Taxes are painful, but there may be ways for businesses to beat the taxman.
Overlooked Deductions
You should take every single write-off you are due…what’s available may surprise you. Here’s a classic example: Small companies frequently miscategorize the cost of business-trip hotel stays as entertainment (50% deductible) rather than lodging (100%). The feds are only too happy to hang on to this windfall.
Monthly dinner at a restaurant,can be treated as an off-site strategic planning meeting (100% deductible) rather than a business meal with a client (50%).
Even coffee and Dunkin’ Donuts for the Friday morning meeting can be a full 100% deduction.
Hidden Tax Credits
Make your accountant aware of every person you hire. Some of them may qualify you for generous tax savings. If you employ certain types of disadvantaged workers, you may be eligible for the lucrative Work Opportunity Tax Credit (WOTC).
Congress spells out with extreme precision which workers qualify. Here are some examples: those between the ages of 18 and 39 who live in federally designated enterprise communities; ex-felons hired within one year of their release date; recently discharged veterans injured in the line of duty and out of work for six months or more.
The WOTC is tailor-made for restaurants, retailers, and other industries that use a lot of unskilled labor. Yet tax experts note that these very businesses, especially small ones, hardly ever claim it.
Organization Pays Off
A few years back, the IRS trimmed its collection activities. Now the pendulum has swung back, and the IRS is looking for easy targets. Small businesses are notoriously sloppy record keepers. It is all too easy to be a disorganized entrepreneurs, especially when they are just starting out, or when running the actual business occupies most of their time.
You don’t want to have a brush with the IRS, even if it is not an audit. Many small business owner have found devices such as Neat Receipts to get more organized. This device allows you to scan all receipts, invoices, and documents directly into your piece. It allows you to stay organized, especially when space is limited…everything is buckuped on your computer.
Timing Tricks
What deductions you’re able to take is not the only consideration. It also matters when you take them. With taxes, as with so much else in business, timing is key.
Writing off such major purchases usually takes years and must be done in accordance with depreciation schedules laid out by the IRS. Do research, or have you accountant take the time to find ways to accelerate various deductions, allowing you to get more money more quickly.
Transportation Savings
Vehicle deductions can be particularly tricky. Many owners are unaware of how much money they’re losing through poor tax planning.
If you travel great distances to service your clients, you may be logging more than enough miles to consider an alternative to a normal write-off. For normal write-offs, a car or light truck gets a write-off of $3,060 in year one to $1,775 in the fourth year and onward until you’ve depreciated the purchase price. You can also deduct the cost of insurance, repairs, and gasoline.
The alternative to normal write-off is a simple deduction based on how many miles you drive. You can not depreciate the cost of the vehicle or write-off gasoline, but comparing the two you may be able to increase your write-off over the normal deduction. For 2008 it’s 50.5 cents a mile, up from 48.5 cents in 2007.
