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Tuesday, April 11, 2006
Top 10 Tax-Saving Tips For Your Business from LegalZoom.com
LOS ANGELES --(Business Wire)-- April 11, 2006 -- It's that time of year again ... Tax Time! For most small business owners, owning and running a business of their own is a dream fulfilled. It evokes pride and joy, that is, until tax time. In fact, taxes generally account for the majority of a small business owner's yearly expense. But with the help of some important tips and tricks from LegalZoom.com, you can gain control of your tax situation. You may just end up putting more of your hard-earned dollars back into the business instead of Uncle Sam's pockets.
- Number 1: Consider incorporating
If you're operating a sole proprietorship or partnership, you may want to consider the advantages of incorporating your business. Not only will you enjoy the benefits of limited personal liability, but corporations will generally pay less in taxes, namely the self-employment/FICA tax.
- Number 2: Be Charitable
Make a habit of donating unused goods, equipment or supplies to charity. Not only are you helping others, but these donations are tax deductible. Just be sure to get a receipt for your donations and reap the rewards at tax time. Similarly, gifts of appreciated stock are also deductible-friendly. You'll earn a deduction on the amount the stock grows as well as the purchase price.
- Number 3: Get an accurate picture of your business' profit and loss
Knowing your company's profit and loss standings will allow you to make some tax-saving moves throughout the year. If your business shows a profit, consider purchasing business assets, supplies and additional equipment before the end of the year. These business deductions can lower your taxable income.
- Number 4: Write off bad debts
Make a point to review and analyze your current list of customers with outstanding balances. Also, you should look over other accounts receivable. Uncollectible debts can be deducted as bad debts on your tax return.
- Number 5: Defer income and accelerate expenses
If your company is solidly profitable, you may want to delay sending out invoices near the end of the year. That way, you will not receive payment until the beginning of the next tax year. At the same time, you can pay off invoices at the end of the tax year before they are due, which increases your deductions. (Also, if you pre-pay three months of rent, your landlord will become your best friend!)
- Number 6: Use a home office
In addition to the personal benefits (like working in your pajamas), home-based businesses also profit from lower tax obligations. One obvious plus is low overhead expenses. But, more importantly, it will allow you to deduct the business use of your home. Since a home office deduction can sometimes trigger IRS flags, be sure to keep meticulous records. Also, the working space within your home must be used solely for the operation of your business. Make certain that no more than twenty percent of your home is claimed as a home business office.
- Number 7: Organize your books
Organization is key to saving precious dollars at tax time. Keeping your records in order will leave you well-equipped should you be audited. Detailed record-keeping also makes it possible to spot an expense that can turn into a tax deduction. All canceled checks and receipts should be sorted monthly into "deductible" and "non-deductible" piles.
- Number 8: Employee payroll and bonuses
If you paid any employees during the year, file all payroll reports at year-end. And submit W-2 forms in January. Overlooking these crucial steps might result in paying extra penalties and fees later.
- Number 9: File your tax return on time
Procrastination will cost you! Consult with your accountant well in advance of tax day. File tax returns early to leave you time to send tax payments before they're due. Any payments received after the due date will incur penalties, interest and late charges, even if you file an extension. Filing early will save you later.
- Number 10: Tax time is year-round
Make tax time a year-round concern. Most small business owners only worry about tax issues during tax season. But proper planning all year long will result in more efficiency and huge savings at tax time. Plus, paying more attention to finances will give you a better knowledge of your business operations. And that knowledge will translate into increased savings. Perform all business operations with the ultimate goal of tax savings in mind.
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