Kathy Chalmers - Tax Tips

For assistance in identifying all the deductions to which you’re entitled, contact our office. We’re here to help you pay the lowest tax allowed by law.

Cut Your Business Taxes!

Here are a few simple tax strategies that are available to most business.

The best tax planning is done before the fact. It is difficult, if not impossible, to plan for the best tax treatment when the transaction is already completed. Call us while you are still in the thinking stage of any major financial move. We are here to assist you.

Give careful consideration to the legal form of your business. Both the tax and non tax consequences can be significant. The basic forms of business include sole proprietorship, partnership, corporation, or limited liability company. We can assist you and your attorney in determining the best form for your business.

If your business is incorporated, it is often a good idea for you to personally own the business real estate and lease it to your corporation. There are a number of tax and nontax concerns relating to real estate ownership. See us before you acquire new business property or before you change the ownership of property you already have.

Avoid being penalized for underpaying your taxes. Self-employed individuals generally are required to pay taxes through quarterly estimates which are due on April 15, June 15, September 15 and January 15 of the following year. Late or inadequate payments mean that you will be assessed penalty and interest charges in addition to your regular tax liability. You are required to make estimates even if it is your first year in a new business.

Don’t subject yourself to tax penalties by mis-classifying an employee as an independent contractor. The IRS is aware that employers prefer to treat some workers as independent contractors to avoid paying payroll taxes and fringe benefits. Some types of businesses are more closely watched by the IRS than others. If you’re not absolutely sure how to classify a worker, please contact us.

Hire your children to work in your business. The wages paid will be deductible by the company and taxable to the child, probably at a lower tax rate than yours. Keep in mind that the amount you pay your child has to be reasonable for the service performed.

You can compound the benefits of hiring your child by having him or her contribute to an IRA. Use a Roth IRA, and your child can accumulate a sizable tax-free retirement nest egg.

Never try to use the IRS as your banker. When cash flow is tight, you may be tempted to pay your suppliers first and your payroll taxes last. The IRS will take steps to minimize the liability as quickly as possible. They also have a powerful weapon available to collect such taxes. Whether or not you own the company, you could be determined to be a “responsible person.” This means that the IRS can hold you personally liable to 100% of any payroll tax deficiency.

Deduct as much of your family health insurance premium as the law allows. The cost of health insurance paid by self-employed individuals for themselves and their dependent is deductible.

You are allowed to deduct the entire cost of certain depreciable equipment in the year it is purchased. Most business equipment is depreciated over five or seven years. However, small business are allowed what is referred to as a Section 179 deduction each year, with certain dollar limits. If your total equipment purchases exceed $200,000 for the year, the expensing option phases out.

If you conduct some or all of your business from your home, be aware of the home office deduction. Generally, a portion of the home must be used exclusively and regularly for business in order to allow a deduction as a home office. A home office can qualify as a “principal place of business” even when it is just used by the taxpayer for administrative or management activities of the business, as long as there is no other fixed location to conduct these activities.

To qualify for a business deduction, that portion used for business can’t also be used for any personal activity.

If your federal tax deposits exceed certain annual limits, you will be required to make them via the Electronic Federal Tax Payment System (EFTPS). Because the amount of your deposits can vary, we suggest that you keep in touch with us to determine your depositing requirements.

Some business find the electronic system (EFTPS) handy and opt to use it even though they are not required to do so. The system is easy to use by telephone, by personal computer (PC), or through a financial institution.

Consider a retirement plan for your business. A Keogh (H.R.10) plan is a retirement plan for self-employed individuals and their employees. Keogh contributions are tax-deductible. You may have a Keogh even if you can’t have an individual retirement account (IRA).

Perhaps you would rather have a SEP or a SIMPLE plan instead of a Keogh. Some small businesses find pension and profit-sharing plans and even Keogh plans too complicated and costly to set up and administer.

A SEP (Simplified Employee Pension Plan) or SIMPLE (Savings Incentive Match Plans for Employees) may suit you better. because of their simplicity, they can be good choices of the very small business.

There is a special estate tax exemption for those family businesses or farms that quality. To qualify for the exemption, the business or farm must make up at least 50% of the individual’s estate. There are also requirements that family members must materially participate for a specified time in the business or farm both before and after the owner’s death.

Consider a tax-deferred exchange of property. This is a tax planning technique which should be considered by any business that is relocating or disposing of property. Often referred to as a “tax-free exchange,” the tax-deferred exchange allows you to exchange certain business or investment property for other “like-kind” business or investment property and pay no income taxes currently. Your tax liability is deferred until you later dispose of the property for which you traded.

Other Tax Deductions

Some excess deductions can be carried over to future years, and these are often easy to overlook. If you’ve ever incurred a large capital loss, paid a significant amount of investment interest, or owned a “passive” investment, you may be entitled to a carryover deduction.