Tax Filing Season is here, and there are still several things small businesses can do to reduce their taxes for 2009. Remember, "It's not how much money you make, it's how much money you keep."
Tip No. 1. For businesses on the cash accounting system (most small businesses), expenses are usually deducted in the year paid. However, if companies charged any business expenses to a bank credit card (VISA, MasterCard, American Express or Discover) they can deduct those expenses in the year incurred, even though paid in the next year. Go through December charges and add them to December expenses.
Tip No. 2. Normally, the cost of inventory (goods for sale, parts) cannot be written off until sold. But if a company has any damaged inventory, inventory that is out of date or out of fashion, goods unsalable for any reason, they can write off this inventory for 2009.
Tip No. 3. Business expenses are deductible even if the company paid them from a nonbusiness bank account, personal credit card or debit card, or cash. Take a few minutes and go through all of the expenses for the year. If the expenses were for the business, deduct them. (Doesn't apply to corporations).
Tip No. 4. Manufacturers, and some construction, engineering and architectural firms, software developers and video producers are eligible for a 9% "manufacturer's deduction" for income earned from domestic production. This "bonus" deduction is in addition to the deductions already allowed for manufacturing expenses.
Tip No. 5. In addition to deductible business expenses, some may qualify for special "tax credits" available to businesses. Tax credits are very specific and limited, but if a small business qualifies, the credits reduce taxes dollar for dollar. Tax credits can be a real tax pot of gold.
Tip No. 6. Business owners can put some of their business profit into an IRA or a SEP-IRA, and then they don't pay income taxes on the profit until they withdraw the money. They have until April 15, 2010, to set up and contribute to an IRA or a SEP-IRA for the 2009 tax year.
Tip No. 7. Finally, and one almost sure way to reduce taxes, is to re-examine every purchase, every expense made in 2009. Make sure to take all the business tax deductions the owner is entitled to: expenses that were not recorded in a ledger, expenses you didn't think were deductible, "personal" expenses that qualify as business expenses. Neither the IRS nor an accountant is going to know about a deduction that you forgot to take. It's entirely up to you.
Seven Tax Tips for Business are excerpted from 422 Tax Deductions for Businesses and Self-Employed Individuals by Bernard B. Kamoroff, C.P.A., Ninth Edition, 2010. http://www.bellsprings.com. Toll free 800-515-8050.