They also have a big tax advantage for businesses. Specifically, new and pre-owned “heavy” SUVs used over 50% for business qualify for a first-year Section 179 depreciation write-off of $25,000. You then depreciate the rest of the SUV’s cost using the general rules, which include 50% first-year bonus depreciation for new (not used) SUVs.
To collect the $25,000 first-year deduction, you must buy an SUV with a manufacturer’s gross vehicle weight rating above 6,000 pounds. Only these heavy SUVs qualify for this deduction. First-year depreciation deductions for lighter SUVs, passenger cars and light trucks are much skimpier. You can usually find a vehicle’s gross vehicle weight ratings on a label on the inside edge of the driver’s side door where the hinges meet the frame.

Purchase Business Equipment And Software: There’s a much larger first-year Section 179 depreciation deduction for things that are not SUVs. The write-off which is equal to $250,000 is available for the cost of most new and used items of business equipment and software.
That includes computer systems, office furniture, machinery, and software that is put to use during tax years beginning in 2009.
The $250,000 Section 179 deduction privilege is also available for heavy pickups and vans whose wight is above 6,000 lbs that are not classified as SUVs under the tax law. These include the following:
* Pickups with a cargo area that is at least six feet in interior length. Most pickups with full-size cargo beds will meet this description.
* Closed load-carrying vehicles with no seating behind the driver’s seat and no body section protruding more than 30 inches ahead of the leading edge of the windshield. Delivery vans will qualify.
* Vehicles designed to seat more than nine passengers behind the driver’s seat. Shuttle vans and minibuses will qualify.

50% First Year Bonus Depreciation:Your business can also claim 50% first-year bonus depreciation for qualifying new (not used) equipment and software placed in service by December 31, 2009. New real estate land improvements (sidewalks, drainage systems, and so forth) and certain leasehold improvements qualify too (most other real estate costs do not). For a new asset that’s also eligible for the Section 179 depreciation write-off, the 50% bonus depreciation deduction is based on the cost remaining after the Section 179 deduction. Any cost remaining after claiming the Section 179 and 50% bonus depreciation deductions is depreciated under the normal tax rules.
Warning: The December 31, 2009 deadline for 50% first-year bonus depreciation applies whether your business’s tax year is based on the calendar year or not.

Monitor Your Income and Expenses: If you run your operation as a sole proprietorship, S corporation, LLC, or partnership, the net income generated by your business will be reported on your Form 1040 and taxed at your personal rates. The scheduled 2010 individual federal income tax rate brackets are virtually the same as this year’s, so they remain taxpayer-friendly. Therefore, the traditional strategy of deferring income into next year while accelerating deductible expenditures into this year still makes sense if you expect to be in the same or lower tax bracket next year. In that case, deferring income and accelerating deductions will, at a minimum, postpone part of your tax bill from 2009 until 2010. It could even cause some income to be taxed at a lower rate next year.
On the other hand, if your business is healthy, and you expect to be in a significantly higher tax bracket in 2010 (say 35% vs. 28%), take the opposite approach. Accelerate income into this year (if possible) and postpone deductible expenditures until 2010. That way, more income will be taxed at this year’s lower rate instead of next year’s higher rate.

Amazing Peace: A Christmas Poem

By Maya Angelou

Thunder rumbles in the mountain passes
And lightning rattles the eaves of our houses.
Flood waters await us in our avenues.

Snow falls upon snow, falls upon snow to avalanche
Over unprotected villages.
The sky slips low and grey and threatening.

We question ourselves.
What have we done to so affront nature?
We worry God.
Are you there? Are you there really?
Does the covenant you made with us still hold?

Into this climate of fear and apprehension, Christmas enters,
Streaming lights of joy, ringing bells of hope
And singing carols of forgiveness high up in the bright air.
The world is encouraged to come away from rancor,
Come the way of friendship.

It is the Glad Season.
Thunder ebbs to silence and lightning sleeps quietly in the corner.
Flood waters recede into memory.
Snow becomes a yielding cushion to aid us
As we make our way to higher ground.

Hope is born again in the faces of children
It rides on the shoulders of our aged as they walk into their sunsets.
Hope spreads around the earth.
Brightening all things,
Even hate which crouches breeding in dark corridors.

In our joy, we think we hear a whisper.
At first it is too soft.
Then only half heard.
We listen carefully as it gathers strength.
We hear a sweetness.
The word is Peace.
It is loud now. It is louder.
Louder than the explosion of bombs.

We tremble at the sound.
We are thrilled by its presence.
It is what we have hungered for.
Not just the absence of war.
But, true Peace.
A harmony of spirit, a comfort of courtesies.
Security for our beloveds and their beloveds.

We clap hands and welcome the Peace of Christmas.
We beckon this good season to wait a while with us.
We, Baptist and Buddhist, Methodist and Muslim, say come.
Peace.

Come and fill us and our world with your majesty.
We, the Jew and the Jainist, the Catholic and the Confucian,
implore you to stay awhile with us so we may learn by your shimmering light
how to look beyond complexion and see community.

It is Christmas time, a halting of hate time.
On this platform of peace, we can create a language
to translate ourselves to ourselves and to each other.
At this Holy Instant, we celebrate the Birth of Jesus Christ

Into the great religions of the world.
We jubilate the precious advent of trust.
We shout with glorious tongues the coming of hope.
All the earth’s tribes loosen their voices to celebrate the promise of
Peace.

We, Angels and Mortals, Believers and Nonbelievers,
Look heavenward and speak the word aloud.
Peace.

We look at our world and speak the word aloud.
Peace.

We look at each other, then into ourselves,
And we say without shyness or apology or hesitation:

Peace, My Brother.
Peace, My Sister.
Peace, My Soul

Charitable Deductions

Well it is the season for giving and during this time we spend most of our money purchasing gifts for our children, parents, and other loved ones. Lets remember that we can also give to the less fortunate and get a tax benefit at the same by making charitable donations by Dec 31. In order to deduct a charitable contribution, you must file Form 1040 and itemize deductions on Schedule A. The amount deduction may be limited according to certain rules. For instance, for 2009, the total of your charitable contributions and itemized deductions may be limited if your income is more than $166,800 ($83,400 if you are married filing separately).

Here is a list of reminders when making charitable donations.

• Contributions are deductible in the year made. Thus, donations charged to a credit card before the end of 2009 count for 2009. This is true even if the credit card bill isn’t paid until 2010. Also, checks count for 2009 as long as they are mailed in 2009 and clear, shortly thereafter.


• Check that the organization is qualified. Only donations to qualified organizations are tax-deductible. IRS Publication 78, available online and at many public libraries, lists most organizations that are qualified to receive deductible contributions. In addition, churches, synagogues, temples, mosques and government agencies are eligible to receive deductible donations, even if they are not listed in Publication 78.


• For individuals, only taxpayers who itemize their deductions on Form 1040 Schedule A can claim deductions for charitable contributions. This deduction is not available to individuals who choose the standard deduction, including anyone who files a short form (Form 1040A or 1040EZ). A taxpayer will have a tax savings only if the total itemized deductions (mortgage interest, charitable contributions, state and local taxes, etc.) exceed the standard deduction. Use the 2009 Form 1040 Schedule A to determine whether itemizing is better than claiming the standard deduction.


• For all donations of property, including clothing and household items, get from the charity, if possible, a receipt that includes the name of the charity, date of the contribution, and a reasonably-detailed description of the donated property. If a donation is left at a charity’s unattended drop site, keep a written record of the donation that includes this information, as well as the fair market value of the property at the time of the donation and the method used to determine that value.


• The deduction for a motor vehicle, boat or airplane donated to charity is usually limited to the gross proceeds from its sale. This rule applies if the claimed value is more than $500. Form 1098-C, or a similar statement, must be provided to the donor by the organization and attached to the donor’s tax return.


• If the amount of a taxpayer’s deduction for all noncash contributions is over $500, a properly-completed Form 8283 must be submitted with the tax return.


• To be deductible, clothing and household items donated to charity generally must be in good used condition or better. A clothing or household item for which a taxpayer claims a deduction of over $500 does not have to meet this standard if the taxpayer includes a qualified appraisal of the item with the return. Household items include furniture, furnishings, electronics, appliances and linens.


• Special rules apply if you contributed taxidermy property, property subject to a debt, a fractional interest in a tangible personal property, a partial interest in property,
  A qualified conservation contribution, a future interest in tangible personal property, inventory from your business, and a patent or other intellectual property.

Tax Benefits For Job Seekers

Job search expenses can be deducted as miscellaneous itemized tax deductions if you look for a job in the same field at the same level as the one you left. The job search expenses are deductible even if you don't get the job.

You can deduct job-seeking expenses as long as the amount of all miscellaneous itemized tax deductions is more than 2% of your adjusted gross income (AGI). To figure your tax deduction, subtract 2% of your AGI from the total amount of these expenses. Job search expense deductions are also subject to the overall limitation on itemized deductions based on income threshold amounts.

To qualify, your job search must be for a job in your current, or most recent, trade or business and should be at a similar level of responsibility with duties similar to those of your most recent job.

• If you haven't held a job in that trade or business for an extended length of time, your job search will be considered for a new trade or business, and your deductions may not be allowed.
• If you held a college internship or valid job while in college and your search is for a job in the same trade or business, you will be able to deduct job search expenses.
• If you're just out of school and had no paying jobs while in school that were related to your trade or business, your deductions won't be allowed.

You can deduct employment and outplacement agency fees you pay while looking for a job in your present occupation. If your employer pays you back in a later year for employment agency fees, you must include the amount you receive in your gross income up to the amount of your tax benefit in the earlier year. Also, If your employer pays the fees directly to the employment agency and you are not responsible for them, you do not include them in your gross income.

You can deduct amounts you spend for preparing and mailing copies of a resume to prospective employers as long as you are looking for a new job in your present occupation. Cost for preparing resumes includes typing, printing, postage, long-distance charges, advertising, and photographs required for your resume.

If you travel to an area to look for a new job in your present occupation, you may be able to deduct travel expenses to and from the area. You can only deduct the travel expenses if the trip is primarily to look for a new job. The amount of time you spend on personal activity compared to the amount of time you spend looking for work is important in determining whether the trip is primarily personal or is primarily to look for a new job.

If you are receiving unemployment compensation, these amounts are considered taxable income. You will receive Form 1099-G showing the amount you were paid and any federal income tax you elected to have withheld. If you did not elect to have any taxes withheld from your unemployment compensation you may be faced with an unexpected tax burden.

To minimize the pain felt by taxpayers who lost their jobs, the American Recovery and Reinvestment Act temporarily changed the taxation of unemployment benefits in 2009. The first $2,400 of unemployment benefits received in 2009 is tax free. Any amount over $2,400 will be subject to federal income tax. Individuals who receive unemployment benefits this year should check their withholding to ensure they are not having unnecessary tax withheld.

If you were employer either filed bankruptcy or went out of business here is some information you should know. Your employer must provide you with a Form W-2 showing your wages and withholdings by January 31 of the following year. You should keep up-to-date records or pay stubs until you receive your Form W-2. If your employer or its representatives fails to provide you with a Form W-2 by February 15, contact the IRS in order to obtain a substitute Form W-2. If your employer is liquidating your 401(k) plan, you have 60 days to roll it over to another qualified retirement plan or IRA.

House Passes Tax Extenders Bill 2009

The U.S. House of Representatives voted to renew for one year 45 tax breaks due to expire December 31, including a sales tax deduction for people in states without income taxes, a property tax deduction for people who do not itemize, and the research and development credit.

Most Democrats voted to approve the measure, which includes tax increases on fund managers' income and a 30 percent withholding tax on foreign banks that fail to report information on American clients to tax authorities. Most Republicans who voted against the measure argued that tax increases would have a negative impact on new investment during the economic downturn.

If the Extenders Act of 2009 does not make it to the Senate floor for a vote before the end of the year, and the extensions expire, the tax breaks can be made retroactive, as has happened in previous years.

The Senate is not expected to approve the tax increases on fund managers. House Democrats have twice before voted to change the tax treatment of income paid on "carried interest" to compensation, which could be taxed at 35 percent, from capital gains income, which could be taxed at 15 percent, arguing that the income paid to fund managers is fee income and not just income on their 2 percent investment in their funds.

The 30 percent withholding tax on foreign banks that fail to report information on American clients to tax authorities comes as the Internal Revenue Service seeks to identify tax shelters for income earned abroad and pursue noncompliance.

Some of the key tax breaks extended in the House bill (HR 4213):

For individuals:

• Deduction of state and local sales tax in states where there is no income tax
• Additional standard deduction for state and local real property taxes for people who do not itemize
• Above the line deduction for qualified tuition and related expenses
• Deduction for certain expenses of elementary and secondary school teachers.

For businesses

• Research credit.
• Exceptions for active financing income
• 15-year straight line cost recovery for qualified leasehold improvements, qualified restaurant buildings and improvements, and qualified retail improvements
• Employer wage credit for employees who are active duty members of the uniformed services
• 5-year depreciation for farming business machinery and equipment.

Read more:

WebCPA

Wall Street Journal

Reuters

Year End Tax Moves

2009 was a rough year financially for many Americans. You could not turn on the news with out hearing about business closures, layoffs, foreclosures and bailouts. Lets be honest, between lost jobs, shrunken paychecks and disappearing bonuses it's been a time of more pain, less gain. But the year is not over and there are tax-savvy moves you can still make to pull some financial cheer out of an otherwise dreary 2009

• Gather Your Stock Market Losses.

Almost everything you own and use for personal or investment purposes is a capital asset. Examples are your home, household furnishings, and stocks or bonds held in your personal account. When you sell a capital asset, the difference between the amount you sell it for and your basis, which is usually what you paid for it, is a capital gain or a capital loss. Capital gains and losses are classified as long–term or short–term. If you hold the asset for more than one year before you dispose of it, your capital gain or loss is long-term. If you hold it one year or less, your capital gain or loss is short-term. If your capital losses exceed your capital gains, the amount of the excess loss that can be claimed against ordinary income is $3,000. In what's often called tax loss harvesting, investors can sell assets that have generated large losses in after-tax accounts and use those losses to offset taxable income or even future gains. The losses can be used to offset capital gains as well as up to $3,000 of regular income each year. Any amount exceeding the $3,000 threshold can be carried forward to offset gains in the following year. IRS rules allow an investor to buy the asset back after 31 days — and still claim the tax loss.

• Donate to a Charity

There are many people and organizations in need today, so it's a good time to review your charitable donations for the year. Donations can take the form of cash, electronics, cars, jewelry, paintings, stocks, real estate or clothing. Any donation of $250 or more requires a receipt as documentation. Property valued at more than $5,000 requires a written appraisal confirming its fair market value. There are also dollar limits: cash contributions cannot exceed 50% of adjusted gross income while property donations cannot top 30% of AGI. Contributions that exceed these limits can be carried over to the following tax year. President Obama has proposals on the table to put further limits on deductions for charitable contributions as a means of raising cash to cover the country's swelling deficit, stimulus package and health care reforms. So, taxpayers may want to max out their charitable contributions this year while limits are still generous.

• Go For Energy Efficiency

Going green can offer a pretty nice payback at tax time. The IRS, through the federal stimulus package, is offering tax credits to individuals and businesses that make or use energy or energy-efficient products in 2009 and 2010. But you have to spend in 2009 to take the credit against this year's taxes. A homeowner buying energy-efficient windows, doors, water heaters or biomass stoves and those purchasing insulation, metal or reflective asphalt roofs and solar-energy systems can receive credits of 30% of the cost up to $1,500 in total. People purchasing geothermal heat pumps, solar panels and wind generators can get credits of 30% (up to $1,500) for each item through 2016. People buying plug-in hybrid electric cars can get tax credits of between $2,500 and $7,500.