Business Tax Tips

1. Home Office Deduction

The Tax Tip: Do you work out of your home?  You might be eligible for the Home Office Deduction.  So, make sure you check for that.  But wait, there’s more.  If you are eligible — and most of the rooms in your home are of a similar size — consider using the “number of rooms” method as opposed to the “square footage” method to calculate the percentage of your home used for business. The “number of rooms” method does not include hallways, bathrooms, or closets when calculating the denominator of the fraction. As a result, you’ll end up with a greater “business use percentage” for your home, thereby allowing for a greater deduction.

Thanks To: Mike Piper of Simple Subjects (Taxes Made Simple)

2. Expense It On Your Credit Card

The Tax Tip: Make sure you have a corporate credit card, and expense appropriate business meals (breakfast, lunch or dinner) with clients, prospects and colleagues.  Don’t forget to expense all events/entertainment/outing with clients/prospects as business expenses.

Thanks To: Albert Ko of CheapCheapCheap LLC

3. It’s All About Health

The Tax Tip: With a compatible insurance plan, small businesses can put money into a Health Savings Account for employees — even if you and your spouse are the only employees.  HSAs function like an IRA that you can use for medical expenses.  Your business can consider the contribution a deductible expense and it doesn’t show up as income on your personal taxes.

And while you can’t deduct the cost of a health club membership for your employees, you can deduct the cost of an on-site gym used by employees.  For a small one-person business this may mean buying a treadmill and weight machine an putting them in a spare bedroom that your company rents from you.

Thanks To: Mark Shead of Productivity501

4. Scan It

The Tax Tip: Keeping accurate records is imperative to avoid hot water with the IRS. To make record keeping easier, business owners can scan all their important paperwork (receipts, financial documents, W-2’s etc) and digitally archive the files on their computer – so it’s easily accessible when needed (the IRS accepts scanned images of receipts in case of an audit!).  Not only will it keep you out of trouble with the IRS but you may be able to save on accountant fees by providing your information in a neat and tidy package.

Thanks To: Rachel Poor of The Neat Company

5. Personal Property Expense

The Tax Tip: Congress increased the amount of Furniture, Fixtures, and Equipment that can be expensed in 2008. It is now $250,000. While it doesn’t need to be new, the limitation is reduced if the taxpayer bought more than $800,000. This deduction is for tangible personal property (not real estate) and MUST be used in the taxpayers trade or business.

Thanks To: Steven Bankler of Steven Bankler, CPA

6. Medical Reimbursements

The Tax Tip: Set up a Section 125 medical reimbursement plan to turn your unreimbursed medical bills into deductible business expenses.  If you qualify and this is done correctly, deductions begin with the first dollar of expense, no need to wait until expenses are greater than 7.5% of adjusted gross income to include as personal itemized deductions on Schedule A of your 1040.  P.S. It’s too late to do this for your 2008 taxes, so get it ready now for 2009.

Thanks To: Sheryl Schuff of Business Startup Success Club

7. Think Retirement

The Tax Tip: Establish a Qualified Retirement Plan.  Several types of plans exist which qualify for the tax advantages of a qualified retirement plan—a current deduction from income to the employer for contributions to the plan, tax-free buildup of plan investments and the deferral of income (augmented by investment earnings) to the employees until distribution of the funds. This includes 401(k) plans, “simplified employee pension” (SEP), “SIMPLE” (savings incentive match plan for employees) retirement plan or a SIMPLE 401(k). do this for your 2008 taxes, so get it ready now for 2009.

Thanks To: Ryan L. Losi of Piascik & Associates, P.C.

8. Watch That Odometer

The Tax Tip: Keep mileage logs on any vehicle that drives business miles.  At over $0.50 per mile, this can add up to be a significant reduction.

Thanks To: Michael Brewster of Brewster & Scott

9. Give Gifts, Get Tax Breaks

The Tax Tip: Consider gifting business interests to lower income family members. The bad economy has created an opportunity to gift at a low value and a low tax cost if it has been a rough year. This also helps your estate planning.

Thanks To: Barbara J. Oswalt of Hoyman Dobson

10. Go S-Corp

The Tax Tip: Incorporate your business as an S Corporation — run a nominal amount of income through the payroll system each week and have taxes removed.  Estimate your tax liability for the year and pay yourself a bonus in that amount as W-2 income.

The money you make throughout the year can be removed as a draw, therefore avoiding the self-employment taxes on a large part of your income, and you should still receive enough to qualify for Social Security.

Thanks To: Anthony Perrelli of Hedeker & Perrelli

11. Solo 401(k)

The Tax Tip: Self-employed business owners with no employees are eligible to set-up a Self-Directed Solo 401(k) plan.  This plan enables business owners to use their retirement funds to legally invest in alternative assets like real estate, precious metals and private companies rather than be restricted in investing solely in securities. The Solo 401(k) has contribution limits nearly 10x higher than an IRA ($49,000 per year or $54,500 if over age 50) and unlike the Roth IRA, there are no income restrictions for who can contribute – all these benefits offer business owners a great way to save for retirement and lessen their tax burden.

Thanks To: Jeff Nabers of Nabers Group

12. It Not Just Incidental

The Tax Tip: Include all of the incidental expenses for business travel, including shipping materials, parking, local transportation, gas for the rental car, meals, baggage charges, related tips, mileage to/from the airport, and any airline change fees. Be sure to keep accurate records and set up a process to accumulate all business expenses as soon as you return home from the original trip.

Thanks To: Belinda Fuchs, CPA of OwnYourMoney

The Toilet Paper Entrepreneur

OK, OK… this isn’t a tax tip.  But this will surely show you the way to growing your business BIG TIME.  And, to be quite frank with you, if you don’t have a growing business, you won’t have to worry about taxes, since you won’t be making any money in the first place.

Check it out on Amazon or get a signed copy of the book here.