Monday, December 28, 2009

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.

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