Posts Tagged ‘401k’

Reading many articles in the last few weeks on taxes and preparing my own small business for April 15 I came across this excellent article by Forbes Magazine titled “Last-Minute Small-Business Tax Tips“. In the article there were 15 pretty straightforward tips that can help your small business with the caveat that the IRS is looking for people to grab as many deductions as possible. In the event that you get audited, have all your paper trail itemized and in pristine condition. On upside to the stimulus package they point out is that small businesses are able “now to deduct as much as 100% of capital expenditures up to $250,000–up from a $125,000 limit prior to the new law.”

Here is a portion of the tip list along with a quick explanation (see disclaimer at the end):

1. Keep Detailed Records – See the comment on auditing above
2. Pay Dividends This Year – Right now, the taxable dividend rate is about 15% and with the government spending going on right now, it is bound to go up. Remember that these distributions are slightly different for C corporations and subchapter S corporations, so check with your accountant on the best way to go about this.
3. Don’t Pay Tax on Out-Of-State Sales to Your Home State – According to Forbes research “If you do business outside of your home state, you may not have to pay taxes on that income.” I would check with your tax advisor on this to be sure because if you sell all over the country, this might save you a fortune.
4. Set Up A Non-Qualified Retirement Plan – According to Forbes, “Nonqualified plans, unlike a 401(k) or some IRAs, allow unlimited contributions and typically don’t require the level of administration that most qualified plans do”. Best part of these kinds of plans? “You don’t have to set one up for every employee–just for the folks you want and you could set up a plan whereby your contributions are contingent on an employee hitting certain performance goals. If the employee falls short, so might his retirement stash.”
5. Shield Income With Today’s Losses – I found it fascinating that you can use this year’s loss to offset your tax bill from the previous two years and put money back in your pocket today. Get a good accountant for this one and it could pay back in a big way.
6. Go Green – This means using tax incentives for environmentally friendly initiatives–from solar panels to energy-efficient washers and dryers that are part of the stimulus package passed in late 2008 and in effect for this year
7. “Abandon” Your Business For the Right Deduction – This is a really interesting one because if the business is worth more to walk away then try and sell it you can count it as a ordinary income loss which means that you can use the entire loss to offset any other personal income (rent, salary, etc.). Just work with your accountant before you do it because if it is not done right and ends up as a capital loss you can only deduct a limited amount and carry it forward to future years.
8. Go Diving for Depreciation – Section 179 of the Tax Code allows you to deduct $100,000 worth of qualifying assets during the first year up to the point where it cannot exceed taxable income. Also, as I mentioned above there are some increased deductions because of the stimulus package but we will dive deeper into that at a later date.
9. Employ Your Children – This is a cool idea and now I know why my dad did it so many years ago. If you do it today you can get your kids to begin contributing to a Roth IRA and if you are a small family owned business you will be transferring a portion of the company’s income into a lower tax bracket. That is really cool.
10. Simplify And Save With a SEP IRA – A SEP isn’t much different than a 401k but Business owners can claim a tax credit equal to part of the cost to set up a SEP.
11. Opt for an ESOP - Employee Stock Ownership Plans are cool and according to the Forbes article “they work a lot like a 401(k) plan, but rather than offering shares in, say, a stock index fund, you offer slices of equity in the company. If the ESOP borrows money to purchase company shares, it can deduct both the principal and interest on the loan.”

Thoughts on this list from Forbes

As a fellow small business owner, what I get out of a list like that there are many straightforward and powerful ways to reduce your tax liability. However, only a few at this point can be done before April 15 but most are recommendations that you should look into now with your account and tax advisor.

The ones that really impress me as something worth doing is the increased depreciation amounts for the year, the “pass-back” of losses from this year to adjust your 2006 and 2007 tax years which might give you back a refund, and the SEP IRA because of the tax benefits.

Which Tips Are Useful for Your Business?

We would love to hear from you on which tips would help your business. To read the full article along with a cool slideshow, check out the Forbes Small Business site and article here.

DISCLAIMER:  THIS ARTICLE DOES NOT GIVE TAX GUIDANCE.  PLEASE CONSULT A TAX EXPERT BEFORE FILING YOUR TAXES.  THE INFORMATION CONTAINED IN THIS ARTICLE MAY OR MAY NOT BE APPLICABLE TO YOU.