Ten small business tax planning tips for 2010!

Well it’s that merry time of year again. We’re gonna rest a bit, enjoy the slow pace for the next couple of weeks, take the opportunity hang out with friends and family, perhaps even sip an egg nog. Let’s see now, what else are we looking forward to? Ah yes – tax planning!

The end of the year is a great opportunity to think ahead by a few weeks and start getting everything in order for the accountants, but also to consider how you might leverage some of the tax credits and incentives that are available to your business. Here are 10 tips to discuss with your accountant – let’s see if any of these can apply to your business!

1. Always stay on top! At crowdSPRING we try to plan throughout the year and we do this by coordinating with the accounting firm at the end of every quarter. The idea is that by touching base on a quarterly schedule we can be more efficient at tax time and by providing the accountants an opportunity to provide notes and feedback as we go through the year instead of waiting for Q1 to start the work, we can accomplish tax chores faster and more efficiently and allow them to focus on saving us money on our taxes rather than using that time to organize the information.This is the checklist we use when assembling our quarterly package: Year to date payroll journal showing YTD totals for wages, payroll taxes, etc; 401K withholdings reconciled to payments; Bank and investment account statements with reconciliations; Credit card statements and Reconciliations; Spreadsheet with YTD business intelligence data.

2. Defer and spend! The idea is to use the end of the year to actually reduce profits by decreasing revenue and increasing expense. Two easy ways to do this are to first defer deposits to your operating accounts until after the first of the year, and then to accelerate purchases into December. For instance, hang onto those checks for the next couple of weeks and deposit them after New Years day then get out and buy those things you will need soon anyhow – office supplies, the new computer, any deductible expenses that you can get in before the year closes will provide additional deductible dollars for the accountant to leverage.

3. 179 gifts for your company! Under Section 179 of the tax code,  you can deduct the cost of certain assets which you purchased in 2010. Recent tax legislation has increased the maximum Section 179 deduction to $500,000! That’s a lot of laptops.

4. Bad debts, bad! We all incur a creation amount of bad debt in the course of running our business. You may have difficulty collecting certain receivables or the recession may have forced some of your vendors into bankruptcy, rendering their debts worthless. As a general rule, the bad debts of a business may be deducted from gross income when they become worthless. Check any of these with your accountant and see if there is benefit to be gained.

5. If it’s broke, fix it! If you have to repair a business asset, the entire cost of that repair is deductible and will directly reduce your income for the year. So get on that to-do list and be sure to make all of your minor repairs before the end of the year!

6. Ready, aim, hire! The 2010 HIRE Act (Hiring Incentives to Restore Employment) created two great breaks if you hired a previously unemployed worker: first, your share of the Social Security tax on wages (6.2 percent) is waived, plus, if you retain that new worker, you qualify for a special tax credit.

7. Go away, please. If your employees traveled for work in 2010 this expenses can be deducted. And the employee can also benefit on their taxes, by claiming any unreimbursed expenses as a miscellaneous expense on their own 1040 (subject to the usual 2 percent-of-AGI limit).

8. Workers of the (home) unite! If some part of your home is used only for your business, you may be eligible to claim a tax deduction for at least a part of the expenses. Take care, though as the part of your home that you are claiming has to be the principal place of business and cannot be used for anything other than business. In other wires keep the kids toys out of there!

9. Skool days! Small business owners can receive tax benefits while learning, but this depends on several factors including your type of incorporation, what kind of education you are getting, and your personal tax status. For instance the American Opportunity Credit will pay up to $2,500 in 2010 towards your first four years or higher education. After 2010 these credits for this are available under the HOPE Credit which will pay up to $1,800 per year. You may also be able to deduct attendance fees and even room and board for any business or educational seminars you attend.

10. Nepotism rocks! Consider paying the kids to come in and share the load. Depending on the tax accountant and the job they re doing, you may be able to take a tax deduction of $5,800 and if the child is under 18 they will not have to pay income taxes nor will you have to pay employment taxes! This is a great way to shift income off of your personal return and let the kid take care of you for a change.

There are of course a ton more credits, deductions, and benefits available which can help you and your business. Speak with your accountant and see what else you can come up with. And if you find some good ones, be sure to come back and share them with the rest of us!

Photo: Duncan Blair